Category: Chile

Xstrata says the El Morro copper project in Chile may require a $2.5bn investment to take it to production. It also says the mine will have a life of 14 years plus 2-3 years for the construction phase and 5 years for the period of mine closure. Xstrata says El Morro has estimated mineral reserves of 450m tons with an ore grade of 0.58% copper. Xstrata Copper has a 70% stake in Minera El Morro, which owns the project. Vancouver-based New Gold owns the remaining 30%. The mine is still in the permitting phase.

Chile-based Sociedad de Inversiones Pampa Calichera is looking to move $494m in debt to controlling holding companies, says S&P, which as affirmed its BB- corporate credit rating and taken it off credit watch negative. Pampa has also solicited the consent from holders of its $250m bonds to upstream cash to controlling companies in order to service the debt. Pampa is requesting that bondholders allow an increase in its dividend payout to 90% of cash flow and permit the distribution of an extraordinary dividend of $48m, adds S&P. It is also proposing to increase both the collateral securing payment of the bonds to 3x from 2x,and the reserve account to two from one coupon. Inversiones SQ, the ultimate controlling company in Pampa’s parent structure, says that if consent is granted, it would reduce Pampa’s controlling companies’ debt up to $170m during 2009. “The structural enhancements and the reduction of debt would balance the proposed changes at the BB- rating level, even if Pampa’s ability to build up cash would become somewhat diminished as a result,” says S&P. The agency also expects the company’s ultimate source of cash, Sociedad Quimica y Minera de Chile to align its dividend policy with Pampa’s controlling group’s need for cash.

Underpinning firm sentiment on the fundamentals of the main LatAm economies, Moody’s has placed Chile’s A2 foreign-currency rating on review for possible upgrade and has assigned a positive outlook to the A1 local-currency ratings. “Relative to other sovereigns rated by Moody’s, the Chilean government appears better positioned to manage upcoming challenges,” said Moody’s vice president and senior credit officer Mauro Leos. He adds that Chile is well prepared to limit its susceptibility to financial risks and macroeconomic volatility, as it has a strong banking system and a robust balance sheet. “We will evaluate the extent to which increased foreign asset accumulation by the government has shored up Chile’s resilience to adverse external shocks and increased the government’s ability to deal with future fiscal contingencies, including those that could emanate from the external and the financial sectors,” says Leos. The review aims to determine whether Chile’s sovereign credit profile might be better positioned at a higher rating in order to reflect underlying strengths relative to similarly rated sovereigns that might not be as resilient to the global financial turmoil.

Japan’s Marubeni and Chile’s Antofagasta are moving ahead with plans to assemble financing for a $2bn mining project in northern Chile. They are heard to have chosen to work directly with Japan’s three largest lenders – Bank of Tokyo Mitsubishi, Sumitomo Mitsui and Mizuho – to assemble the financing. The lead duo – partners in a mining project called La Esperanza – have hired Rothschild as lead advisor. People familiar with the process say as much as half of the project could be financed with equity, while the remaining debt portion would be raised with credit agencies and multilaterals on one side, and commercial banks on the other. The commercial tranche, which would be syndicated among international banks, would likely not top $500m, given today’s hostile bank market conditions. Yen loans from the lead lenders are also heard being considered. Timing for launch is still a ways off – it would not happen before the end of Q1, and possibly as late as the first half. In April, Marubeni bought 30% stakes in two of Antofagasta’s projects – Minera Esperanza and Minera el Tesoro. The new financing is directed at the former.

Shareholders of Chilean power generator AES Gener have approved plans for a share offering of up to CLP153.56bn ($239m). As many as 945m units will be priced at CLP162.50 each, with existing shareholders having preferred rights. Timing is not specified. Proceeds will be used to finance investment in projects under its investment plan. AES Gener plans to raise installed capacity to 5,000MW by 2011, from 3,600. Earlier this month, majority shareholder Inversiones Cachagua raised $175m from the sale of a 9.55% stake in AES Gener through a secondary sale to raise funds to participate in the new offer. Celfin is managing the transaction.

The central banks of Chile and Peru have announced their decisions to keep monetary policy interest rates unchanged at 8.25% and 6.50%, respectively. Chile’s central bank indicates that its decision is based on “drastic changes observed in the global economy and their impact on projected inflation” which stands at 9.9%. Peru says that its decision was based on “the elevated uncertainty on the global economy’s evolution and its impact on global economic activity, the prices of our imports and exports and the flow of international financing.” However, it expressed confidence about inflation levels falling in tandem with the prices of raw materials, oil and imported foods. Peru’s inflation stands at 6.54%.

S&P has placed Sociedad Quimica y Minera de Chile’s BBB+ ratings on credit watch negative, it says. The agency expects a more aggressive dividend policy that could affect SQM’s financial profile. SQM’s controlling shareholder Pampa Calichera recently announced the distribution of $100m in provisory dividends, which may jeopardize its ability to make payments on some $500m in outstanding debt, S&P says. It adds that it is awaiting clarification on the company’s repayment plan.

Chilean state-owned copper producer Codelco is understood to have mandated and HSBC and JPMorgan for a bond issue which is unlikely to happen short term. The two apparently took the highest rated LatAm corporate credit on an extensive roadshow in September but they have kept their powder dry ever since. A $500m-$700m 10-year trade was initially expected, but the copper producer is choosing its timing with care. “The market is theoretically open for a name like Codelco,” says a banker who pitched for the deal but lost. “But there is still the problem of willingness to pay.” The banker adds that Codelco would be comped versus global peers like BHP and Rio Tinto, rather than the sovereign, and may not be willing to pay the extra spread required for commodity weakness. The local market, which sprang to life last week with an Arauco trade, is not deep enough for Codelco, which tends to issue in size. Codelco has historically brought bonds every year in the fourth quarter, though last year it opted for a tightly priced loan. In 2006, it issued a $500m 6.15% of 2036 through Deutsche Bank and HSBC at 99.296 to yield 6.202%. Expect Codelco to be among the first LatAm bonds out the gate when markets stabilize, likely early 2009, and high grade jumps back in.

AES subsidiary Inversiones Cachagua has raised $175m from the sale of a 9.55% stake in AES’ Chilean unit AES Gener in a secondary sale on the Santiago stock exchange, it says. The transaction leaves it with a 70.61%, after having sold about 20% in previous secondary sales. The proceeds will go toward Cachagua’s subscription of its proportionate share in Gener’s proposed primary equity offering of up to $300m. Gener shareholders are set vote November 19 on the primary offering proposal. Celfin managed the transaction.

Chilean forestry products firm Celulosa Arauco has reopened the country’s local debt markets after a dry period of more than 6 weeks, underscoring the belief that there is still firm domestic demand out there. Chile had been among the region’s last to succumb to the international credit shutdown, and bankers hope the $203m-equivalent transaction is an indication that stability may be starting to return. Arauco placed UF5m ($169m) in 21-year notes with a 10-year grace period at 93.92 and a 4.25% coupon to yield 5.00%, or 142bp over the comparable central bank bond. A second UF1m ($34m) 6-year tranche came at 97.29 with a 3.50% coupon to yield 4.90%, or 126bp wide. This was 200bp-300bp inside the dollar curve, according to a banker familiar with the credit but not on the deal. A USD-denominated tranche for up to $355m also aimed at local market has been iced, according to a banker on the deal, who blamed lack of investor appetite. The deal, rated AAA on a national scale by Fitch and Feller, was capped at UF10m in total size and is Arauco’s first domestic placement in 17 years, the company says. “It was a demonstration of confidence in the local markets,” an Arauco treasury official tells LatinFinance. Proceeds will repay short term debt and a longer-term loan coming due next year. “Local investors are open for business for the right names,” says a senior New York-based DCM banker away from the deal. “I don’t think they paid a premium,” he adds. IM Trust managed the transaction. Arauco is controlled by fuel and forestry conglomerate Empresas Copec, and a grower and producer of wood pulp, sawn timber and wood panels operating in Chile, Argentina, Brazil and Uruguay.