Case study: Roy Hill

Portland acted as financial adviser to the Export-Import Bank of the United States (US Ex-Im) on the US$12.1 billion Roy Hill iron ore mining project in the Pilbara region of Western Australia.

The project involved the greenfield development of an iron ore mine, a processing and beneficiation plant, rail transportation and port storage, loading and shipment facilities. The project sponsors were Hancock Prospecting Private Ltd, Australia; POSCO, Korea; Marubeni Corporation, Japan and China Steel Corporation, Taiwan. The Portland team of Geoff Knox and Harry Philp were responsible for advising US Ex-Im on all financial aspects of the project including:

• Developing an acceptable risk allocation structure for the project such as sponsor support for certain key project risks including elements of construction risk and offtake risk.
• Assisting in the negotiation of the term sheet.
• Working with the market consultants to understand the pricing and dynamics of the global iron ore business and particularly the iron ore market in China and to develop sensitivity cases.
• Working with the technical consultant to understand the technology issues in the project, develop sensitivity analysis scenarios and to develop a completion testing regime as a requirement for project completion.
• Working with the transportation consultants to understand the issues surrounding the rail transportation of products and the logistics of the port facilities.
• Working with the insurance consultant to ensure a satisfactory insurance package acceptable to the lenders was put in place.
• Running the financial model on behalf US Ex-Im and conducting sensitivity analysis and breakeven analysis for the project.
• Reviewing all project agreements and developing a satisfactory structure for iron ore sales and acceptable counterparties within the Chinese market.
• Reviewing EPC arrangements for all four components of the project and developing a satisfactory sponsor support structure in lieu of a completion guarantee.
• Assisting US Ex-Im with their credit approval process.
• Assisting with negotiation of loan documentation.

The transaction closed in March 2014.

To discuss this further, contact Harry Philp at harry.philp@portlandadvisers.com