Mining Financing of the Year: Fruta del Norte

SPONSOR: Lundin Gold
LOCATION: Zamora-Chinchipe, Ecuador
FINANCING TYPE & SIZE: $350 million project financing
BANKS: ING Capital, KfW IPEX-Bank, Société Générale, CAT Financial, Scotiabank, Natixis, KfW IPEX, Bank of Montreal
LAW FIRMS: Norton Rose Fulbright, Lexim Abogados, Milbank

Ludin Gold’s effort to secure a $350 million syndicated loan in 2018 for the Fruta del Norte gold mine in Ecuador actually began years earlier after the Canadian company purchased the mine from Kinross Gold in 2014 for $240 million.

The first step was to secure sufficient equity for the mining project, according to Ron Hochstein, Ludin’s CEO. To that end, Ludin began working with Orion and Blackstone in 2015. Both private equity groups had done similar deals in Canada. But this was their first venture in Ecuador for large-scale mining.

Hochstein recalls that the firms did exhaustive due diligence, spending much of their time focusing on the challenges of investing in mining in Ecuador. Kinross had halted the mining project years earlier after failing to reach an agreement on the terms to develop the mine.

“A lot of people were still concerned about Ecuador. Everyone was pretty comfortable with the project,” he says.

Ludin had already secured an agreement with Ecuador before seeking financing. “It took us several months of pretty intense negotiations. But we were able to get there, says Hochstein. “Ecuador, having gone through the Kinrod experience, realized you can’t have an agreement that’s one-sided.”

Before long, the private equity firms signed off on the commercial potential of the project, clearing the way for Ludin to seek financing. “It was like the Good Housekeeping seal of approval,’ says Hochstein.

Ludin eventually secured $400 million in equity, allowing it to seek additional financing from banks.

In 2018, Ludin secured a syndicated loan from ING Capital LLC, Société Générale, Caterpillar Financial Services Limited (CAT Financial), the Bank of Nova Scotia, Natixis, Kowa IPEX-Bank GmbH and the Bank of Montreal.

The participation of KfW is unusual. Ludin had turned to the state-owned German development bank as part of a trade financing package. But unlike copper concentrate, gold concentrate isn’t considered a strategic import by Germany. Still, Hochstein says the lender “liked the project so much they came in as a pure debt holder.”

As for the future, Hochstein says Fruta del Norte is on “target for its first production in Q4 of this year.”