Australia | Sep 03 2007
By Chris Shaw
Project risk for a mining company usually takes the form of development risk as there is a need to construct the project in accordance to certain specifications and delays, bad weather or a range of other issues can complicate the process.
When projects are being completed in less stable countries than Australia other issues come into play, particularly those of a political and economic nature and particularly when projects are situated in some parts of Africa.
Such a project is the Lumwana copper mine being developed by Equinox Minerals (EQN) in Zambia at a cost of $715m, which to date has been on budget and on schedule.
Helping to reduce the risk of what is a major project for a company capitalised at around $2.2 billion is the news the Export Finance and Insurance Corporation (EFIC), which is Australia’s export credit agency, has joined a syndicate providing political risk insurance to the project.
The move follows the EFIC’s participation in a project financing facility, the group contributing US$43m to the US$584m facility and represents a vote of confidence for both the company and the project itself. The company closed its debt facility last month.
The company itself has cash reserves of just more than US$70 million, meaning it is in a solid financial position as development work commences. Commissioning of the project is due in April next year, with full production of 20 million tonnes of ore a year to be achieved by late in 2008.
The EFIC’s confidence in the project is mirrored by the FNArena database, as it shows Equinox is rated as Buy twice and Hold once by the three brokers to cover the company. The average price target is $5.81, which is a substantial premium to today’s share price of $4.01, up 14c.
The EFIC announcement is also indirectly good news for Ausenco (AAX), as that company has the engineering, procurement and construction part of the development contract for the project.
The market is similarly confident in that company’s outlook as the FNArena database shows both brokers to cover the company rate it as Buy, with an average price target of $11.24. This compares to a current share price of $10.67, up 2c today.