Narrative
Full Description
Project narrative
In 2011, Minera Shouxin S.A. — a special purpose vehicle that is jointly owned by China's Baiyin Nonferrouse Group Co Ltd. (51% ownership stake) and China's Shougang Hierro Peru S.A.A. (49% ownership stake) — was legally incorporated in Peru and given responsibility for the Marcona Mine Expansion Project. Then, on November 28, 2012, Shougang Hierro Perú S.A.A. — special purpose vehicle and wholly owned subsidiary of Chinese steel group Shougang Co. — signed a $240 million syndicated loan agreement with Banco de Crédito, Citibank, HSBC and Santander for the First Stage of the Marcona Mine Expansion Project. The loan carried an annual interest rate of LIBOR plus a 4.38% margin. The proceeds of the loan were to be used to partially finance the $600 million cost of the the First Stage of the Marcona Mine Expansion Project. The remaining $360 million was financed through a syndicated loan from China Development Bank (CDB) and China Eximbank (USD 180 million) and equity contributions (USD 180 million). CDB and China Eximbank’s contributions are captured via Record ID#102971 and Record ID#102972, respectively. The purpose of the project was to expand Marcona mine, which is a large iron, copper, and zinc mine located in western Peru in Marcona District and Nazca Province (exact coordinates: -15.2039, -75.1085). The scope of the project also involved expanding its primary and secondary processing facilities and installing a conveyor transportation system. After obtaining a construction permit in December 2013, the project commenced in August 2014 and reached completion in December 2016. Then, in June 2017, ICBC Perú Bank S.A. and Shougang Hierro Perú S.A.A. signed a $500 million loan agreement for the Second Stage of Marcona Mine Expansion Project (captured via Record ID#102970). The loan carried the follow borrowing terms: a 10.25-year maturity (final maturity date: September 2027), a 2-year grace period, and an interest rate of 3-month LIBOR plus a 3% margin. The borrower was expected to use the proceeds of the loan to refinance and its debts and to support the second stage of the expansion of the Marcona Mine. The borrower made a $100 million prepayment in 2020, which further reduced the final maturity date to 2025. Then, the borrower made a $150 million prepayment in 2021, which further reduced the final maturity date to 2023. The Second Stage of Marcona Mine Expansion Project involved the construction of a seawater desalinization plant to process tailings and the expansion of a beneficiation plant. Construction began in June 2016 and the project was completed on July 31, 2018.
Staff comments
1. The precise date of the loan commitment from CDB and China Eximbank is unknown. For the time being, AidData relies on the commitment date (November 28, 2012) of the other syndicated loan from Banco de Crédito, Citibank, Santander and HSBC that supported the First Stage of the Marcona Iron Mine Expansion Project. This issue warrants further investigation. 2. The precise face value of the syndicated loan from China Eximbank and CDB is unknown. However, it is known that the total cost of the First Stage of the Marcona Mine Expansion Project was $600 million and that Minera Shouxin S.A. covered the cost of the First Stage of the Marcona Mine Expansion Project with a combination of debt and equity financing. For the time being, AidData assumes a debt-to-equity ratio of 70:30, which implies a syndicated loan commitment of $180 million from CDB/China Eximbank (after accounting for the $240 million syndicated loan from Banco de Crédito, Citibank, Santander and HSBC). AidData assumes equal contributions ($90,000,000) from CDB and China Eximbank for the time being. This issue warrants further investigation. 3. It appears that the borrower of record is Shougang Hierro Perú S.A.A. rather than Minera Shouxin S.A. This issue warrants further investigation. 4. An additional phase of the project commenced in February 2021 and there is some circumstantial evidence (see https://chambers.com/department/rubio-leguia-normand-banking-finance-latin-america-9:6:171:1:2448) that CDB may have financed the additional phase. This issue warrants further investigation. 5. The Shougang Hierro Mine in Peru has been marred by controversy since its inception, which predates Chinese ownership in 1992. The mine first began operating in February 1952, when the Republic of Peru signed a concession contract with the U.S.-based Marcona Mining Company. For the next 20 years or so, Marcona was able to successfully export Peru’s iron to countries like Japan and the U.S. In the early 1970s, the mine began to struggle economically, but after leftists successfully carried out a coup and took power of the country in 1975, the mine was nationalized by the new government. The mine was renamed Hierro Peru, or Iron Peru. During this period, the mine also struggled financially. By the 1990s, according to China’s Ministry of Commerce, the mine was ‘on the verge of bankruptcy.’ In 1992, former Peruvian president Alberto Fujimori decided to privatize Hierro Peru. Chinese state-owned Shougang Group won the bid, renamed the mine to Shougang Hierro Peru, and subsequently became China’s first major investment project in Latin America. Shougang has been operating the iron mine ever since. Initially, Shougang was successful in helping turn around the struggling mine. According to research by Xin Gou, the Chinese company was able to turn a $32 million loss in 1992 into a $5 million profit in 1993. However, since nearly day one of Chinese operation, there have been disputes with locals. In the decades since taking over the mine, protests surrounding issues like salary and safety regulations have been commonplace. 6. The Chinese project title is 秘铁投资1000万吨精矿扩建项目（二期) or 首钢秘鲁铁矿扩建项目 or 马尔科纳铁矿项目 or 首钢秘铁铁矿项目 or 秘鲁Hierro铁矿的项目. The Spanish project title is El proyecto de ampliación Marcona en Nazca.