Home' Australian Resources and Investment : March 2016 Contents Volume 10 Number 1 • Australian Resources and Investment • 7
equity funds before we had finalised
the debt component of the financing.
This provided an immovable deadline
and time frame for the financing, and
more than a little bit of motivation for
some of us – and at times what felt like
It demonstrates the faith of our
partners in Roy Hill as a project, and in
Mrs Rinehart’s ability to make it happen,
come what may, as well as an incredible
commitment by the shareholders to
spend approximately 40 per cent of the
project value before the first debt was in
place and drawn down. Just to put that
into perspective for you – Roy Hill is a
$10 billion project.
We also had more than a little help
in the marketing of the finance that
changed the game. Firstly, Mrs Rinehart
hosted a lunch where we invited about
80 bankers from around the world. Her
personal touch hosting the lunch in the
outback and star power talking to each
guest individually meant that we secured
pledges virtually on the spot to billions of
dollars of commercial bank support.
Then, when we had literally run
out of time, there was a famous dinner
hosted by Mrs Rinehart, with the
conservative export credit agencies
where the head of the lead ECA danced
with our Chairman.
This helped his enthusiasm for the
project, and he announced unexpectedly a
few minutes later, at that dinner, that he
would bring the date of their next board
meeting forward to deal with our financing.
This was a commitment to bring the
board approval meeting forward by three
months – three months we desperately
needed or we would have run out of
money... and the project would have
stopped in its tracks and the CFO would
probably have been fired.
We also had our fair share of
challenges along the way, including,
incredibly, having to deal with a United
States Government budget shutdown
in September 2013, which meant
the financing negotiations came to a
Who would have thought of needing
to contemplate and plan for a United
States Government shutdown of all
things... it just doesn’t happen, does it?
By way of explanation, US Exim
(the Export-Import Bank of the United
States) is one of our ECA financiers, and
the ECAs have an agreement that they
only negotiate as one group ... so this
really stretched our timeline.
Then, when we were heading into the
home straight, a week before we were
about to sign with a consortium of 24
banks, Forge Construction Group, one
of the main subcontractors, went into
receivership. What timing – you almost
couldn’t script it. Forge was the key
subcontractor that held the $1.4 billion
contract to build the process plant.
I always say that the projects team
made life a lot easier, and they scrambled
to fix the problem, with signing
eventually delayed by less than two
weeks. A financing of this size is a team
effort and there was strong leadership
from Hancock executives, unwavering
support from our shareholders, the Roy
Hill team and our financial advisers,
many of the people who are here in the
room tonight, that allowed us to secure
this very valuable financing.
Finally, I would like to make a
brief mention of what we are doing to
manage costs, which is particularly
important given the current tough iron
ore price environment.
Before I talk about costs, I would like
to comment on the reports in the media
recently implying that it is the Roy Hill
project that has caused the iron ore
price reductions and grossly overstating
What seems to have been lost and
ignored is that prices dropped last year
and further again this year, before Roy
Hill has shipped any tonnage at all.
The reports are silent on the increases
between now and the end of 2017 from
other companies, which will significantly
exceed shipments from Roy Hill.
It will take time for Roy Hill to ramp
up to our 55-million-tonnes-per-annum
capacity, and their assessments also
don’t take into account that over 50 per
cent of Roy Hill’s output will be taken by
our partners who are outside of China.
Hence, the criticism from some
quarters that Roy Hill has apparently
single-handedly led to the iron ore
price reductions we see in the market,
Returning to the subject of managing
costs, a subject close to my heart and I
know our Chairman’s.
At Roy Hill, we are working with
suppliers across the board to reduce costs;
we have recently reviewed employment
costs and there is also a focus on the use
of technology to reduce costs further.
Links Archive December 2015 June 2016 Navigation Previous Page Next Page