Freepoint signs first metals offtake with gold mine in Brazil

Wed Jan 2, 2013 7:55pm EST

* Deal follows buying JPMorgan's physical concentrate unit

* First oil, gas property purchase in December

* Investment in line with Freepoint expansion strategy

* Gold focus breaks with traditional focus on copper, zinc

NEW YORK, Jan 2 (Reuters) - Freepoint Commodities LLC has signed its first metals mine financing deal since the upstart commodities trading house, run by former top executives at Sempra, made its foray into metals trading six months ago.

The news comes just two weeks after the Stamford, Connecticut-based firm made its first property acquisition in the oil and gas sector as part of chief executive David Messer's strategy to create a physical commodities merchant.

The expansion beyond energy also follows a tough year for many natural gas trading houses, which struggled to find opportunities to reap big profits from low and rangebound gas prices.

As part of the terms announced on Wednesday, its Freepoint Metal & Concentrates LLC unit will finance the development and expansion of the Salinas gold mine in Brazil owned by Brazahav Resources Inc, a privately held company headquartered in Vancouver, Canada, it said.

In return, Freepoint will receive all the gold and silver produced at the mine, which is located near Pocone, Mato Grosso.

No financial details were provided. It is not known when the mine will start producing gold and silver.

The structured debt financing deal is Freepoint's first in metals since buying JPMorgan Chase & Co's physical metals and concentrates business last year.

Two weeks ago, subsidiary Freepoint Resources LLC agreed to pay $61 million for 66 natural gas wells in the Pinedale field in Wyoming owned by a unit of Bucking Horse Energy Inc, an exploration and production company.

These two investments take Messer a step closer towards his aim of building a physical commodities merchant just 18 months after launching with the backing of $10-billion Stone Point Capital private equity fund.

Providing structured debt financing for an in-development mine in return for offtake is typical for physical merchants and in line with the plan to carve out a niche in the lucrative physical metals market.

But investing in bullion appears to be a dramatic shift for a business that for decades under previous owners from JPM to Metallgesellschaft, has focused on trading refined copper and copper and zinc concentrates. Concentrates are a type of intermediate product that smelters use as raw material to make refined metals.

This deal will expose Freepoint to gold prices, which have risen every year since 2001, but are 12 percent off record highs above $1,900 per ounce that were hit in September 2011.

Brazahav inherited the Salinas mine in November when it bought 98.6 percent of the stock of Advent Brasil Mineração SA.

Last year, the company raised just under $6 million in two private fund raisings, according to regulatory filings. In total the company tried to raise $17.2 million last year.