UPDATE 1-Australia's Rinehart nears $7.8 bln mine finance deal - sources

Wed Feb 26, 2014 3:57am EST

* 14 banks join export credit agencies in finance deal - sources

* Roy Hill airport, camps, port berths completed

* On track for first iron ore export in Sept 2015 (Adds Roy Hill comment)

By Sharon Klyne, Joyce Lee and Prakash Chakravarti

Feb 26 (Reuters) - Australian billionaire Gina Rinehart's Roy Hill iron ore project is close to finalising a $7.8 billion financing deal, sources said, a vital step towards an end-2015 start for the giant mine in Western Australia's iron-rich Pilbara district.

The 55-million tonnes-a-year project, which would make Roy Hill Australia's fourth-largest iron ore producer, will add to hefty new supplies coming on line from Rio Tinto, BHP Billiton and Fortescue Metals Group.

It could also add to the wealth of mining magnate Rinehart, already Australia's richest person with a $17.7 billion fortune, according to Forbes.

Roy Hill is likely, however, to be the last new project of this scale to get off the ground, given worries over shaky underlying demand for iron ore in China, the world's biggest consumer of the steel-making raw material.

Other miners are rethinking expansion and cutting costs as iron ore prices drop. At just below $120 a tonne .IO62-CNI=SI on Wednesday, prices have fallen more than 11 percent so far this year and are down almost 40 percent from a record high of $200 reached in February 2011.

"The agreement is not completely settled yet. All the views have to be gathered as there are a lot of stakeholders. But as of now I don't see any problems, and a March signing looks likely," said one source with direct knowledge of the negotiations.

The start for the project, which includes a 344 km (210 mile) rail line and port facilities, has been pushed back amid delays in finalising equity partners and debt funding. Roy Hill had initially been targeting an end-2014 start to production.

"According to current plans, first shipment is expected in the latter half of 2015. It can be understood as a trial run just before construction is expected to be completed by end-2015," said the source.

A second source said the total included a working capital facility of about A$600 million ($540 million) and around $3 billion from commercial banks.

Six other sources identified a group of 14 banks from Australia, Japan, China and Europe who were financing the deal. Included in the financing was a yuan tranche provided by Industrial and Commercial Bank of China (ICBC) and Bank of China Ltd to pay for equipment from China, one of those sources said.

The sources declined to be identified because of confidentiality clauses and because the deal has not been finalised.

Roy Hill spokesman Darryl Hockey declined to comment on when the project financing would be signed.

"We're making good progress, but we still have some documentation to work on," he said. "The first ore export set for September 2015 is still on track."

AIRPORT AT MINE SITE

Export credit agencies (ECAs) including Export-Import Bank of the United States, Export Import Bank of Korea (KEXIM), Japan Bank for International Cooperation (JBIC) and Nippon Export & Investment Insurance (NEXI) are backing Roy Hill with guarantees and direct loans, the sources said.

Rinehart's Hancock Prospecting Pty Ltd owns 70 percent of the project, with Japanese trading house Marubeni Corp holding 15 percent, South Korean steel giant POSCO with 12.5 percent and Taiwan's China Steel Corp 2.5 percent. Together, the owners have committed A$3.2 billion ($2.9 billion) in equity to the project, according to its website.

Work on Roy Hill is well progressed, with a small airport already open with a runway big enough for a Boeing 737 aircraft.

Villages to house 3,600 construction workers and 2,000 operational staff on site and at Port Hedland have also been completed, as has dredging for its two deepwater berths at the port, Australia's biggest iron ore terminal.

Roy Hill has so far been able to avoid the kinds of cost blowouts that plagued other resource projects in Western Australia during the height of the mining investment boom a few years ago.

After four years of delays and billions of dollars of budget blowouts, CITIC Pacific made its first shipment of iron ore concentrate from its $10 billion Sino Iron project in the Pilbara in December. ($1 = 1.1078 Australian dollars) (Additional reporting by Wakako Sato in Tokyo, Carol Zhong in Hong Kong and Sonali Paul in Melbourne; Writing by Lincoln Feast; Editing by Ed Davies and Tom Hogue)

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