Emerging copper producer Equinox Minerals has put a final touch on financing for its 100%-held Lumwana copper project in Zambia by securing a credit facility for contingent costs.

Equinox said the $45 million facility would only be used if cost overruns or other contingent obligations were encountered at the $847 million project, where mine commissioning was anticipated to take place in around the middle of calendar 2008.

The company also said that if any funds were left once project construction was complete, they could be used for general corporate-related purposes.

The Standard Chartered Bank, also a lead arranger for Lumwana financing, was providing the facility and was receiving arranging and commitment fees for it.

If Equinox draws upon the funds, it will issue the bank with common shares in Equinox at a 6.75% discount to their 5-day volume-weighted TSX price.

Equinox President and CEO Craig Williams described the arrangement as “innovative and flexible”. He told the market the facility met an important financing agreement obligation while meeting the company’s policy of limiting additional calls on shareholder-based capital.

Meantime, construction continues at Lumwana. Overburden stripping began in April.

The project’s pre-production capex was estimated to be $511 million. The total capex, which included the pre-production mining fleet, exploration and contingencies, along with deferred capex, came in at $847 million.

Lumwana’s anticipated mine life is 37 years, with the first six years involving the goal of an average annual production of 169,000 tonnes of copper metal in concentrate.

Proved and probable reserves across the project’s Malundwe and Chimiwungo deposits totalled to 321.3 million tonnes grading 0.73% copper. The inferred resource for the two deposits came to a further 417.2 million tonnes at 0.6% copper.

Debt Facility Drawdown Nears

A US$584 million debt facility, covering Lumwana development and construction, was signed in December and involves a group of lenders from Europe, Africa and Australia. The group included commercial banks, export credit agencies and development agencies.

Drawdown would be sought once Equinox exhausted the equity component to Lumwana financing.

Of the total debt facility, around $50 million was subordinated debt from the European Investment Bank and so these funds would be the next cab in the rank for use by Equinox, according to Williams. The rest of the facility, the senior debt, would kick in after that.

The timing of first debt drawdown would be sometime this quarter, Williams said.

“We have a number of conditions precedent that we have to satisfy before they allow a drawdown.”

He said the most important condition for debt facility drawdown was that at least 80% of the first five years of anticipated production be covered by offtake agreements with smelters.

Going more than halfway to meeting that condition is a five-year offtake agreement struck in February to supply the Zambian-based Chambishi copper smelter, a joint venture between China Nonferrous Metal Mining and Yunnan Copper Industry. Each year, Equinox will be supplying the smelter with 100,000 tonnes of copper in concentrate, which amounts to around 230,000 tonnes of concentrate.

Williams said there were two other big smelters in Zambia, one owned by private commodities supplier Glencore and the other by London-listed mining group Vedanta Resources.

“We’re talking with both of those. Chances are we’ll do a deal with one or the other. We are also talking to offshore smelters and smelters elsewhere in southern Africa.”

However, a deal with a non-Zambian smelter would come with a considerable transport costs, he said.

“At the end of the day the best deal we can do will probably be with one of the other Zambian smelters.”

“But of course they know that,” he added, laughing. “So there’s some fairly hard-nosed negotiations going on, but we’re getting fairly close on that.”

Debt repayments would start in March 2009.

Equinox raised C$105 million in September to supply funds for continuing Lumwana construction and for working capital. By early March the company also raised about C$211 million - in part to fund Lumwana - via the issue of common shares and attaching common-share purchase warrants.

At the end of March, Equinox had cash of about US$177 million.

On the whole, the company’s TSX-traded shares have steadily climbed over the past 12 months, from around C$1.20 this time last year to just over C$4 in recent days.

Uranium Feasibility Started

In March, Equinox kicked off a Lumwana uranium feasibility study.

Aims for the current study were to review and update the 2003 bankable feasibility study and do further infill drilling and metallurgical work.

The study will also supply process plant and infrastructure designs, along with capital cost and operating cost estimates.

The feasibility work was awarded to minerals processing services company Ausenco [ASX:AAX]. Hopes were to complete the study in the first quarter of calendar 2008.

Uranium is found in discrete, high-grade veins at Lumwana, according to Equinox.

“Our uranium will be mined anyway as part of the copper project,” Williams said.

The uranium would be selectively mined to ensure Lumwana’s copper concentrate wasn’t cross-contaminated.

“Whatever happens, it’s going to be mined and stockpiled. Our decision is really whether or not to build a plant to treat that uranium.”

He said he thought it was a straightforward decision, but Equinox naturally was doing its due diligence to properly define the parameters.

As at May, the Lumwana indicated uranium resource stood at 9.5 million tonnes grading 0.093% U3O8 (yellowcake) for approximately 19.4 million contained pounds. A further 2.39 million pounds were contained in an inferred resource. (Cut-off grade: 0.012%)

Metallurgical and pilot plant testwork done as part of the 2003 BFS showed 97% of the uranium could be recovered.