Korean team to take troubled Baja mine forward

Baja Mining loses majority control of Boleo project in Mexico to Korean consortium
Construction of the Boleo mine started in late 2010 and is a little more than half complete

A half-finished $1.7 billion copper-cobalt-zinc- manganese mine near Santa Rosalia in Mexico that is $500 million over budget and in danger of insolvency is being rescued by a consortium of Korean lenders, which is now in control of the project.

The Minera y Metalúrgica del Boleo (MMB) mine in Mexico is the sole project of Baja Mining Corp. (TSX:BAJ), which began construction in 2010 but ran into trouble earlier this year when it was discovered the project – initially set to cost $1.15 billion – faced a $500 million overrun.

Baja founder John Greenslade was forced to resign, and the company's stock tanked as it faced the prospect of lenders calling back loans. The stock lost 95% of its value when it dropped from $1 per share in April to $0.05 in July. It recovered slightly on news of a rescue by Korean lenders and now hovers around $0.12 per share.

A consortium of Korean lenders has provided a bailout in equity financing – provided in two phases – in exchange for a controlling position in Baja. Last month, Kyoung Jin Park was appointed MMB's chief operating officer.

"It means that, in our opinion, the project will proceed to completion," Baja's acting interim CEO Tom Ogryzlo told Business in Vancouver.

But it also means Baja is no longer in control of the project. The Korean consortium, which is made up of Korea Resources Corp. (Kores), LS Nikko Copper Inc., Hyundai Hysco Co. Ltd., SK Networks Co. and Iljin Materials Co. Ltd., originally held a 30% stake in the project.

Its ownership position in the Boleo project increased to 51% after it provided $90 million in additional equity financing to keep construction going.

And now the consortium has tentatively agreed to a second round of equity financing that would cover the balance of the overrun and bring its ownership position up to 90%.

Getting agreement among the lenders to provide a second round of financing threatened to shut the project down, so Kores – a resource company owned by the South Korean government – stepped up to assume a lead role.

"Kores is stepping up to the plate," Ogryzlo said. "It is taking the lead in all respects."

Kores is guaranteeing a $419 million loan from the US Export-Import Bank (Ex-Im) – one of the principal lenders in a group of nine. So far, about $126 million of the loan has been spent. The loan has been renegotiated to make Kores the guarantor.

That deal means that Ex-Im now has a sovereign guarantee from the South Korean government on its $419 million loan.

Whether the consortium provides the final round of equity financing needed will depend on the findings of a technical report on the mine, due in January.

SRK Consulting has been hired to produce a report on the Boleo project's viability. Until then, a standstill agreement is in place to allow construction to continue.

"We have reason to be optimistic that we will achieve phase-two financing," Ogryzlo said.

He added that Baja has the option of buying back equity in the project to bring it up to a 40% share after the mine is in operation. •

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