Biloela Resources (BR), a Queensland based mining company, is considering developing a copper mine in Brazil. It plans to use a subsidiary, Bahia Mines, to develop the mine. BR has a 90% share in Bahia Mines with the remaining 10% owned by the government of the state of Bahia. BR has completed exploration and feasibility studies and has spent the last few years in the process of acquiring permits to begin development. The proposed mine has "proven and probable reserves" of 50 million tonnes of copper. BR has so far spent USD 200 million and will need an additional USD 800 million to complete the developmental phase of the mine. The plan is to use open pit mining and use "heap leaching", a process that involves using chemicals to extract copper from crushed ore. It is being considered because it is a low cost process with recovery rates of around 70%. The planned life of the mine is 20 years.

Given the recent Samarco disaster, in the nearby state of Minas Gerais, where the tailings dam at the iron ore mine burst resulting in the loss of lives and the pollution of the Doce river, local community interest groups have become more vocal in their opposition to the mine. These local stakeholders have raised concerns about the potential damage to the tourism sector and to the environment if the use of cyanide contaminates aquifers.

BR estimates that the mine will create jobs and inject billions of dollars into the Brazilian economy and over $2 billion directly to the treasury of the state of Bahia. However, BR is concerned about this escalating political issue affecting its stock price and the chances of final approval for the project. Given its declining cash reserves it is keen to get started on the developmental phase of the project. The NPV approach indicates that the mining project has a positive valuation and this value is robust to sensitivity analyses done utilizing various key inputs such as cost of capital, royalties paid to the state of Bahia, quantity of reserves, price of copper etc.

Despite this upbeat assessment, BR is concerned about its financing needs. The project is currently funded entirely by equity. Its stock is currently trading at around 75 cents. How can Bahia ensure it receives the final approval for the mine? If the project is approved, what do you believe, based on understanding of the benefits/costs of various types of financing, is the best way to finance its CAPEX needs?