PERTH (miningweekly.com) – Diversified resources group Rio Tinto will increase its stake in TSX-listed Ivanhoe Mines, its partner on the Oyu Tolgoi project in Mongolia, to 29,6% for an investment of $393-million.

It will exercise warrants to acquire more than 46-million shares in the Vancouver-based company, which will increase its stake by 7,2%.

Rio Tinto said that the uptake of the warrants would provide Ivanhoe with sufficient funds to continue the development of the Oyu Tolgoi copper and gold project, as currently scheduled.

“Rio Tinto’s early exercise of its warrants is an important step toward securing the financing and funding for Oyu Tolgoi as we move into the first summer of full-scale, site-wide work under the 2010 construction budget,” said Ivanhoe chairperson Robert Friedland.

Rio Tinto CEO for copper Andrew Harding commented that the group’s further investment in Ivanhoe underlined its confidence in the quality of the Oyu Tolgoi deposit, and the project’s priority in the Rio Tinto portfolio.

The Oyu Tolgoi project is expected to start production in 2013, with a five-year ramp-up to full production.

Average production from Oyu Tolgoi is forecast at some 1,2-billion pounds of copper and 650 000 oz of gold a year, in the first ten years of operations.

The initial capital cost required to achieve production from the openpit mine on the Southern Oyu deposits was estimated to be $4,6-billion. This amount includes $1,1-billion to be spent advancing underground development at the Hugo North deposit in preparation for the start of block-cave mining following the start of production from the openpit.

Options to finance the remainder of the estimated capital costs include additional potential debt, equity offerings, a credit facility, the sale of subsidiaries, equity investments, project financing or various corporate transactions, Ivanhoe reported.

Last month, Ivanhoe signed a joint mandate letter with the European Bank for Reconstruction and Development (EBRD) and the World Bank Group’s International Finance Corporation (IFC) for evaluation of a financing package for the construction Oyu Tolgoi.

The letter providing a two-part package consisting of up to $300-million each from the EBRD and IFC, as part of a group of primary lenders, in limited-recourse project financing, and the mobilisation of a further $1,2-billion from commercial lenders under a “B loan” structure.

Ivanhoe also has received expressions of interest from export credit agencies to provide up to $500-million in direct project debt financing.

The Oyu Tolgoi is estimated to contain about 81-billion pounds of copper and 46-million ounces of gold in measured, indicated and inferred resources.

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