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Rio and Turquoise Hill strike funding deal for Oyu Tolgoi

9th April 2021

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

     

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PERTH (miningweekly.com) – Diversified major Rio Tinto on Friday announced a binding heads of agreement (HoA) with Canadian miner Turquoise Hill Resources for an updated funding plan to complete the Oyu Tolgoi underground copper project, in Mongolia.

The funding plan addresses the remaining $2.3-billion funding requirement for the Oyu Tolgoi project, building on and replacing the arrangements established under a memorandum of understanding inked in September of last year.

The underground operation has been faced with severe cost overruns, with the project expecting to cost between $1.3-billion and $1.8-billion more than the original capital estimate of $5.3-billion.

Turquoise Hill in November of last year launched arbitration proceedings against Rio, saying that the major’s approach to funding the expansion was "incompatible" with its own.

“This agreement and alignment with Turquoise Hill Resources represents a major milestone in the continued development of Oyu Tolgoi, which is expected to become one of the world’s largest copper mines and a significant contributor to the Mongolian economy for years to come,” said Rio copper CEO Bold Baatar said on Friday.

Under the HoA, and subject to securing the required support from the government of Mongolia, Rio and Turquoise Hill would pursue a re-profiling of principal debt repayments of up to $1.4-billion with lenders under the existing project finance arrangements to better align with the revised mine plan, project timing and cash flows.

The two companies would also seek to raise up to $500-million in senior supplemental debt under the existing project financing arrangements from selected international financial institutions, while Rio has committed to address any potential shortfalls from the re-profiling and additional debt of up to $750-million by providing a senior co-lending facility.

Turquoise Hill has, in turn, committed to complete a rights offering or placement of common shares up to $500-million to satisfy any remaining funding shortfall within six months of the co-lending facility becoming available.

“Commencing the re-profiling while concurrently listening, engaging and resolving the concerns of the government of Mongolia are critical steps to maintaining momentum on the timely delivery of the Oyu Tolgoi underground project,” said Baatar.

“We are pleased to have reached a constructive and equitable agreement with Rio Tinto to fund the Oyu Tolgoi underground development,” said Turquoise Hill interim CEO Steve Thibeault.

“With a binding funding agreement now in place that sets out a process along a known timeline, we will be able to move ahead as expeditiously as possible with the development of the underground project at Oyu Tolgoi. We remain committed to continue delivering a benefit to all stakeholders, including Mongolia and its citizens, and to delivering significant long-term value for Turquoise Hill as this project progresses.”

Both Turquoise Hill and Rio have agreed to jointly obtain an order dismissing the current arbitration proceedings.

Oyu Tolgoi is expected to produce 480 000 t/y of copper on average from 2028 to 2036 from the openpit and underground, compared with 146 300 t/y in 2019 from the openpit.

The underground ore reserve has an average copper grade of 1.52%, which is more than three times higher than the openpit ore reserve, and contains 0.31 g/t of gold. The size and quality of this Tier 1 asset provides additional expansion options, which could see production sustained for many decades.

At peak production, Oyu Tolgoi is expected to operate in the first quartile of the copper cash cost curve and by 2030 is expected to be the fourth largest copper mine in the world.

Edited by Creamer Media Reporter

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