Rio Tinto and its subsidiary Turquoise Hill Resources (TRQ) have reached an agreement for an updated funding plan to complete the Oyu Tolgoi underground project in Mongolia.
The updated funding plan is said to address the estimated remaining known funding requirement of around $2.3bn. It builds on and replaces the arrangements made in the memorandum of understanding signed by the parties in September 2020.
As per the agreement, Rio Tinto and Turquoise Hill Resources will try to get principal debt repayments up to $1.4bn re-profiled with lenders under the existing project finance arrangements. The re-profiling will be pursued to better align with the revised mine plan, the timing of the project, and cash flows.
The parties aim to raise senior supplemental debt (SSD) of up to $500m under the existing project financing arrangements from certain global financial institutions.
Rio Tinto has agreed to cover for any possible shortfalls from the re-profiling and additional SSD of up to $750m. The mining major plans to address these by offering a senior co-lending facility on the same terms as the financing for the Oyu Tolgoi project.
On the other hand, Turquoise Hill Resources has agreed to complete a rights offering or placement of common shares for up to $500m. This will help meet any remaining funding shortfall within six months of the senior co-lending facility becoming available.
Rio Tinto copper CEO Bold Baatar said: “This agreement and alignment with TRQ 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.
“Commencing the re-profiling whilst 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.”
Turquoise Hill Resources has a stake of 66% in the Oyu Tolgoi copper-gold mine located in the South Gobi region. The remaining 34% stake in the mine is held by the Mongolian government through Erdenes Oyu Tolgoi.
Rio Tinto has a stake of around 50.8% in Turquoise Hill Resources.
In November 2020, Turquoise Hill Resources launched arbitration proceedings against Rio Tinto for seeking clarity on how the funding arrangement for the underground expansion project will be structured.
The parties have now agreed to jointly obtain an order for scrapping the current arbitration on a without prejudice basis, which would include an order for vacating the interim measures order.
Turquoise Hill Resources interim CEO Steve Thibeault said: “We are pleased to have reached a constructive and equitable agreement with Rio Tinto to fund the Oyu Tolgoi underground development.
“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.”
