The multi-billion dollar expansion of Rio Tinto’s (RIO) Oyu Tolgoi copper mining expansion project in Mongolia moved a step closer yesterday with agreement announced yesterday on financing for the project.
In a big step forward for the long-delayed copper and gold mine, a syndicate of 15 international banks and government groups agreed to renew loan commitments that had expired in 2014 after delays and disagreements between Rio and the Mongolian government over the massive underground expansion of the mine.
Those disagreements were resolved in May this year and now a new deal seems to be in the offing and with $US4.4 billion of debt financing in hand, Rio Tinto’s board looks likely to approve the expansion in the first half of next year.
Rio and all Oyu Tolgoi shareholders will now continue to work towards updating the feasibility study, including the revised capital estimates, and securing all necessary permits for the development of the underground mine.
Once these steps have been completed the project will be submitted to the various boards for approval and the $4.4 billion tranche will be drawn down, Rio said in yesterday’s statement. The only negative for the project seems to be the continuing slide in copper prices, but rio sees that reversing.
Rio Tinto’s copper chief, Jean Sebastien Jacques, said yesterday the underground expansion would be well timed to coincide with improving copper prices.
“This agreement has been more than four years in the making and it is one of the most significant agreements of its kind," he said.
Rio and its partners in Mongolia will spend the next three months reviewing the cost of the project, which has been valued between $US5 billion and $US8 billion.
Final board decisions would then be made in mid 2016.
“For us to take the final decision, we need to have all permits put in place as well," said Mr Jacques.
“We are pretty bullish about the copper market in the long term and the reason is we expect a 6 to 8 million tonne shortfall [of copper] in the next 10 years,” he said. That should be accompanied by higher prices.
RIO 1Y – Rio secures funding for Oyu Tolgoi expansion
Oyu Tolgoi has secured Project Finance for the underground mine development with funding by international financial institutions and export credit agencies representing the governments of the United States, Canada and Australia, along with 15 commercial banks.
Today’s signing in Ulaanbaatar follows the agreement earlier this year of the Oyu Tolgoi Underground Mine Development and Financing Plan by the Government of Mongolia, Turquoise Hill Resources and Rio Tinto, which set out a pathway towards development, including the basis for the funding of the project.
Australia’s Export Finance and Insurance Corp (EFIC) was joined in the syndicate by export credit agencies in Canada and the United States, along with a large number of commercial banks, including BNP Paribas.
The World Bank’s International Finance Corp (IFC) also lent money to the project partners, which include Rio’s Canadian subsidiary, Turquoise Hill Resources.
EFIC’s involvement is believed to guarantee work on the mine expansion for small and medium-sized Australian contractors, who have considerable expertise in mine development work. EFIC will help them finance contracts they win with Rio and its partners.
With work drying up in Australia and elsewhere, the contracts for the expansion will be keenly sought by contractors here, in Canada, the US, Europe and China.
Rio started to ship copper concentrate from Oyu Tolgoi in 2013 and the mine still in a ramp-up phase, with only 48,000 tonnes shipped in the first nine months of this year.
During its life Oyu Tolgoi is expected to produce an average of 430,000 tonnes of copper and 425,000 ounces of gold annually.
Rio controls the project through its majority ownership of Turquoise Hill, the separately-listed Canadian miner that owns 66% of Oyu Tolgoi.
Mongolia owns the remaining 34%.
