Michael Kohn Ulaanbaatar, Mongolia
RIO TINTO Group will seek to raise as much as $6 billion (R71bn) of external funding for the Oyu Tolgoi underground mine in Mongolia as the company prepares a war chest to develop one of the world’s largest untapped deposits of copper and gold.
The money will be raised through third-party project financing, product off-take arrangements and other forms of funds, according to a development plan published by Turquoise Hill Resources, which owns 66 percent of Oyu Tolgoi. Overseas investors led by Rio Tinto control the project through this stake.
Rio Tinto and the Mongolian government last week ended a protracted dispute that stalled construction of the underground mine. A midnight signing of the plan in Dubai followed two years of start-stop talks between the two sides that tested the resolve of foreign investors in the Asian country.
Rio Tinto had a goal of raising more than $4bn in third- party project financing and would target 15 to 20 banks, Jean-Sebastien Jacques, the head of its copper and coal business, said last week.
Discussions on terms were to begin in the “coming days and weeks”, he added.
Less than 10 percent of the 200km of underground tunnels needed for the mine had so far been built, Jacques said, adding that this would take five to seven years.
The negotiations, which included about 30 points of dispute, centred on taxes and cost overruns on the first phase of the mine construction.
Signing the plan “is a strong signal to investors,” Mongolian parliamentary Speaker Enkhbold Zandaakhuu said at the weekend. “Mongolia will honour its obligations to investors. I think it’s a very good sign.”
Both sides agreed phase one costs were in line with approved programmes and budgets and there are no outstanding issues between the two sides over expenses in this stage, the plan shows.
The initial phase, with a price tag of more than $6bn, included an open-pit mine that went into production in mid-2013.
The agreement also resolved differences of opinion on using Oyu Tolgoi mine licences as collateral for financing the underground portion.
Mongolia agreed to provide “security interest” to lenders, including pledges of the Oyu Tolgoi mining licences and immovable property, as well as benefits of the investment and shareholders’ agreement. – Bloomberg