Billions set to flow for Rio Tinto's Oyu Tolgoi expansion in Mongolia

A multibillion-dollar finance package for the expansion of Rio Tinto's Oyu Tolgoi mine could be approved this week as the Rio subsidiary in charge of the Mongolian mine was expected to update the market on Thursday morning.
Turquoise Hill Resources, which is 50.79 per cent owned by Rio, has long forecast that the finance agreement will be signed before the end of 2015.
Several banks told Fairfax Media that they expected an announcement on financing this week.
The above ground open pit copper mine at Oyu Tolgoi in Mongolia.
The above ground open pit copper mine at Oyu Tolgoi in Mongolia. Photo: Philip Wen
The Oyu Tolgoi expansion, which is focused on copper, gold and silver, has been ranked by Deutsche analyst Paul Young as the world's best undeveloped copper project and is probably Rio's most important growth asset.

A $US4.2 billion finance package was secured for the expansion in early 2013, but commitments from most of the banks involved expired at the end of 2014 after multiple delays caused by the fractious relationship between Rio and the Mongolian government.
With the relationship between the company and the country repaired, many of those banks are expected to resume their support this week.

While the size of the finance package is expected to be about $US4 billion ($5.5 billion), some close to the project believe development may be more gradual than the original plan and the full ramp-up of the expanded mine will potentially take up to 10 years.
With an economic slump in Mongolia, the local government would want the expansion approved as soon as possible to provide jobs and revenue.
The Australian government's Export Finance and Insurance Corporation is expected to resume its support for the project on the basis that small and medium-sized Australian companies win contracting work on the project, while the Canadian government's Export Development Canada is also expected to be on board.

The US government's export credit agency was originally committed to the raising. However, it is unclear whether it would resume its support given it was only re-authorised by the US Congress on December 4 after being dissolved in July.
Other International banks believed to be involved include the European Bank for Reconstruction and Development and BNP Paribas.
Two World Bank agencies are expected to support the new finance package: the International Finance Corporation and the Multilateral Investment Guarantee Agency.
An open pit is operating at Oyu Tolgoi, but the underground expansion will target a larger ore body with copper grades that are believed to be four times better.
Oyu Tolgoi is expected to fill the gap left by Rio's Kennecott Utah Copper mine, which is nearing the end of its life.
Rio copper boss Jean-Sebastien Jacques has predicted a copper shortage in the first half of 2017, while MMG boss Andrew Michelmore forecasts a shortage as early as 2016.
BHP Billiton is more bearish, predicting copper markets will be in surplus for another four years. The red metal was fetching $US2.13 per pound on Friday, its best price in four weeks but still near six-year lows.
Recent weakness in copper and iron ore prices have taken their toll on Rio shares, which have fallen 22 per cent since October 9 to $43.06 on Friday.
Turquoise Hill Resources, which is listed on the Toronto exchange, has lost 37 per cent of its share value since May 19.
Rio Tinto declined to comment.



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