Rio Tinto close to $6bn finance deal for Mongolian mine

Rio Tinto CEO Sam Walsh. Picture: David Geraghty

Rio Tinto is this week expected to secure the long-awaited project finance for the $US5 billion ($7bn) Oyu Tolgoi copper and gold mine underground expansion in Mongolia.

This would pave the way for the approval of the project in the second quarter of next year to create the world’s third-biggest copper mine.

According to analyst reports out of Mongolia, plans are being drawn up for a Wednesday signing of a $US4.2bn finance deal with international banks that has been on ice for the past two years because of a dispute between Rio and the Mongolian government.

That will pave the way for completion of cost estimates in the first quarter, followed by potential board approval and construction in the second quarter, making for a rare big project approval amid depressed commodity prices.

Mongolia Metals and Mining analyst Dale Choi said Prime Minister Chimed Saikhanbileg had publicly declared project finance would be signed on Wednesday. Rio managing director Sam Walsh has declined to confirm or deny this.

“We hear invites are being sent out by (state-owned miner) ­Erdenes MGL for the December 16 signing,” Mr Choi said last week.

Rio’s Canadian-listed subsidiary Turquoise Hill owns 66 per cent of the Oyu Tolgoi mine — which is now operating as an open pit operation — and the government owns the rest.

Building the underground mine will unlock 80 per cent of the giant deposit’s value and set it in a path to produce up to 500,000 tonnes of copper and up to 600,000 ounces of gold a year.

The expansion will take five years to build and another five to ramp up, and will bring total investment to $US11bn.

The dispute between the ­government and Rio, which halted project work in July 2013 was resolved with the signing of a new investment framework in May with the Saikhanbileg government, which was elected in November last year.

The major issues had been disagreements with the government over the host nation’s share of profits, capital costs on the first stage and tax payments.

Mr Walsh told The Australian the delays had resulted in a better project: “I’m a great believer in ensuring I set up the future in the best possible way I can, and getting the fundamentals right (on Oyu Tolgoi) was very, very important.”

“While the delay has been somewhat frustrating for all concerned, the result will be a much better result, it will be a robust project, subject to board approval. It will provide jobs for thousands of Mongolians. It will improve wellbeing and standard of living and it will be a good project for shareholders.”

While capital costs would be about the same as the $US5bn previously tipped, operating costs may improve. “We’ve passed the project to our central Rio projects group and they’ve taken a different approach to how the project will operate, and I think that will give us a much stronger, more robust sustainable project,” he said.

Source:http://www.theaustralian.com.au/