The subsidiary, Turquoise Hill Resources, shed fresh light on its financial predicament over the weekend, saying it needed at least a further $US4.5 billion ($7.8 billion) to complete an underground expansion of Mongolia's Oyu Tolgoi mine.
Massive cost and schedule blowouts on the expansion were last year revealed to have delayed completion by between 16 and 30 months, while the cost of construction was said to be between $US1.2 billion and $US1.9 billion higher than the previous budget of $US5.3 billion.
But the higher construction bill was just the start of the extra costs facing Turquoise Hill, which has no other assets and is 50.79 per cent owned by Rio.
Turquoise Hill has $US1.59 billion of contractual obligations due for payment before December 31, 2022, and the delays mean it can no longer rely on cash flows from the expansion to help cover those obligations.
The contractual obligations range from electricity contracts to repayments on the $US4.4 billion debt package that was supposed to be sufficient to complete the project when raised from a syndicate of banks (including Australia's NAB and ANZ) in 2015.
Turquoise Hill also must find $US924 million to cover the cost of a power station for the mine, after the Mongolian government refused to allow Oyu Tolgoi to continue buying electricity from generators in neighbouring China.
The company's problems are rapidly being exacerbated by the global lockdowns forced by the coronavirus, which has prompted a 23 per cent slump in copper prices in the past two months.
That means the existing mine at Oyu Tolgoi will likely generate less cash flow this year than was expected just a few months ago, while travel restrictions for the virus are also slowing the pace of work on the expansion.
''Current estimates indicate an incremental funding requirement, over and above the $US2.2 billion in liquidity currently available, of at least $US4.5 billion,'' Turquoise Hill said in a market filing.
Turquoise Hill shares have lost 83 per cent of their value over the past 13 months since the cost and schedule blowouts raised fears the miner may need to conduct a massive and dilutive equity raising.
The company's market capitalisation stood at just $US724 million on Monday, meaning the $US4.5 billion shortfall nominated over the weekend is more than six times the company's value.
Canaccord Genuity analyst Dalton Baretto estimated in November that Turquoise Hill would need an extra $US4.1 billion to complete the expansion and cover its obligations.
He said those funds could be sourced from an equity raising, extra debt or possibly a metal streaming deal, where future metal production is traded for immediate cash.
Turquoise Hill has told Rio, but not investors, what its preferred method of raising the money is, but Rio has indicated those plans are unlikely to be clarified before the exact size of the cost and schedule blowouts are known in the latter months of 2020.
Sailingstone Capital was for many years the second-biggest shareholder in Turquoise Hill and was regularly vocal about what it believed was Rio's excessive influence over Turquoise Hill.
Sailingstone more than halved its stake in Turquoise Hill during 2019 as the financial predicament became clear, and ironically revealed in filings to regulators that it had added Rio Tinto securities to its portfolio.
Source:https://www.afr.com/
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