Turquoise Hill scores win in funding dispute with Rio Tinto over Mongolia mine

Until further notice, Rio Tinto won’t be able to authorize re-profiling negotiations with project lenders in a manner that would render Oyu Tolgoi LLC unable to execute an offering of bonds in 2021, Turquoise noted.

Tensions between the companies have grabbed headlines in recent months. They are at odds over roles and obligations in securing the remaining funding for the underground expansion of the mine.

Turquoise Hill, majority owned by Rio Tinto, had expected the underground expansion to cost $5.3 billion when it was approved in 2015. Last year, however, the world’s second largest miner flagged stability risks associated with the original project design, adding that amendments to it could increase costs by as much as an additional $1.9 billion.

Turquoise Hill warned at the time of further delays of up to two and a half years, with first sustainable production from Oyu Tolgoi’s underground expansion expected between May 2022 and June 2023.

Rio Tinto had said in September it planned to raise up to $500 million through additional lending to develop the giant copper mine. The move, Rio said, would reduce the remaining funding requirement of the expansion to up to $1.4 billion.

By reprofiling, the parties sought more time to repay their debt, knowing that the principal of the extended debt, or in some cases even the interest rate on it, are not reduced.

Any remaining funding for the underground mine, Rio vowed, was to be met through a Turquoise Hill equity offering.

Mulling options

Turquoise Hill continues to evaluate financing options for Oyu Tolgoi. Such alternatives include additional debt from banks or international financial institutions, an offering of global medium-term notes and a gold streaming transaction, it said.

The company had previously disclosed it was facing a funding shortfall for Oyu’s expansion of up to $4 billion, including balance sheet servicing costs.

Once completed, the underground section of Oyu Tolgoi will lift production from 125,000–150,000 tonnes in 2019 to 560,000 tonnes at peak output, which is now expected by 2025 at the earliest. This would make it the biggest new copper mine to come on stream in several years.

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Q3 2020 production, according to Turquoise Hill, was 36,286 tonnes of copper, an increase of 28% over Q3 2019. Gold production was 36,743 ounces, an increase of 43% over Q3 2019.

Oyu Tolgoi is expected to produce 480,000 tonnes of copper per year on average from 2028 to 2036 from the open pit and underground, compared with 146,300 tonnes in 2019 from the open pit.

Rio Tinto owns the mine through its majority stake in Turquoise Hill, which has a 66% interest in Oyu Tolgoi. The Mongolian state has the remaining 34% of the operation.

News of the interim order against Rio Tinto comes a week after its new chief executive, Jakob Stausholm, overhauled the senior leadership team and created two new roles.

With the move, Rio’s new boss seeks to repair damage to the company’s reputation stemming from last year’s destruction of a 46,000-year-old sacred Aboriginal site in Australia.