Rio secures financing for Mongolian mega mine

Rio Tinto has signed a US$4.4 billion financing agreement for its Oyu Tolgoi copper mine in Mongolia.

“Oyu Tolgoi has secured Project Finance for the underground mine development with funding by international financial institutions and export credit agencies representing the governments of the United States, Canada and Australia, along with 15 commercial banks,” Rio Tinto said in a company statement.

This agreement caps off a turbulent period for the mine, which has been plagued by financing issues and ongoing disputes with the Mongolian Government over royalties.

The Oyu Tolgoi expansion project was plagued by disagreement between the Mongolian Government and JV partners over accusations of non-payment of US$30 million in taxes, which Rio Tinto denied.

Construction of the project began in 2009, and was suspended in July 2013 over the deadlock between Rio Tinto and the Mongolian Government, which resulted in job losses for 1700 workers.

The push to develop the asset, however, remained a key focus for Rio Tinto despite the ongoing issues and falling copper price, with the miner’s head of copper and coal, Jean-Sébastien Jacques, labelling it a top tier asset.

When asked if he believed the site was worth the hassle, Jacques stated: “No doubt, it’s bloody awesome.”

With the new financing agreement Rio Tinto is now able to progress the project to its next stage.

“Rio Tinto and all Oyu Tolgoi shareholders will now continue to work towards updating the feasibility study, including the revised capital estimates, and securing all necessary permits for the development of the underground mine,” Rio Tinto said.

“Once these steps have been completed the project will be submitted to the various boards for approval and the $4.4 billion tranche will be drawn down.”

 “This Project Finance agreement is significant in the industry and is the next important step towards further development of the world class Oyu Tolgoi mine in Mongolia,” Jacques said.

“This kind of mining development partnership model sets the industry benchmark for future schemes and underscores Rio Tinto’s commitment to responsible and prudent growth. Long-term copper fundamentals remain strong and Oyu Tolgoi as a tier one asset will be a globally important source of supply as the market moves back into structural deficit over the next few years.”

The financing will be provided through facilities provided by Export Development Canada; the European Bank for Reconstruction and Development (EBRD); the International Finance Corporation (IFC), the Export-Import Bank of the United States; the Export Finance and Insurance Corporation of Australia (Efic); and commercial lenders comprising BNP Paribas; ANZ; ING; Société Générale Corporate & Investment Banking; Sumitomo Mitsui; Standard Chartered Bank; Canadian Imperial Bank of Commerce; Crédit Agricole; Intesa Sanpaolo; National Australia Bank; Natixis; HSBC; The Bank of Tokyo-Mitsubishi UFJ; KfW IPEX-Bank; and Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden.

The Multilateral Investment Guarantee Agency (MIGA) provided political risk insurance for the commercial banks.

The parties have agreed a debt cap of US$6 billion, providing the option for an additional US$1.6 billion of supplemental debt in the future.