Rio Tinto close to securing $4-bn for Mongolian copper project

14 Dec 2015


Anglo-Australian mining giant Rio Tinto Plc is nearing a $4-billion funding deal with a group of 15 global banks for its prolific OyuTolgoi copper and gold project in Mongolia, in a sign of the miner's strong resolve to invest in growth projects despite the continuing slump in global commodity prices.

Although the deal was expected to be finalised after the New Year, there is push to execute the agreement before Christmas, and could be as early as this week, The Australian Financial Review reported.

Copper prices are trading at their six-year lows of around $2.1 a pound, falling around 30 per cent in the past one year. Nevertheless, Rio Tinto sees upside potential for the red metal in the future due to anticipated supply shortage.

While speaking at an event in Sydney last month, Rio's chief executive for coal and copper Jean-Sebastien Jacques said the project finance is expected to happen this year.

"We expect early in the next year we will be able to take a decision about restarting the underground construction," he said.

Further to securing the finances, the next steps include securing all necessary permits for operating the underground mine.

Oyu Tolgoi, located in the Southern Gobi desert, about 80 km north of the Chinese border, and 550 km from Mongolia's capital Ulaanbaatar, is one of the world's largest copper-gold deposits and according to the International Monetary Fund's estimate, has the potential to generate a third of Mongolia's GDP, when it reaches full production in 2021.

The government of Mongolia owns 34 per cent interest in the project, while 66 per cent is held by Rio Tito's Canadian subsidiary Turquoise Hill Resources, of which Rio owns 51 per cent.

Oyu Tolgoi, when it becomes fully operational, will produce an average of 430,000 tonnes of copper and 425,000 ounces of gold per year, as well as by-product silver and molybdenum, over its estimated mine life of 50 years.

The phase-1 operation, which includes an open pit mine and a 100,000 tonnes per day concentrator, became operational in 2013. Rio and Turquoise have invested approximately $6.2 billion in the project.

Copper production for the mine was up 48 per cent for the nine months to September compared to a year ago due to higher grades and improved output.

The underground section of the mine, named as Oyu Tolgoi phase-2 contains up to 80 per cent of the value of the project. The phase-2 work was halted in July 2013 on issues with the Mongolian government on profit sharing, cost overruns, and taxes.

The country's prime minister Saikhanbileg Chimed, who took office a year ago, had a positive view on the project and its financing and pledged to remove the deadlock.

About a fortnight ago, the miner approved a $1.9-billion Australian bauxite mine, the Amrun project, earlier known as South of Embley, in northern Queensland. The 23-million tonnes per annum operation is scheduled to go on stream in the first half of 2019.

Rio Tinto chief executive Sam Walsh said,  ''Amrun is one of the highest quality bauxite projects in the world. It is a tier one asset that will deliver significant benefits to all our stakeholders.

''This long-life, low-cost, expandable asset offers a wide variety of development options and pathways over the coming decades,''

Walsh is looking to take advantage of the falling commodity prices to enhance its portfolio by acquiring high-quality assets from troubled sellers.

"That also may provide opportunity for us – if you happen to see a distressed player put tier one assets on the block, particularly if it's copper, that would be of interest to us," Walsh told The Australian Financial Review.

Despite strong operational performance, the mining giant reported 26-per cent fall in revenue at $18 billion in the first half of the year. Net profit slumped 82 per cent to $806 million for the period, due to plunge in commodity prices.

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