Rio Tinto inks agreement with Turquoise Hill over Oyu Tolgoi
Rio Tinto and Turquoise Hill Resources (TRQ) have netred into a binding Heads of Agreement (HoA)over a $2.3bn funding plan for the completion of underground works at Oyu Tolgoi in Mongolia.
The Funding Plan addresses the estimated remaining known funding requirement to build on and replace the arrangements established in the Memorandum of Understanding that Rio Tinto and TRQ previously entered into on 9 September, 2020.
Under the HoA, subject to securing approval by Oyu Tolgoi LLC and any required support from the Government of Mongolia, and subject to timing, availability, and terms and conditions being acceptable to both parties, Rio Tinto and TRQ will:
- pursue re-profiling of principal debt repayments up to $1.4bn with lenders under the existing project finance arrangements to better align with the revised mine plan, project timing and cash flows;
- seek to raise up to $500mn in senior supplemental debt (SSD) under the existing project financing arrangements from selected international financial institutions;
- Rio Tinto has committed to address any potential shortfalls from the re-profiling and additional SSD of up to $750mn by providing a senior co-lending facility (the “Co-Lending Facility”) on the same terms as OT’s project financing; and
- TRQ has committed to complete a rights offering or placement of common shares for up to $500mn to satisfy any remaining funding shortfall within six months of the Co-Lending Facility becoming available.
Rio Tinto Copper Chief Executive Bold Baatar commented: “This agreement and alignment with TRQ represents a major milestone in the continued development of Oyu Tolgoi, which is expected to become one of the world’s largest copper mines and a significant contributor to the Mongolian economy for years to come.
Commencing the re-profiling whilst concurrently listening, engaging and resolving the concerns of the Government of Mongolia are critical steps to maintaining momentum on the timely delivery of the Oyu Tolgoi Underground Project.”
Turquoise Hill Resources
“We are pleased to have reached a constructive and equitable agreement with Rio Tinto to fund the Oyu Tolgoi underground development,” stated Steve Thibeault, Interim Chief Executive Officer of Turquoise Hill. “With a binding funding agreement now in place that sets out a process along a known timeline, we will be able to move ahead as expeditiously as possible with the development of the underground project at Oyu Tolgoi.
We remain committed to continue delivering a benefit to all stakeholders, including Mongolia and its citizens, and to delivering significant long-term value for TRQ as this project progresses.”
Rio Tinto and TRQ have agreed to jointly obtain an order dismissing the current arbitration on a without prejudice basis, including an order vacating the interim measures order.
Global iron ore production to recover by 5.1% in 2021
Global iron ore production fell by 3% to 2.2bnt in 2020. Global production is expected to grow at a compound annual growth rate (CAGR) of 3.7% to 2,663.4Mt between 2021 to 2025. The key contributors to this grow will be Brazil (6.2%), South Africa (4.1%), Australia (3.2%) and India (2.9%). Key upcoming projects expected to commence operations include South Flank in Australia (2021), Zulti in South Africa (H2 2021), Serrote Da Laje in Brazil (H2 2021) and Gudai-Darri (2022), according to GlobalData, a leading data and analytics company.
Vinneth Bajaj, Associate Project Manager at GlobalData, comments: “Declines from Brazil and India were major contributors to the reduced output in 2020. Combined production from these two countries fell from a collective 638.2Mt in 2019 to an estimated 591.1Mt in 2020. The reduced output from the iron ore giant, Vale, was the key factor behind Brazil’s reduced output, while delays in the auctioning of mines in Odisha affected India’s output in 2020.
“Miners in Australia were relatively unaffected by COVID-19 due to effective measures adopted by the Australian Government, while a speedy recovery in China led to a significant 10.4% increase in the country’s iron ore output.”
Looking ahead, the global iron ore production is expected to increase by 111.3Mt to 2,302.5Mt in 2021. Rio Tinto is expected to produce up to 340Mt of iron ore, while BHP has released production guidance of 245–255Mt, supported by the start of the Samarco project in December, which is expected to produce between 1–2Mt.The company has retained its guidance for Australian mines at 276–286Mt on a 100% basis, due to scheduled maintenance work at its ore handling plant and tie-in activity at the Area C mine and South-Flank mine.
Bajaj added: “The remaining companies are expected to produce more than 600Mt of iron ore, including FMG, whose production is expected to range between 175–180Mt supported by its Eliwana mine that commenced operations in late December 2020, and Anglo American, which is expecting to produce between 64–67Mt. Vale is expected to resume 40Mt of its production capacity, taking its overall production capacity to 350Mt in 2021, with production guidance of 315-335Mt.”