Rio Tinto secures $4 billion financing deal for Oyu Tolgoi copper mine
The development of the Oyu Tolgoi underground mine in Mongolia took an important step forward today with the signing of a US$4.4 billion project financing agreement.
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.
Today’s signing in Ulaanbaatar follows the agreement earlier this year of the Oyu Tolgoi Underground Mine Development and Financing Plan by the Government of Mongolia, Turquoise Hill Resources and Rio Tinto, which set out a pathway towards development, including the basis for the funding of the project.
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. 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.
Rio Tinto Copper and Coal chief executive Jean-Sébastien Jacques said: “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.
“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.”
Under the project financing, Initial Senior Loans will total $4.4 billion and will consist of facilities provided and funded by Export Development Canada (“EDC”), 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.
EDC, EBRD, IFC and BNP Paribas acted as Initial Mandated Lead Arrangers and Standard Chartered Bank as Initial Lead Arranger. BNP Paribas was the sole bookrunner of the $2.34 billion facilities funded by the commercial banks, together with EBRD and IFC on their respective B loans.
The parties have agreed a debt cap of $6 billion, providing the option for an additional $1.6 billion of Supplemental Debt in future.
Based in the South Gobi region of Mongolia, Oyu Tolgoi is one of the largest undeveloped high-grade copper deposits in the world. Oyu Tolgoi has a workforce that is 95 percent Mongolian and Oyu Tolgoi LLC has paid $1.3 billion in taxes, fees and other payments to the Government of Mongolia to date.
Construction of an open-pit mine was completed on schedule in less than 24 months and production started in 2013. More than 1.5 million tons of copper concentrate have now been produced from Oyu Tolgoi.
• Related content: Rio Tinto Settles Tax Dispute with Mongolia; Oyu Tolgoi Mine Back On Track
While all of the copper concentrate currently produced is from the open pit mine, more than 80 percent of the value of the Oyu Tolgoi lies in the proposed underground mine. All funding and work on the development of the underground mine was delayed in July 2013 but the Oyu Tolgoi Underground Mine Development and Financing Plan, agreed in May 2015, resolved key outstanding shareholder issues and set out an agreed basis for the funding of the project.
Some $6.4 billion has been invested to develop the open-pit mine at Oyu Tolgoi, with an additional $500 million of capital costs for initial development of the underground mine.
Oyu Tolgoi is seeking to raise up to $6 billion of limited recourse project finance to refinance existing shareholder funding and support development of the underground phase. The initial project finance tranche of $4.4 billion has been secured today and will be drawn down subject to customary approvals as well as Rio Tinto, Turquoise Hill Resources and Oyu Tolgoi board approval of the underground mine development. The Oyu Tolgoi underground development will be funded by this project finance debt and cash flows from Oyu Tolgoi’s open-pit operations plus cash held by Turquoise Hill Resources.
Rio Tinto was advised by Rothschild while Sullivan & Cromwell LLP acted as legal counsel. Milbank, Tweed, Hadley & McCloy LLP acted as legal counsel for the lender group.
DRC selects Fortescue to develop giant hydro project
Democratic Republic of Congo's (DRC's) government said on Tuesday Fortescue Metals Group would develop the Grand Inga hydroelectric power project, including a 4,800-megawatt dam that has already been committed to Chinese and Spanish developers.
Fortescue to develop dams for world's largest hydroelectric project
Australia's Fortescue confirmed it was in talks with Congo to develop a series of dams that could become the world's largest hydroelectric project, but it said no formal binding agreement had been concluded.
Fortescue's involvement is the latest twist in Congo's decades-long quest to expand Inga, whose two existing dams - completed in 1972 and 1982 - have a combined installed capacity of nearly 1,800 MW.
The proposed expansion of six more dams would bring capacity to over 40,000 MW, roughly double the size of China's Three Gorges dam, currently the world's largest. Total development costs have been estimated at up to $80bn.
In 2018, a Chinese consortium that includes China Three Gorges Corporation and a Spanish consortium that includes AEE Power signed a deal with Congo's government to develop the third dam, known as Inga 3.
Ground has yet to be broken on Inga 3 because of questions over its financial viability. Alexy Kayembe De Bampende, President Felix Tshisekedi's top infrastructure advisor, said the project would now be led by Fortescue.
"Fortescue will be the sole operator for the entire Grand Inga (3 to 8). Chinese & co are welcome to join Fortescue," he told Reuters."There has been discussion between Chinese (Three Gorges) & AEE and (Fortescue) since last year to work together."
Three Gorges and AEE Power did not respond immediately to requests for comment.
DRC's Grand Inga green energy project will create hundreds of thousands of jobs
In a memorandum of understanding signed between Fortescue and Congo in September 2020, Fortescue "acknowledges the existing potential rights held on Inga 3 by third parties".
"In the event that, for any reason, such rights to develop Inga 3 become available, the government of the DRC undertakes to secure for Fortescue Future Industries an exclusive first option to develop Inga 3," it said.
A senior official at the government's Agency for the Development and Promotion of Grand Inga (ADPI), speaking on condition of anonymity, said the ADPI had not been involved in the talks with Fortescue.
Fortescue chairman Andrew Forrest met Congo President Felix Tshisekedi on Sunday to discuss the project. Forrest said Fortescue would use the energy from Inga to produce hydrogen to export around the world.
"The capital cost of this will be many many tens of billions of dollars and direct and indirect employment will be in the hundreds of thousands," he told reporters.
Fortescue has said it plans to fund the majority of its green energy projects off its balance sheet, investing about $1bn a year of its own money.
Fortescue's statement was made in response to an article in the Australian Financial Review.
Meanwhile, Fortescue has teamed up with Hatch, Anglo American and BHP, to form a Green Hydrogen Consortium focused on ways of using green hydrogen to accelerate decarbonisation within their operations globally.