In what’s expected to be one of the largest resource financings in Asia this year, Rio Tinto has attracted significant interest for a $2.5 billion loan to expand the Oyu Tolgoi Copper-Gold Project. The finance will see construction of a $5.1 billion underground mine at the site, once commercial sales from the open-cut mine begin mid-year.
The project loan and start of commercial sales both hinge on Rio Tinto resolving a dispute with the Mongolian Government over management of the mine, spiralling costs, and taxes. Both parties are hopeful of reaching a resolution before Mongolia’s June election.
Fourteen lenders have submitted credit-approved commitments ranging from $50 million to $250 million. Initial mandated lead arrangers BNP Paribas and Standard Chartered Bank were allocated $250 million each. Australia and New Zealand Banking Group, Credit Agricole CIB, HSBC, ING Bank, Natixis, Societe Generale and Sumitomo Mitsui Banking Corp were allocated $200 million each. Three other banks have been allocated $150 million, and Germany’s export credit agency KfW IPEX and Dutch development bank FMO are also lending.
The project financing has been split in two tranches, with 60% in a B-loan tranche with International Finance and the European Bank for Reconstruction and Development, and 40% through a Multilateral Investment Guarantee Agency (MIGA)-guaranteed tranche. Lenders are waiting for Rio and financial adviser Rothschild to finalize the split.
The project is also heavily backed by $1.95 billion in direct loans from Australian, European, US and Canadian export credit agencies. Due to the high level of equity investment, Rio will have the option to raise more debt at a later stage and re-gear the project.
Meantime, a senior government official has suggested Mongolia will seek to woo back foreign investors in a bid to stem the exodus of cashflow from the country’s mining sector. Deputy Minister for Economic Development Ochirbat Chuluunbat says the government is preparing a new law on investment, based on legislation seen in Chile, Canada and Australia, that would guarantee stability. That law, which follows a law on foreign investment in strategic sectors, could be put to parliament by July.