THE US$4.4 billion project financing agreement for the Oyu Tolgoi (OT) underground mine is a global vote of confidence in Mongolia that reopens the doors to leading global banks for Mongolian projects, according to the country’s Prime Minister Saikhanbileg.
In a press statement the government said, “The funding has been secured from a very high quality syndicate of global lenders and underlines the market’s support for and confidence in the project and our country.
“The cooperative partnership forged in reaching this important milestone, augurs well for the future success of the project and paves the way for increased foreign investment into Mongolia. The Government of Mongolia has garnered valuable experience in interacting with foreign investors and in managing the country’s strategic assets, and is fully committed to maintaining an investment environment that is conducive for foreign capital.
“Development of the underground phase of Oyu Tolgoi will unlock the remaining value of the entire mine. It will contribute significantly to the economy of Mongolia and play an integral role in assisting the Government in its efforts to improve the quality of life of Mongolian citizens,” it said.
Mongolia’s national investment company Erdenes Mongol said, “This major financing, which represents 80% of the value of the entire mine, is being funded by international financial institutions and export credit agencies representing the governments of the United States, Canada and Australia, along with 15 commercial banks.
“Drawdown of funds is expected to occur in the second quarter of 2016, with work on the underground development expected to resume in the first half of 2016. Construction on the mine is expected to last between five to seven years, with production anticipated to commence in 2021.”
The facility was signed by Oyu Tolgoi LLC in December and represents one of the largest ever provided in the mining industry. Oyu Tolgoi LLC is the Mongolian operator of OT and is 66% owned by Turquoise Hill Resources and 34% by the Government of Mongolia. Turquoise Hill is majority owned by Rio Tinto.
Turquoise Hill’s chief executive officer Jeff Tygesen said, “The signing of project finance is an unprecedented milestone for Turquoise Hill and Oyu Tolgoi as well as an historic vote of confidence in the project and Mongolia. We look forward to working with the Mongolian Government and Rio Tinto to complete the remaining steps leading to restart of underground development.”
The facility will be funded by Export Development Canada, European Bank for Reconstruction and Development, International Finance Corporation, Export-Import Bank of the United States, Export Finance and Insurance Corporation of Australia 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 UJF, KfW IPEX-Bank and Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden. The Multilateral Investment Guarantee Agency (MIGA) provided political risk insurance for the commercial banks.
Turquoise Hill, Rio Tinto and Oyu Tolgoi are working towards completing the 2015 feasibility study, including the updated capital estimate and securing all necessary permits for development. Once these steps have been completed and subject to the boards approving a formal notice to proceed, the full facility will be drawn down.
Net proceeds after fees and taxes are anticipated to be approximately $4.1 billion. As well as the draw down, proceeds will be used by Oyu Tolgoi to pay down shareholder loans payable to Turquoise Hill.
As part of the finance agreements, Rio Tinto will provide a completion support undertaking in favour of the lenders. In consideration for this, Oyu Tolgoi and Turquoise Hill have agreed to pay Rio Tinto an annual completion support fee equal to 2.5% of the amounts drawn under the facility, of which 1.9% is payable by Oyu Tolgoi and 0.6% by Turquoise Hill.