Turquoise Hill Resources announces that Oyu Tolgoi LLC has signed a US$4.4 billion project finance facility, one of the mining industry’s largest, to enable development of the Oyu Tolgoi (OT) underground project in Mongolia to resume. The facility is being provided by a syndicate of international financial institutions and export credit agencies.
The syndicate represents the governments of Canada, the United States and Australia, along with 15 commercial banks.
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 a historic vote of confidence in both the project and Mongolia. We look forward to working with the Mongolian Government and Rio Tinto to complete the remaining steps leading to the restart of underground development.”
The OT copper-gold-silver project is 66% owned by Turquoise Hill and 34% by the Government of Mongolia with Rio Tinto holding a majority stake of Turquoise Hill.
Oyu Tolgoi LLC is the Mongolian-based operating arm of the OT project.
The facility consists of the following components:
- A Loan of $0.8 billion over 15 years with annual interest rates of LIBOR plus 3.78% pre-completion and LIBOR plus 4.78% post-completion;
- Export Credit Agencies Loan of $0.9 billion over 14 years, and interest of LIBOR plus 3.65% pre-completion, and LIBOR plus 4.65% post-completion. Another loan of $0.4 billion over 13 years with US Ex-IM at fixed rate of Commercial Interest Reference Rate based on US Treasury rates; determined at time of first disbursement;
- MIGA Insured Loan of $0.7 billion over 12 years and interest of LIBOR plus 2.65% pre-completion and LIBOR plus 3.65% post-completion; and
- B Loan of $1.6 billion over 12 years, and interest of LIBOR plus 3.4% pre-completion and LIBOR plus 4.4% post-completion, includes $50 million 15-year loan at A Loan rate.
The project finance 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 will now continue to work towards completing the 2015 feasibility study, including the updated capital estimate and securing all necessary permits for the development of the underground mine. Once these steps have been completed and subject to the boards of Turquoise Hill, Rio Tinto and Oyu Tolgoi approving a formal notice to proceed, the full $4.4 billion facility will be drawn down by Oyu Tolgoi subject to satisfaction of certain conditions precedent typical for a financing of this nature.
Net proceeds from the project finance facility after fees and taxes are anticipated to be approximately $4.1 billion. The net proceeds will be used by Oyu Tolgoi to pay down shareholder loans payable to Turquoise Hill. The net proceeds will be available to be re-drawn by Oyu Tolgoi for development of the underground mine.
As part of the project finance agreements, Rio Tinto has agreed to provide a completion support undertaking in favour of the project finance lenders. In consideration for providing completion support, and as contemplated by previous agreements, 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% is payable by Turquoise Hill.
The annual completion support fee will apply to funding used for facility fees and taxes at initial drawdown as well as amounts used to fund development. The obligation to pay a completion support fee will terminate on the date Rio Tinto’s completion support obligations to the project lenders terminate.
The all-in project finance interest rate for Oyu Tolgoi, including upfront and ongoing fees as well as the annual completion support undertaking fee, is LIBOR plus 6.0%.