Rio Tinto PLC (LON:RIO)(ASX:RIO) has entered into a binding Heads of Agreement with its partner Turquoise Hill Resources in regard to an updated funding plan for the completion of the underground portion of the huge Oyu Tolgoi copper project in Mongolia.
The plan addresses the estimated remaining known funding requirement of approximately US$2.3bn, building on and replacing the arrangements established in the Memorandum of Understanding that Rio Tinto and Turquoise Hill previously entered into on 9 September 2020.
Oyu Tolgoi has been the subject of intense pressures in recent months, as scheduling delays have pushed out the financial projections for return on capital.
Now, Rio Tinto has said it’s willing to pursue a “re-profiling” of principal debt repayments, a typical use of jargon from a company that’s often had trouble communicating effectively with the market.
What the “re-profiling” appears to mean is that Rio Tinto will be covering more of the costs of the project finance itself, while allowing its partners more room for manoeuvre when it comes to the scheduled repayment of the debt, once the project is up and running.
There had been concerns that the mine would be depleted before the government would begin to receive any share of profits.
The company has said it’s willing to “re-profile” up to US$1.4bn with lenders under the existing project finance arrangements.
It will also seek to raise up to US$500mln in senior supplemental debt under the existing project financing arrangements from selected international financial institutions, and has committed to address any potential shortfalls from the “re-profiling” and additional SSD of up to US$750 million by providing a senior co-lending facility.
Turquoise has committed to complete a rights offering or placement of common shares for up to US$500mln to satisfy any remaining funding shortfall.
"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,” said Rio Tinto Copper’s chief executive Bold Baatar.
“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."