Friday, June 26, 2015

Rio Tinto says banks are backing Oyu Tolgoi

Beijing's largest coal-fired boiler house retired
The largest coal-fired boiler house in urban Beijing was shut down on Tuesday, as part of the government's plan to cut
pollution in the capital city. The boiler house, which has four boilers with a total capacity of 80 tons of vapor per hour,
accounts for over a fifth of the total coal-fired boiler capacity in urban Beijing and provides heating for a rail equipment
manufacturing company and 20,000 local residents. The boiler house, located near the famous Marco Polo bridge in
Fengtai District, will be replaced with three gas-fired boilers before November, when the city's centrally controlled heating
is turned on for the winter. The boiler house used 40,000 tons of coal and emitted 54 tons of sulfur dioxide, 57 tons of
nitric oxide, 45 tons of dust and 1 ton of volatile organic compounds per year. Beijing plans to close all coal-fired boilers in
urban areas by the end of this year, according to a government work plan released in April. Of the four major coal-fired
power plants in Beijing, three have been closed so far and the last is scheduled to be closed next year. They will be replaced
with four gas-fired power plants. Beijing is aiming to limit annual coal consumption to 15 million tons in 2015 and 10 million
tons in 2017.
Source: Energy central

Rio Tinto says banks are backing Oyu Tolgoi
Rio Tinto's top copper and coal executive, Jean-Sébastien Jacques, says some banks have already recommitted to help
finance $US4 billion the miner is seeking for its stalled copper and gold project in Mongolia. Mr Jacques personally kicked
off Rio's engagement with a consortium of 15 to 20 banks last week, hosting a conference call alongside Rio group
treasurer Ulf Quellmann.He told The Australian Financial Review that several private and government-backed banks had
already pledged their support and a consortium deal should be completed in the next few months. "The banks are ready to
invest," Mr Jacques said in Washington. "We want to take this project to the next phase on the back of project finance."
Oyu Tolgoi in the South Gobi Desert in Mongolia is one of the world's richest copper deposits and a critical growth asset for
Rio.Rio signed an agreement with the new Mongolian government last month for a $US6 billion expansion of the copper
and gold mine.The deal follows an impasse of almost three years, after the former Mongolian government tried to change
the original terms of the contract signed in 2009 and extract more favourable returns. Rio largely stood firm, granting some
relatively minor concessions in the deal Mr Jacques personally negotiated last month with Mongolian Prime Minister
Chimediin Saikhanbileg.

Rio has already invested $US7 billion in the open pit mine that produced $US1.7 billion revenue in 2014. But 80 per cent of
the mine's potential value is buried deep underground. It requires a total extra investment of $US5-6 billion
"We believe today we have the right investment conditions and tax regime to take this project to the next phase," Mr
Jacques said. A syndicate of more than a dozen banks had previously committed to lend $US4 billion for the mine's
expansion, but the financing deal lapsed due to the lengthy dispute between Rio and the government. Mr Jacques was
Washington on Thursday and due to meet with the World Bank's private financing arm, the International Finance
Corporation, which will be one of the project's financiers. Outside of more than a dozen commercial banks, a host of the
other government export financing agencies in the United States, Canada, Australia and Asia are among the consortium of
lenders involved in the financing talks.Investors in Boston and New York, who Mr Jacques met with earlier this week, are
anxious to know when the massive project will come on stream. The project, which Rio has a 51 per cent stake in via its
shareholding in Canada's Turquoise Hill Resources, is a long-term investment and expected to reach full production by
2021. The Mongolian government owns 34 per cent of the asset.If project finance, a feasibility study and other government
approvals are forthcoming, work on the site could begin before the end of this year.

Almost 20 per cent of Rio's shareholders are in the US. On his road show, Mr Jacques has been trumpeting that Rio's coal
business is free cash flow positive, despite the slump in prices and gloomy outlook for the sector. Copper is also facing a
changing outlook. China, which accounts for about 40 per cent of global copper demand, is slowing and the government is
aiming to rebalance growth away from fixed asset investment. China's shifting growth model raises questions about
demand for copper.Rio is banking on India and South East Asia to drive copper growth and expects world copper demand
to spike back up around 2017-18, as the regions ramp up electricity use and build new cities. "As soon as you need more
energy and you need to move the energy, the best conductor is copper," Mr Jacques said. However, Mr Jacques
acknowledged risks to copper demand, particularly if consumers substitute to aluminium and plastic. "The only concern I
have is substitution to other materials," he said."We fully acknowledge substitution is a real business reality risk and we
factor it in."Rio's model takes into account likely substitution. The miner forecasts copper demand to grow at 2½ per cent a

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