Delay of the Project Finance of Oyu Tolgoi and its implications

Delay of the Project Finance of Oyu Tolgoi and its implications

This is to share our latest research report with yourself. At the press release of Turquoise Hill on November 14, the company has provided update on Oyu Tolgoi, announced filing of preliminary prospectus for rights offering and an extension of interim funding and new bridge facilities and released financial results and review of operations for the third quarter of 2013.

The highlights of the press release are as follows:

1. Discussions with the Government of Mongolia continue in order to reach agreement on outstanding issues; there is positive engagement between the parties and progress is being made.
2. Given uncertainties surrounding the timing of resolution of issues with the Government of Mongolia, including obtaining all required approvals and completion of the Oyu Tolgoi expansion feasibility study, Turquoise Hill is unable to complete project financing in 2013.
3. Turquoise Hill remains committed to obtaining project finance to fund the development of the Oyu Tolgoi Project and is engaging with the Government of Mongolia to achieve this; work continues on the optimization of the underground mine design and construction plan and finalization of the feasibility study.
4. In light of uncertainty of project financing timing and in accordance with the 2013 Memorandum of Agreement, Turquoise Hill has filed today a preliminary prospectus for a rights offering.
5. Turquoise Hill and Rio Tinto have agreed to extend the maturity date of the Interim Funding Facility and the New Bridge Facility to no later than January 15, 2014 in order to allow for completion of the rights offering.

We believe this will increase uncertainty to the investment climate in Mongolia.
And, by issuing the additional shares, the share price of TRQ will be pressured significantly because of the dilution of the share.
However, as Rio is still committed on Oyu Tolgoi, we remain positive on TRQ.

Xiangguang Copper to Build a 200,000-tpy Smelter at Ganqimaodu Port in Inner Mongolia

 

SHANGHAI, Nov. 21 (SMM) – Xiangguang Copper Co. signed a contract with Bayan Nur’s city government to build a 200,000-tpy copper smelter next to Port of Ganqimaodu in China’s Inner Mongolia.
Xiangguang Copper’s chairman Liu Xuejing and Bayan Nur’s municipal party secretary He Yonglin presented at the contract signing ceremony on Nov. 18, a local government newsletter said on Wednesday.
Xiangguang will put an investment of 3 billion yuan ($490 million) for the plant construction which is expected to last two years, the newsletter said.
Ganqimaodu port received China’s first inbound shipment of copper concentrates from Mongolia’s Oyu Tolgoi mine on July 9, and was expected to import 50,000 tonnes of the concentrates by the year’s end, the port authorities said on its website in September.

 

China Ganqimaodu Port to Import 50,000 Tonnes of Copper Conc. from Oyu Tolgoi Mine in 2013

 

SHANGHAI, Sept. 24 (SMM) – Port of Ganqimaodu in China’s Inner Mongolia is expected to import 50,000 tonnes of copper concentrates produced from Oyu Tolgoi copper mine in Mongolia by this year’s end.
The port, located in Bayan Nur city’s Wulate Middle banner, received China’s first inbound shipment of copper concentrates from the Oyu Tolgoi mine on July 9, the port authorities said on its website over the weekend. Total shipments reached 14,100 tonnes by late August, it said.
Ganqimaodu port aims to enhance its cargo clearance capacity in the months ahead so as to be able to import 30,000-50,000 tonnes of Mongolia’s copper concentrates a year, it said.
At the same time, the port also plans to build a 200,000-tpy copper smelting facility to add value to its concentrate imports, it added.

 

 Turquoise Hill to raise up to $2.4 bln for Oyu Tolgoi

Nov 15, 2013 00:57 GMT   Source: Reuters 

Thu, 14 Nov 19:53:00 GMT

Adds rights offer amount, updates share price)

Nov 14 (Reuters) - Turquoise Hill Resources Ltd said Thursday it was planning a rights offering of up to $2.4 billion, citing delays at Rio Tinto's Oyu Tolgoi copper and gold mine in Mongolia that have stopped it from financing the mine's next phase.

Shares of Vancouver-based Turquoise Hill, which owns 66 percent of Oyu Tolgoi, fell more than 6 percent to C$4.35 in afternoon trading on the Toronto Stock Exchange.

Diversified miner Rio Tinto owns 50.8 percent of Turquoise Hill and operates Oyu Tolgoi.

Turquoise Hill filed a preliminary prospectus for the rights offering. Rights offerings raise funds from existing shareholders.

Rio Tinto put Oyu Tolgoi's more than $5 billion underground expansion on hold in July, saying the Mongolian government wanted parliament to approve the project's financing. [ID:nL6N0FZ43T]

Uncertainty over Oyu Tolgoi and shifting foreign investment rules have weighed on foreign direct investment in Mongolia over the last year.

Turquoise Hill said progress was being made with the government, but it was not clear when the project would be approved or when a feasibility study would be final. The company said it did not expect to complete project financing this year.

Under an agreement with Turquoise Hill, Rio Tinto will be required to buy shares that are not taken up under the rights offering, subject to some conditions.

The preliminary prospectus did not include the size of the proposed offering but said it could be as much as $2.4 billion. Turquoise Hill's market capitalization w

as about $4.5 billion at Wednesday's stock market close.

Turquoise Hill needs the funds to repay Rio Tinto under two funding facilities. The facilities' maturity dates have been extended to Jan. 15, 2014, so the rights offering can be completed.

Turquoise Hill also reported its financial results for the third quarter on Thursday. It posted a net loss of $94.0 million, or 9 cents a share. Analysts, on average, had expected a loss of 5 cents a share, according to Thomson Reuters I/B/E/S.

Revenue rose to $15.7 million from $3.8 million.

 

Rio Tinto Mongolia copper output climbs, but China import snag drags on

 

SYDNEY, Oct 15 (Reuters) - Global miner Rio Tinto could be forced to amass a mountain of copper concentrate at its new $6 billion Oyu Tolgoi mine in Mongolia while Chinese buyers resolve a lengthy customs impasse with their government.
The Oyu Tolgoi concentrator continued to ramp up production in the third quarter and is now operating at maximum processing capacity of 100,000 tonnes of ore per day, said Toronto-listed Turquoise Hill Resources , which runs Oyu Tolgoi and is 66-percent owned by Rio Tinto.
Oyu Tolgoi was supposed to start shipping copper concentrate to China shortly after the mine opened in July. But instead has been forced to stockpile the material while buyers negotiate with Chinese customs officials over import approvals.
"Oyu Tolgoi's customers are making good progress with Chinese customs officials to resolve matters with purchased concentrate at the border," Turquoise Hill Chief Executive Kay Priestly said in a statement.
Turquoise Hill said it was sticking to a forecast to produce between 75,000 and 85,000 tonnes of copper in concentrates at Oyu Tolgoi in 2013
"Shipments of concentrate are expected to be aligned with production rates by the end of 2013," it said.
The mine shipped 38,000 tonnes of concentrate to a bonded warehouse in China between July and Sept. 18 and another 122,000 tonnes was being held in inventory at the mine, the company said previously
Data from Turquoise Hill on Tuesday showed the concentrate contained 43,700 tonnes of copper metal.
The mine also yielded 83,000 ounces of gold and 281,000 ounces of silver in the first nine months of 2013, it said.
Given the mine and concentrator are still early in development and operation, ore grades and recovery rates are expected to improve throughout the fourth quarter, according to Turquoise Hill.
The concentrate is destined for Chinese smelters. Buyers are seeking the necessary approvals to enable them to collect the material from the warehouse.
Mongolia has a 34-percent stake in Oyu Tolgoi, but will not share in any profits until Turquoise Hill recovers all the costs of the project.
Economic growth in the sparsely populated and landlocked country is heavily tied to its vast copper and coal resources, and reinvigorating foreign investment has been a top priority for its government. [ID:nL4N0HU01C]
Rio Tinto, which releases its third quarter production data later on Tuesday, is expected to provide an update on efforts to resume normal operations at its Kennecott copper mine in Utah, following a pit collapse in April.

Top ten fastest growing copper mines of the world

Aug 30, 2013 03:05 GMT   Source:Scrap Monster 

SANTIAGO (Scrap Monster) : Given below is the top ten list of world’s fastest growing copper projects of the world. The below mentioned copper projects together are expected to deliver up to 1Mt of additional copper in 2014.
1. Minas Ministro Hales, Chile (Codelco)
2. Collahuasi, Chile (Anglo American)
3. Oyu Tolgoi, Mongolia (Rio Tinto)
4. Grasberg, Indonesia (Freeport-McMoRan)
5. Buenavista, Mexico (Southern Copper)
6. Toromocho, Peru (Chinalco)
7. Sierra Gorda, Chile (Quadra FNX)
8. Bisha, Eritrea (Nevsun Resources)
9. Escondida, Chile( BHP)
10. Salobo mines, Brazil (Vale)

 

COLUMN-Mongolia, Rio Tinto playing high stakes on copper mine

Aug 19, 2013 07:49 GMT   Source: Reuters 

LAUNCESTON, Australia, Aug 19 (Reuters) - Is Rio Tinto's dispute with the Mongolian government over the expansion of the Oyu Tolgoi copper and gold mine the signal that the nation's commodity boom is over, or is it just a hiccup?
Certainly, Mongolia's reputation as a desirable investment destination and one of the few remaining countries ripe for developing natural resources has taken a battering recently.
Rio Tinto , the world's second-largest mining company, said on Aug. 14 that it will cut 1,700 jobs at Oyu Tolgoi after a $5 billion expansion of the project was put on hold last month.[ID:nL6N0GF4FJ]
The dispute is over how the expansion gets financed, and the Mongolian parliament has been recalled from its summer recess for an emergency session to try and deal with the matter. [ID:nL6N0GH2LC]
But the real issue is how long it will take for Mongolia to get significant amounts of money from the mine, which is slated to boost the economy by 35 percent by 2020.
Rio Tinto's Turquoise Hill Resources subsidiary owns 66 percent of the mine, while the government owns the other third.
The government has said Oyu Tolgoi, which has an operating open pit and a planned underground expansion, is at least $2 billion over budget.
The higher the capital cost of the mine and any expansion, the longer it will take to pay off the investment, thus delaying returns.
The Mongolian authorities are also said to be concerned about the management fees charged by Rio Tinto for operating the facility, and whether local workers should be on the same pay scales as foreigners.
So far Rio Tinto has played its cards close to its chest, saying publicly that both it and the government remain committed to expanding the project and resolving any issues.
The stakes are high for both parties, thus increasing the likelihood of an eventual compromise and resolution.
For Rio Tinto, Oyu Tolgoi represents one of the world's largest untapped copper reserves, and its development will lessen the global miner's reliance on its iron ore mines in Western Australia.
Longer term, copper may be a better bet than iron ore, given the paucity of new copper reserves, the aging of existing mines and still strong demand from industrialisation in China and India.
In contrast, iron ore supply looks set to swamp demand in the next few years as Rio Tinto, its Australian competitor BHP Billiton and Brazil's Vale all increase capacity, while demand growth in top consumer China is expected to taper.

MONGOLIA NEEDS MINES
For Mongolia, the development of the Oyu Tolgoi copper mine and the Tavan Tolgoi coal mine is the ticket to economic prosperity, with export earnings forecast at a combined $7 billion by 2020, a huge amount for a country whose gross domestic product was $10.2 billion last year.
It's no surprise that both the Mongolian government and Rio Tinto want to secure the best possible terms for themselves in developing the Oyu Tolgoi deposit.
But both will have to be wary about escalating the current dispute to the point where the viability of the investment is called into question.
Firing some 1,700 workers is a fairly dramatic step by Rio Tinto, and the company appears to be betting that the Mongolian authorities need it more than Rio needs them.
There may be some truth to that.
If the Rio Tinto investment does go sour, it would put Mongolia off the map for virtually any Western company for decades.
Given the lack of a good relationship with China, it's unlikely Mongolia wants to become dependent on investment from its giant southern neighbour.
In fact, landlocked Mongolia would love to be able to sell its resources, such as coal, to countries other than China, but a lack of infrastructure to ship through northern neighbour Russia is a major obstacle.
Mongolian President Tsakhia Elbegdorj, who won re-election in June with a slim majority, is keen to exert more control over foreign mining investments.
What this is likely to mean in practice is that the government wants a bigger share of the revenues without having to stump up capital for development.
While this can certainly be legislated, it will alter the risk-reward equation for assessing resource projects and potentially discourage new investment.
Both the Mongolian government and Rio Tinto have too much at stake to endure a protracted dispute.
But this doesn't mean that both parties will work quickly to resolve the issues. This will take leadership on both sides.
The upcoming emergency sitting of parliament on Sept. 2-6 sets the stage for compromise all round.
But the government is likely to be feeling more pressure than Rio Tinto, given lower commodity prices and a 43 percent slump in foreign investment in the first half of this year, both of which hurt the budget.