By Alex MacDonald
LONDON--Rio Tinto PLC's (>> Rio Tinto plc) has received a three-month extension to secure a provisional financing agreement signed earlier this year for the second phase expansion of Mongolia's massive Oyu Tolgoi copper and gold project.
Canada-based Turquoise Hill Resources Ltd. (>> Ivanhoe Mines-rights), which is majority owned by Rio Tinto and owns 66% of Oyu Tolgoi, Monday said the extension by 15 commercial banks until March 31, will finance the $5.1 billion Oyu Tolgoi second phase expansion. The Mongolian government owns the remaining 34% of Oyu Tolgoi.
Rio Tinto, the project's operator, had locked in the pricing and terms of the financing package in April but disagreements between the miner and the Mongolian government about scope and payback period for the second phase meant that the financing couldn't be completed by the year-end deadline. As a result Turquoise Hill had to issue $2.4 billion worth of shares to pay Rio Tinto for two interim loans that are set to expire in January.
"All parties are committed to resolving the shareholder issues and advancing the necessary steps to restart the underground mine; including resolution of the shareholder issues, completion of the feasibility study, project financing, [and] permitting and approvals," said Turquoise Hill in a statement. The study for the second phase expansion plan is due to be completed in the first half of 2014, the company added.
Turquoise Hill also said that Oyu Tolgoi, which began commercial production in July, is set to produce 150,000 to 175,000 metric tons of copper in concentrate and 700,000 to 750,000 troy ounces of gold in concentrate next year.
Operating cash costs are forecast to reach $1 billion in 2014 and the Oyu Tolgoi's inventories should fall to more normal levels of four to six weeks of production, it said. Inventories rose earlier this year partly due to delays in securing Mongolian export permits and Chinese customs clearances for its copper.
Turquoise Hill said it will "vigorously defend" itself against a U.S. class action suit that alleges Turquoise Hill and certain executives violated federal securities laws after Turquoise Hill was forced to restate certain financial figures due to revised historical revenue figures at its 56%-owned Mongolian coal miner SouthGobi Resources Ltd. (1878.HK).
Turquoise Hill also said that it has completed the sale of a 50% stake in privately owned Kazakh-focused gold miner Altynalmas Gold Ltd. to Sumeru Gold BV for $235 million.
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