The companies have agreed to restructure debt payments of up to $1.4 billion with lenders and look to raise up to $500 million in supplemental debt under existing financing arrangements, Rio Tinto said.
The underground expansion has seen costs jump to $6.75bn, about $1.4bn higher than Rio’s original estimate, and has led to friction over funding between it and Turquoise Hill.
Canada’s Turquoise Hill said the Australian miner had also committed to address any potential shortfalls from the re-profiling and additional supplemental debt of up to $750 million by providing a senior co-lending facility on the same terms as the project financing.
Turquoise Hill has, in turn, will complete a rights offering or placement of common shares up to $500 million to satisfy any remaining funding shortfall within six months of the co-lending facility becoming available.
“With a binding funding agreement now in place that sets out a process along a known timeline, we will be able to move ahead as expeditiously as possible with the development of the underground project at Oyu Tolgoi,” Steve Thibeault, interim chief executive officer of Turquoise Hill said in a statement.
Rio Tinto’s copper boss Bold Baatar said the agreement represented a major milestone in the development of Oyu Tolgoi, which is expected to become one of the world’s largest mines of the metal, used in construction and green technologies.
Public face-off
Tensions between the companies grabbed headlines in recent months as their differences over Oyu Tolgoi deepened.
Turquoise Hill’s chief executive quit over the spat, not before taking Rio to arbitration.
Steeve Thibeault’s departure came on the heels of a new deal between Rio Tinto and the government of Mongolia governing the polemic expansion.
That agreement, yet to be confirmed, would end a three-month impasse between the world’s second-largest miner and the landlocked East Asian country, as it would give better economic benefits to the state than the current deal.
IN DEPTH: How Rio Tinto and Turquoise Hill faced off before the latest deal with Mongolia
Turquoise Hill had expected the mine’s underground expansion to cost $5.3 billion when it was approved in 2015. Last year, however, the world’s second largest miner flagged stability risks associated with the original project design, adding that amendments to it could increase costs by as much as an additional $1.9 billion.
The Vancouver-based miner warned at the time of further delays of up to two and a half years, with first sustainable production from Oyu Tolgoi’s underground expansion expected between May 2022 and June 2023.
Once completed, the mine’s underground section will lift production from 125,000–150,000 tonnes in 2019 to 560,000 tonnes at peak output, which is now expected by 2025 at the earliest. This would make it the biggest new copper mine to come on stream in several years.
Rio Tinto owns the mine through its majority stake in Turquoise Hill, which has a 66% interest in Oyu Tolgoi. The Mongolian state has the remaining 34% of the operation, located in the South Gobi desert near the border with China.
