What is behind Rio Tinto's dispute over Mongolia's copper mine
According to Reuters reports, Canadian mining company Turquoise Hill Resources Ltd. and its largest shareholder Rio Tinto Plc ) copper mine underground expansion issue into dispute.
In recent months, tensions between mining operator Rio Tinto and Turquoise Mountain’s management and minority shareholders have become public. Rio Tinto owns 51% of Turquoise Mountain, which in turn owns 66% of the mine.
The following is an explanation of this dispute.
What is Oyu Tolgoi?
Oyu Tolgoi is one of the largest known copper-gold deposits in the world, located in the Gobi region of southern Mongolia. The Mongolian government holds 34% of the project, and Rio Tinto’s Turquoise Mountain holds the remaining shares.
Open-pit mining started in 2011. The first batch of copper production for underground expansion is expected to climb to 500,000 tons per year at full capacity in 2022, which will make it the third largest copper mine in the world.
What is the cost of expansion?
Rio Tinto announced a 30-month postponement in 2019. Due to geological difficulties, the cost overrun was as high as US$1.9 billion, and the total expenditure was between US$6.5 billion and US$7.2 billion.
In addition to this figure, add the cost of coal-fired power plants to provide electricity to the mine.
Why are the minority shareholders upset?
In November last year, Turquoise Mountain filed an arbitration procedure against Rio Tinto, saying that Rio Tinto’s approach to financing expansion was “incompatible” with its own approach.
Rio Tinto said in September that it would borrow US$500 million to develop the mine, and the remaining funding gap would be made up by issuing shares in Turquoise Mountain.
Turquoise Mountain’s shareholders worry that this will allow Rio Tinto to acquire more shares in Turquoise Mountain, thereby underestimating its entire valuation.
Pentwater Capital Capital Partners and Sailingstone Capital Partners, which hold a 9.23% stake in Turquoise Mountain, accused Rio Tinto of improper management and unfairly restricted Turquoise Mountain’s access to financing The ability to pay these costs.
The Canadian mining company hopes to extend the time it takes to repay part of its debt while exploring other financing options, including possible gold flows, to delay or avoid stock offerings.
What will happen next?
Turquoise Hill stated that the arbitration may take up to five months and will provide the necessary “clarity” for the mine’s financing. It said on December 1 that the Oyu Tolgoi board of directors has approved the establishment of a special committee to conduct an independent review of the mine’s overruns and delays.
According to the company, an external expert company will report to the special committee within six months of the investigation.
Rio Tinto declined to comment.
Turquoise Hill said that if the company and Rio Tinto extend the time it takes to repay existing loans and issue new bonds as planned, they will need to raise $1.1 billion through bank bonds, bonds or metal flows.
However, the Canadian mining company said it may need to issue at least $3 billion in additional shares if it cannot modify its debt repayment terms or obtain other financing.
