Turquoise Hill seeks interim order against Rio Tinto over Mongolia mine funding

Turquoise Hill Resources (TSX: TRQ; NYSE: TRQ) is seeking an interim order in its arbitration against Rio Tinto (NYSE: RIO; LSE: RIO; ASX: RIO) in response to some of the top miner’s actions that would limit Turquoise’s funding options for the vast Oyu Tolgoi copper-gold-silver mine in Mongolia.

Tensions between Rio Tinto and Turquoise Hill’s management and minority shareholders have grabbed headlines in recent months. The two companies are at odds over roles and obligations in securing the remaining funding for the underground expansion of the mine.

The Vancouver-based miner, majority owned by Rio Tinto, had expected the underground expansion to cost US$5.3 billion when it was approved in 2015. Last year, however, Turquoise Hill flagged stability risks associated with the original project design, adding that amendments to it could increase costs by as much as an additional US$1.9 billion.

Turquoise Hill also 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.

Rio Tinto had said in September it planned to raise up to US$500 million through additional lending to develop the giant copper mine. The move, Rio said, would reduce the remaining funding requirement of the expansion to up to US$1.4 billion.

By reprofiling, the parties sought more time to repay their debt, knowing that the principal of the extended debt, or in some cases even the interest rate on it, are not reduced.

Any remaining funding for the underground mine, Rio Tinto vowed, was to be met through a Turquoise Hill equity offering.

Turquoise Hill is simultaneously advancing its evaluation of financing options for Oyu Tolgoi. Such alternatives include additional debt from banks or international financial institutions, an offering of global medium-term notes and a gold streaming transaction, it said.

The company had previously disclosed it was facing a funding shortfall for Oyu’s expansion of up to US$4 billion, including balance sheet servicing costs.

Once completed, the underground section of Oyu Tolgoi 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.

Oyu Tolgoi, located in the South Gobi desert near the border with China, produced 35,203 tonnes of copper and 26,154 ounces of gold in the first three months of this year.

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.

Turquoise Hill’s move comes a day after Rio Tinto’s new CEO, Jakub Staushol, overhauled the senior leadership team and created two new roles, as he seeks to repair damage to the company’s reputation stemming from last year’s destruction of a 46,000-year-old sacred Aboriginal site in Australia.