Rio Tinto and its partners, the Government of Mongolia and Turquoise Hill Resources, have approved the next stage in the development of the world-class Oyu Tolgoi copper and gold mine in Mongolia. The development of the underground mine will start in mid-2016 following the approval of a $5.3 billion investment by the partners and the recent granting of all necessary permits.

First production from the underground, which has an average copper grade of 1.66 per cent, more than three times higher than the open pit, is expected in 2020. When the underground is fully ramped up in 2027, Oyu Tolgoi is expected to produce more than 500,000 tonnes of copper a year,¹  compared with current annual production of 175,000-200,000 tonnes. The mine also benefits from significant gold by-products, with an average gold grade of 0.35 grams per tonne.

This expansion provides an attractive investment for all shareholders with an expected internal rate of return of more than 20 per cent.²  The material from this brownfield expansion will utilise the existing concentrator and infrastructure. The size and quality of this tier one resource provides additional expansion options, which could see production sustained for many decades.

Rio Tinto deputy chief executive Jean-Sébastien Jacques said “Rio Tinto’s partnership with Mongolia began over a decade ago and we are proud of what we have already achieved in building a world-class and safety-focused operation which has already been selling copper for nearly three years. Today’s investment takes it to another level and will transform Oyu Tolgoi into one of the most significant copper mines globally, unlocking 80 per cent of its value.

“Long-term copper fundamentals remain strong and production from the Oyu Tolgoi underground will commence at a time when copper markets are expected to face a structural deficit. In line with Rio Tinto’s other tier one assets, Oyu Tolgoi offers opportunities for further expansions, leveraging existing infrastructure and supply chains and will provide attractive returns for all shareholders and Mongolia more broadly for decades to come. This is a long-term partnership, built to create mutual benefit.”

The open-pit mine at Oyu Tolgoi was completed on schedule in less than 24 months and production started in 2013. Since then, more than 440,000 tonnes of copper have been sold. Oyu Tolgoi has a workforce of approximately 3000, of which 95 per cent is Mongolian, and to date has paid more than $1.4 billion in taxes, fees and other payments to the Government of Mongolia.

Prime Minister of Mongolia MP Chimediin Saikhanbileg said “This significant investment demonstrates the confidence of all the partners in both the Oyu Tolgoi mine and in Mongolia. It also demonstrates the attractiveness of Mongolia as a place to do business and invest, which will be a catalyst for further investments that will strengthen Mongolia’s economy.

“The development of the underground will create further jobs, support Mongolian suppliers and unlock substantial value for all stakeholders, delivering benefits for all Mongolians for generations to come. This is a proud day for Mongolia and is a clear demonstration that the country is back to business.”

Today’s investment decision follows the December 2015 signing of a $4.4 billion project financing agreement with international financial institutions and export credit agencies representing the Governments of the United States, Canada and Australia, along with 15 commercial banks, for the development of the underground mine. The parties have agreed a senior debt cap of $6 billion, providing the option for $1.6 billion of supplemental senior debt.

Oyu Tolgoi is jointly owned by the Government of Mongolia (34 per cent) and Turquoise Hill Resources (66 per cent, of which Rio Tinto owns 51 per cent). Rio Tinto has been the manager of the Oyu Tolgoi project since 2010.

Some $6.4 billion has been invested to develop the open-pit mine, concentrator and associated infrastructure at Oyu Tolgoi, with an additional $500 million of capital costs for initial development of the underground mine.

Oyu Tolgoi raised limited recourse project finance to refinance existing shareholder funding and support development of the underground. The initial project finance tranche of $4.4 billion was secured in December 2015 and is expected to be drawn during the second quarter of 2016. The Oyu Tolgoi underground development will be funded by project finance debt and cash flows from Oyu Tolgoi’s open-pit operations plus cash held by Turquoise Hill Resources.

Oyu Tolgoi is fully consolidated in Rio Tinto’s accounts. On drawdown, the project finance will be recognised on Rio Tinto’s balance sheet as cash and debt.

Underground production will come from the Hugo Dummett North deposit (including the North Extension) which contains probable ore reserves of 499 million tonnes with an average grade of 1.66 per cent copper and 0.35 grams per tonne of gold.³ 

Oyu Tolgoi is expected to produce 560,000 tonnes of copper a year, on average, between 2025 and 2030,¹ when it is expected to operate in the first quartile of the copper cost curve.

¹ This production target (stated as payable metal) for the Oyu Tolgoi underground and open pit is underpinned three per cent by proven ore reserves and 97 per cent by probable ore reserves for the years 2025-2030, which have been scheduled from current mine designs by Competent Persons in accordance with the requirements of the Australasian Code for Reporting of Exploration Results, Minerals Resources and Ore Reserves, 2012 Edition.

 ² IRR based on Wood Mackenzie price forecasts as at Q1 2016.  

³ Oyu Tolgoi resources and reserves are taken from Rio Tinto’s 2015 Annual Report dated 2 March 2016 and released to the market on 3 March 2016. Oyu Tolgoi underground reserves include Hugo Dummett North and Hugo Dummett North Extension. The Competent Person responsible for that previous reporting was J Dudley (AusIMM Reserves), R Singh (AusIMM Reserves) and O Togtokhbayar (AusIMM Resources). Rio Tinto is not aware of any new information or data that materially affects these resource estimates, and confirms that all material assumptions and technical parameters underpinning the estimates continue to apply and have not materially changed.  The form and context in which the competent persons’ findings are presented have not been materially modified.

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The development of the Oyu Tolgoi underground mine in Mongolia took an important step forward today with the signing of a US$4.4 billion project financing agreement.

Oyu Tolgoi has secured Project Finance for the underground mine development with funding by international financial institutions and export credit agencies representing the governments of the United States, Canada and Australia, along with 15 commercial banks.

Today’s signing in Ulaanbaatar follows the agreement earlier this year of the Oyu Tolgoi Underground Mine Development and Financing Plan by the Government of Mongolia, Turquoise Hill Resources and Rio Tinto, which set out a pathway towards development, including the basis for the funding of the project.

Rio Tinto and all Oyu Tolgoi shareholders will now continue to work towards updating the feasibility study, including the revised capital estimates, and securing all necessary permits for the development of the underground mine. Once these steps have been completed the project will be submitted to the various boards for approval and the $4.4 billion tranche will be drawn down.

Rio Tinto Copper and Coal chief executive Jean-Sébastien Jacques said “This Project Finance agreement is significant in the industry and is the next important step towards further development of the world class Oyu Tolgoi mine in Mongolia.

“This kind of mining development partnership model sets the industry benchmark for future schemes and underscores Rio Tinto’s commitment to responsible and prudent growth. Long-term copper fundamentals remain strong and Oyu Tolgoi as a tier one asset will be a globally important source of supply as the market moves back into structural deficit over the next few years.”

Under the project financing, Initial Senior Loans will total $4.4 billion and will consist of facilities provided and funded by Export Development Canada (“EDC”), the European Bank for Reconstruction and Development (“EBRD”), the International Finance Corporation (“IFC”), the Export-Import Bank of the United States, the Export Finance and Insurance Corporation of Australia (“Efic”) and commercial lenders comprising BNP Paribas, ANZ, ING, Société Générale Corporate & Investment Banking, Sumitomo Mitsui, Standard Chartered Bank, Canadian Imperial Bank of Commerce, Crédit Agricole, Intesa Sanpaolo, National Australia Bank, Natixis, HSBC, The Bank of Tokyo-Mitsubishi UFJ, KfW IPEX-Bank and Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden. The Multilateral Investment Guarantee Agency (MIGA) provided political risk insurance for the commercial banks.

EDC, EBRD, IFC and BNP Paribas acted as Initial Mandated Lead Arrangers and Standard Chartered Bank as Initial Lead Arranger. BNP Paribas was the sole bookrunner of the $2.34 billion facilities funded by the commercial banks, together with EBRD and IFC on their respective B loans.

The parties have agreed a debt cap of $6 billion, providing the option for an additional $1.6 billion of Supplemental Debt in future.

For more details of the project financing facility please refer to the announcement released by Turquoise Hill Resources Limited today at: http://www.turquoisehill.com/s/news_releases.asp?ReportID=733885.

Oyu Tolgoi is a copper-gold mine in the South Gobi region of Mongolia and is one of the largest undeveloped high-grade copper deposits in the world.

Oyu Tolgoi has a workforce that is 95 per cent Mongolian and Oyu Tolgoi LLC has paid $1.3 billion in taxes, fees and other payments to the Government of Mongolia to date.

Construction of an open-pit mine was completed on schedule in less than 24 months and production started in 2013. More than 1.5 million tonnes of copper concentrate have now been produced from Oyu Tolgoi.

While all of the copper concentrate currently produced is from the open pit mine, more than 80 per cent of the value of the Oyu Tolgoi lies in the proposed underground mine. All funding and work on the development of the underground mine was delayed in July 2013 but the Oyu Tolgoi Underground Mine Development and Financing Plan, agreed in May 2015, resolved key outstanding shareholder issues and set out an agreed basis for the funding of the project.

Some $6.4 billion has been invested to develop the open-pit mine at Oyu Tolgoi, with an additional $500 million of capital costs for initial development of the underground mine.

Oyu Tolgoi is seeking to raise up to $6 billion of limited recourse project finance to refinance existing shareholder funding and support development of the underground phase. The initial project finance tranche of $4.4 billion has been secured today and will be drawn down subject to customary approvals as well as Rio Tinto, Turquoise Hill Resources and Oyu Tolgoi board approval of the underground mine development. The Oyu Tolgoi underground development will be funded by this project finance debt and cash flows from Oyu Tolgoi’s open-pit operations plus cash held by Turquoise Hill Resources.

Rio Tinto was advised by Rothschild while Sullivan & Cromwell LLP acted as legal counsel. Milbank, Tweed, Hadley & McCloy LLP acted as legal counsel for the lender group.

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The development of the underground mine at Oyu Tolgoi in Mongolia has taken a significant step forward today with the signing of the Oyu Tolgoi Underground Mine Development and Financing Plan (the Plan) by the Government of Mongolia, Turquoise Hill Resources and Rio Tinto. The Plan addresses the key outstanding shareholder issues and sets out an agreed basis for the funding of the project.

With a new pathway to development of the underground mine agreed, the focus now shifts to finalising the project finance, the feasibility study and securing all necessary permits so that the underground mine development can proceed.

Prime Minister of Mongolia MP Chimediin Saikhanbileg said “Mongolia is back to business. Oyu Tolgoi is a world-class copper-gold asset and its further development is of great economic significance for Mongolia.  We have finalised a way forward with our partners which re-establishes the foundations of a new and constructive relationship based on mutual trust and our joint long-term commitment to Mongolia’s growth.

“Unlocking Oyu Tolgoi’s underground mine will have a significant impact on the Mongolian economy, which will benefit Mongolian citizens for generations to come.  Our joint agreement clearly positions Mongolia as an attractive country for investment and underscores the fact that Mongolia is open for business”.

Rio Tinto Copper and Coal chief executive Jean-Sébastien Jacques said “Our joint announcement today reflects tremendous leadership by all parties and paves the way for work to resume on the underground development, which is expected to deliver significant value to shareholders. The resolution of the outstanding issues reinforces the principles of the Investment Agreement signed in 2009, which underpinned the US$6 billion invested in Oyu Tolgoi to date, and provides a clear and stable framework for the future.”

Turquoise Hill Resources chief executive officer Jeffery Tygesen said “The signing of this agreement is the culmination of extensive work by Oyu Tolgoi’s shareholders over the last year. The agreement outlines a pathway to restarting development of the underground mine, and builds on the value that has already been unlocked for Mongolia from the operation of the open-pit mine which is providing jobs and other economic contributions as well as best practices in mining standards.”

The construction of the first phase of the pioneering Oyu Tolgoi project – the open-pit mine – was completed on schedule in less than 24 months. The operation celebrated one million tonnes of copper concentrate shipped in March 2015, less than two years after the first production left the mine.  Oyu Tolgoi has a workforce that is 95 per cent Mongolian and Oyu Tolgoi LLC has paid $1.3 billion in taxes, fees and other payments to date.

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Rio Tinto has been notified by the Government of Mongolia that the terms of the project financing provisionally secured for the underground development of Oyu Tolgoi will need to be approved by the Mongolian Parliament.

The Mongolian Parliament is currently in summer recess and the parliamentary approval process may take some time to work through. Rio Tinto remains committed to working with the Government of Mongolia to secure project financing. However, in view of the current uncertainty, including continued discussions with the Government on a range of other issues, all funding and work on the underground development will be delayed until these matters are concluded and a new timetable has been agreed.

In the meantime, Rio Tinto will focus on the continued safe, efficient and cost-effective management and ramp-up of the open pit mine and sustained export of Oyu Tolgoi concentrate to customers in order to deliver the associated benefits for all stakeholders.

About Rio Tinto

Rio Tinto is a leading international mining group headquartered in the UK, combining Rio Tinto plc, a London and New York Stock Exchange listed company, and Rio Tinto Limited, which is listed on the Australian Securities Exchange.

Rio Tinto’s business is finding, mining, and processing mineral resources. Major products are aluminium, copper, diamonds, thermal and metallurgical coal, uranium, gold, industrial minerals (borax, titanium dioxide and salt) and iron ore. Activities span the world and are strongly represented in Australia and North America with significant businesses in Asia, Europe, Africa and South America.

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Rio Tinto chief executive Sam Walsh said “A new milestone was reached in Mongolia, with the Oyu Tolgoi copper-gold mine making its first shipment of copper concentrate to China. Our iron ore operations continue their impressive performance, with period on period productivity improvements. One of our key priorities this year is to deliver our growth projects. Despite some challenging weather conditions, our Pilbara 290 iron ore expansion remains on track to deliver first tonnes by the end of this quarter.”

Highlights

• Record first half iron ore production, shipments and rail volumes despite a conveyor belt breakage resulting in one of five ship loaders being side-lined for almost three weeks and unseasonal wet weather which led to flooding in the Pilbara.
• Expansion of Pilbara capacity to 290 million tonnes per year remains on budget and on time to deliver first tonnes by the end of the third quarter of this year. Delivery of first tonnes will be followed by a steady commissioning and ramp-up period.  Completion of the Rail Capacity Expansion infrastructure project was the most recent milestone reached in the quarter.
• Mined copper benefited from a sustained recovery in grades at Kennecott Utah Copper and Escondida since the first half of 2012.
• Following the north wall slide at Bingham Canyon, mining of ore from lower sections of the pit recommenced on 27 April and is being supplemented with material from stockpiles. The recovery is advancing faster than previously expected with projected full year mined and refined copper improving by 25,000 tonnes over previous estimates.
• Oyu Tolgoi made its first shipment of copper concentrate to China on 9 July 2013, representing the culmination of a three-year, $6.2 billion project to build the first phase of one of the world’s top five copper mines.
• Titanium dioxide feedstock volumes were 25 per cent higher than the second quarter of 2012 reflecting the doubling of the Group’s interest in Richards Bay Minerals.
• Rio Tinto is well on track to meet its $750 million targeted reduction in exploration and evaluation spend in 2013, with spending in first half down by $483 million over the same period of 2012.

All currency figures in this report are US dollars, and comments refer to Rio Tinto’s share of production, unless otherwise stated

About Rio Tinto

Rio Tinto is a leading international mining group headquartered in the UK, combining Rio Tinto plc, a London and New York Stock Exchange listed company, and Rio Tinto Limited, which is listed on the Australian Securities Exchange.

Rio Tinto’s business is finding, mining, and processing mineral resources. Major products are aluminium, copper, diamonds, thermal and metallurgical coal, uranium, gold, industrial minerals (borax, titanium dioxide and salt) and iron ore. Activities span the world and are strongly represented in Australia and North America with significant businesses in Asia, Europe, Africa and South America.

The post Rio Tinto: Second quarter 2013 operations review appeared first on Core Sector Communique.

Oyu Tolgoi has started shipping copper concentrate to customers from its copper and gold mine in Mongolia.

The shipping of concentrate is the culmination of a three-year, US$6.2 billion project to build the first phase of one of the world’s top five copper mines.

Rio Tinto Copper chief executive Jean-Sebastien Jacques said “It has taken the vision and hard work of thousands of people to get to this point, where we are starting to convert the rich resources beneath the desert into real wealth and opportunity for all stakeholders, including the Mongolian people.

“Oyu Tolgoi starts production at a time when undeveloped quality copper assets are scarce and the outlook for copper continues to be strong. With continued development, Oyu Tolgoi will generate wealth for many decades to come.”

All permits for exporting copper concentrate are in place, together with Oyu Tolgoi Board approvals, and authorities required for continued concentrate sales.

Oyu Tolgoi remains committed to maintaining transparency in its operations and managing export revenues consistent with the Investment Agreement.

OT facts

Ownership

Erdenes Oyu Tolgoi (66 per cent) and Erdenes Oyu Tolgoi (34 per cent). Erdenes Oyu Tolgoi is wholly owned by the Government of Mongolia. Rio Tinto holds a 51 per cent share of Turquoise Hill Resources.

Production

Average annual production over 20 years from open pit and underground mine (development subject to Board approvals):

• Copper 430,000 tonnes

• Gold 425,000 ounces

Mine facts

• The copper concentrator is the largest industrial plant ever built in Mongolia. It contains enough steel (23,098 tonnes) to build three Eiffel Towers and enough cable (581km) to stretch from the mine to Ulaanbaatar

• The open pit mine will be deep enough to stack the Great Pyramid of Giza on top of itself four times

• The deepest underground shaft is eight times deeper than the English Channel

• The overland ore conveyer is the same length as the Golden Gate Bridge

Economic benefits

• US$1.1  billion – taxes and payments to the Government of Mongolia   through June 2013

• US$1.1 billion – products and services purchased from Mongolian supplier companies in 2010-2012

Employees and training

• 10,888 – number of Mongolians employed at Oyu Tolgoi project as of 30 April 2013

• 89.25 – percentage of Mongolian employees at Oyu Tolgoi project as of 30 April 2013

• 90 per cent – committed percentage figure of Mongolian employees to work at Oyu Tolgoi during the operation

• No less than 70 per cent – Mongolian engineers during operation

• US$126 million – investment by Oyu Tolgoi in education and training in Mongolia

• 6,600 – trainees across Mongolia with Oyu Tolgoi financial support

About Rio Tinto

Rio Tinto is a leading international mining group headquartered in the UK, combining Rio Tinto plc, a London and New York Stock Exchange listed company, and Rio Tinto Limited, which is listed on the Australian Securities Exchange.

Rio Tinto’s business is finding, mining, and processing mineral resources. Major products are aluminium, copper, diamonds, thermal and metallurgical coal, uranium, gold, industrial minerals (borax, titanium dioxide and salt) and iron ore. Activities span the world and are strongly represented in Australia and North America with significant businesses in Asia, Europe, Africa and South America.

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Rio Tinto chief executive Tom Albanese said “This was another year of strong operational performance across the Group. We achieved record annual iron ore production and shipments as our expansion programme continues on schedule, delivering industry leading returns for our shareholders. Our copper, bauxite, alumina, thermal coal and titanium dioxide businesses all delivered substantial production increases on 2011 levels.

“Markets remain volatile, but our business continues to perform well. Across the Group we are taking action to roll back unsustainable cost increases. This further enhances our resilience and competitive edge as we enter 2013.”

• Record global iron ore shipments of 247 million tonnes (100 per cent basis) were achieved in 2012 despite severe weather disruptions and a significant maintenance shut-down during the year. Global iron ore production for the full year was 253 million tonnes (Rio Tinto share 199 million tonnes), four per cent higher than 2011. Pilbara iron ore production of 239 million tonnes (Rio Tinto share 191 million tonnes) set another annual record, four per cent higher than in 2011. Current nameplate capacity in the Pilbara has risen from 225 Mt/a at the start of 2012 to 237 Mt/a through de-bottlenecking and productivity improvement, with minimal capital spend.

• Total mined copper production for 2012 was six per cent higher than in 2011, due to expected recovery in ore grades at Kennecott Utah Copper and Escondida. Refined copper production improved at Kennecott Utah Copper following scheduled smelter maintenance during the second quarter.

• On 5 November 2012 Rio Tinto announced that Oyu Tolgoi had signed a binding agreement with a Chinese power company for the supply of electricity to Oyu Tolgoi. Commissioning of the ore-processing equipment began in mid-November and first ore was processed through the concentrator on 2 January 2013. First concentrate production will follow within one month and commercial production is expected to commence by June 2013.

• Bauxite and alumina production in 2012 were 11 per cent and 12 per cent higher than 2011, driven by increased third party demand for bauxite and expanded refining capacity at Yarwun. Aluminium production was 10 per cent lower than in 2011, as ramp up to normal capacity continued following resolution of the Alma labour dispute.

• Thermal coal production for the full year was 16 per cent higher than in 2011, reflecting increased plant capacity at Bengalla, the continued ramp-up at Clermont and the reversal of one-off disruptions in the fourth quarter of 2011. Hard coking coal production was nine per cent lower than in 2011, due to the impact of planned dragline maintenance at Hail Creek and a major preparation plant shutdown at Kestrel as part of its mine expansion project.

• Titanium dioxide feedstock production for the full year increased 11 per cent from 2011 following a successful furnace rebuild at Rio Tinto Fer et Titane and an increase in attributable volumes from Richards Bay Minerals (RBM).

• During the quarter, Rio Tinto announced further sales of non-core businesses, including a binding agreement to sell its interest in Palabora Mining Company, and the completion of the sales of the Lynemouth Power Station and the Chinese portion of its Alcan Cable business.

All currency figures in this report are US dollars, and comments refer to Rio Tinto’s share of production, unless otherwise stated

About Rio Tinto

Rio Tinto is a leading international mining group headquartered in the UK, combining Rio Tinto plc, a London and New York Stock Exchange listed company, and Rio Tinto Limited, which is listed on the Australian Securities Exchange.

Rio Tinto’s business is finding, mining, and processing mineral resources. Major products are aluminium, copper, diamonds, thermal and metallurgical coal, uranium, gold, industrial minerals (borax, titanium dioxide and salt) and iron ore. Activities span the world and are strongly represented in Australia and North America with significant businesses in Asia, Europe, Africa and South America.

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