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Turquoise Hill secures landmark US$4.4B financing for Oyu Tolgoi mine in Mongolia

Canadian miner Turquoise Hill Resources Ltd. is set to make a massive investment in Mongolia’s Oyu Tolgoi mine after securing a landmark US$4.4 billion financing package, one of the largest ever seen in the industry.

Vancouver-based Turquoise Hill unveiled the package early Tuesday. The capital is being provided by a syndicate of banks and export credit agencies in the form of loans that have terms of 12 to 15 years. Export Development Canada and Canadian Imperial Bank of Commerce are among the groups in the syndicate.

With this cash secured, Turquoise Hill is finally equipped to begin underground development at Oyu Tolgoi, a massive copper-gold mine that will account for about 30 per cent of Mongolia’s gross domestic product once it reaches full capacity. Oyu Tolgoi is being mined strictly as an open pit at present, but the real value for investors is in the long-delayed underground expansion.

“The signing of project finance is an unprecedented milestone for Turquoise Hill and Oyu Tolgoi as well as a historic vote of confidence in both the project and Mongolia,” chief executive Jeff Tygesen said in a statement.

The underground development was supposed to happen years ago, but it was held up by political challenges in Mongolia. Turquoise Hill, along with its parent company Rio Tinto Ltd., struggled to negotiate a workable agreement with the government, which accused Turquoise Hill of unpaid taxes and wanted to renegotiate other agreements covering Oyu Tolgoi.

The dispute cast a massive cloud over Mongolia’s investment environment, and raised serious doubts about Oyu Tolgoi’s future. But the two sides finally resolved their differences last May. That paved the way for Turquoise Hill to nail down financing for the expansion.

The next steps are to complete a feasibility study on the underground development, update cost estimates and secure permits. That should all be done early next year, at which point construction can get underway.

This Oyu Tolgoi mine, located in the remote Gobi Desert, is a game-changer for both Mongolia and the broader copper industry. At full capacity, the operation is expected to produce a whopping 430,000 tonnes of copper and 425,000 ounces of gold per year. The sheer scale and importance of the project made it difficult for the miners to negotiate with the Mongolian state.

Oyu Tolgoi was discovered in 2001 by Ivanhoe Mines Ltd., a company controlled by Canadian mining magnate Robert Friedland. Five years later, he brought in Rio Tinto as a strategic partner to help develop the project. Rio gradually increased its stake in Ivanhoe, and in 2012, it went over 50 per cent ownership and took over the board. The company was then renamed Turquoise Hill (which is “Oyu Tolgoi” in English). Friedland left and launched a new Ivanhoe Mines, which is focused on copper and platinum deposits in Africa.

Turquoise Hill owns 66 per cent of Oyu Tolgoi, while the Mongolian state owns the remaining 34 per cent. Rio Tinto, in turn, owns 51 per cent of Turquoise Hill. Many investors assume that Rio Tinto will buy out Turquoise Hill at some point, but it appears to be in no rush to do so.