Financing to expand the $13 billion Oyu Tolgoi copper mine in Mongolia is
likely to be locked in by end of the year, said an executive with the mine’s
operator Rio Tinto.

Investment in Oyu Tolgoi helped drive growth in the central Asia country to
16.7 percent in the first quarter of 2012 and may already account for more than
a third of Mongolia’s economy.

“We are currently in the process of working with banks, and have been for a
couple of years, to put in place the world’s ;argets ever project finance
raising for the industry and hopefully in the next six month we will conclude
that,” Cameron McRae, Mongolia country manager for Rio Tinto and chief
executive of Oyu Tolgoi LLC, said in an interview on Friday.

Oyu Tolgoi began development in 2009 agter a landmark investment agreement
gave 66 percent of the project to Canada’s Ivanhoe Mines. Rio Tinto now has a
majority stake in Ivanhoe and has full operational control over the mine.

The project has already cost $7 billion in capital investment, and Ivanhoe
in March estimated the second phase may cost more than $5 billion, helping pressure
on the Anglo-Australian mining giant.

The project is on track to began producing ore by the end of August, six
months ahead of an original schedule, and it will go into commercial operation
next year, McRae said at his office in Ulaanbaatar.

But in remote desert region bereft of infrastructure, much still depends on
securing electricity from neighbouring China.

McRae said he expected commercial agreements with power generators in the
Chinese region of Inner Mongolia to be completed on time but conceded that
geopolitical concerns between China and Mongolia had slowed the process.

Rio Tinto expects to be given the go-ahead to build its own onsite power
plant within the next few weeks.

In an ideal world, it should have started sooner, McRae said, but it would
have pushed capital expenditure up by another $1 billion and put further
pressure on the project’s strained foreign shareholders.

“The initial $7 billion was all being funded by foreign shareholders and we
haven’t gone to external debt. I think the capacity of the sgareholders was
pretty well maxed out.”

POLITICAL RISKS

Investment in Oyu Tolgoi could already make up 35 percent of the country’s
total economy, McRae said.

But the role played by foreign investors in Mongolia’s burgeoning sector has
been subject to criticism, especially ahead of next week’s parliamentary
elections.

Last year, nationalists backbenchers called on the government to demand an
increased stake in Oyu Tolgoi. Investors are also concerned about the
popularity of former President Nambar Enkhbayar, who has campaigned for the
2009 deal to be renegotiated.

In May nationalist backbenchers passed a new law that would subject foreign
investment in “strategic” sectors to greater regulatory oversight, a move
thought to have designed to prevent Ivanhoe from selling a majority stake in
its subsidiary South Gobi Resources to Chinese metals giant Chinalco.

“The law is not bad thing,” said McRae. “But what is important for Mongolia
is how they finalise it and what regulations are in place so it become a good
law that attracts foreign investment and enables domestic investment to occur.”

McRae said hostility to foreign investment was overstated.

“The interesting point in this election is that there are quite a lot of
politicians and partners that are out there putting the pro-foreign investment
view forward,” he said.

Source: Reuter

June 22, 2012