LONDON--Mining titan Rio Tinto PLC (RIO) has kept its majority
stake in Turquoise Hill Resources Ltd (TRQ.T) unchanged at 50.8%
following the successful completion of a $2.4 billion rights
issue.
Turquoise Hill, the 66% owner of Mongolia's Oyu Tolgoi copper
and gold deposit, said Monday that its rights issue was
over-subscribed but declined to say by how much.
Rio Tinto, Turquoise Hill's largest shareholder and Oyu Tolgoi's
project operator, said it spent 1.29 billion Canadian dollars, or
$1.19 billion, in order to maintain its 50.8% Turquoise Hill stake.
It didn't acquire any additional shares as part of a standby
agreement because the rights issue was fully subscribed, the miner
said.
Rio Tinto, however, did receive anti-dilution warrants that if
exercised alongside other warrants, would increase the
Anglo-Australian miner's stake in Turquoise Hill to 54.2%. Rio
Tinto said it has "no present intention" to exercise those
warrants.
Robert Friedland, the company's founder, also fully subscribed
to his share of the rights issue, a source familiar with the matter
said. Mr. Friedland owns about a 10% stake in the company.
Turquoise Hill announced in November plans to issue $2.4 billion
worth of shares in order to pay back an equal amount of loans due
to Rio Tinto later this month.
Turquoise Hill had initially planned to pay off the loans by
securing project financing in 2013 for the underground expansion of
the mine, where about 70% of the project's mineral value lies. But
Rio Tinto put the expansion on hold last summer after the Mongolian
government unexpectedly announced that the project's financing
would have to be approved first by parliament. Rio Tinto and the
Mongolian government have been at loggerheads for more than a year
over the project's investment terms given government concerns about
escalating costs and the impact it may have on the timeline for the
government's return from the project, among other things.
Turquoise Hill said last year that progress has been made in
resolving the issues with the Mongolian government, which owns a
34% stake in the deposit. Rio Tinto also said it has secured a
commitment from 15 commercial banks to extend the signing date for
a provisional $4 billion financing package negotiated last year to
the end of March.
Oyu Tolgoi is forecast to produce between 150,000 metric tons
and 175,000 tons of copper in concentrate and 700,000 troy ounces
to 750,000 oz of gold in concentrate this year after exporting its
first copper in July.
Mr Friedland said he expects the Oyu Tolgoi to generate
significant cash flow from this year onward.
"This is the first time that the mine will be debt free and in
full commercial production. So there is nowhere to go but up," he
told The Wall Street Journal in an interview on Dec 20 after
visiting the mine.
He said that the company has about $750 million worth of copper
and gold in inventory and could cover this year's forecast $1
billion in operating costs if Oyu Tolgoi were to sell its 750,000
oz. of forecast gold production at the current gold price of about
$1,200/oz.
"That means you get the copper for basically nothing," he
said.
Mr. Friedland said he wasn't particularly concerned about the
two to three outstanding issues that he said still need to be
resolved between Turquoise Hill, Rio Tinto and the Mongolian
government. "All the players have stated that they are looking for
a successful resolution and I think it's a virtual certainty that
we will see it next year," he said.
Rio Tinto plans to unveil an updated feasibility study for the
underground expansion project in the first half of this year.
Write to Alex MacDonald at alex.macdonald@wsj.com
(This item was corrected at 23:55 GMT to reflect that Rio Tinto
said it spent 1.29 billion Canadian dollars, or $1.19 billion, not
$867.5 million.)
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