TRQ Turquoise Hill Resources Ltd

SYDNEY—Rio Tinto Ltd. and its partners have lined up a combined $4.4 billion from 20 lenders to fund the expansion of a Mongolian copper mine, as the Anglo-Australian company continues to invest in big, new projects despite a rout in global commodity markets.

Rio has become an outlier in the global mining industry by spending billions of dollars to expand businesses such as bauxite and iron ore at a time when many other large producers have delayed new investment. A Rio-led venture plans to build a vast network of underground tunnels at its Oyu Tolgoi deposit in Mongolia, where it has already built an open-pit mine. It is expected to become one of the world's largest copper operations.

An enormous minerals trove that could eventually represent up to a third of landlocked Mongolia's economy, Oyu Tolgoi has been beset by delays and complicated negotiations between those involved in the venture, namely Rio, Turquoise Hill Resources Ltd. and the Mongolian government.

Rio-controlled Turquoise Hill, a Canadian-listed miner, owns 66% of the Oyu Tolgoi project. The Mongolian government owns the rest.

The first convoy of trucks carrying copper to China departed from the existing pit in July 2013 and earlier this year, a plan was approved for an underground development after years of tense negotiations over the sharing of costs and profits.

On Tuesday, the partnership the $4.4 billion project finance package with 15 commercial banks and five credit agencies, including the U.S. Export-Import Bank, for the underground development, which could cost as much as $6 billion to build. Rio has estimated that up to 80% of the value of the deposit—located in the southern Gobi Desert, about 80 kilometers (50 miles) north of the border with China—is tied to the proposed underground operations.

The financing "is a conclusion of more than four years of discussions with the lenders," said Jean-Sé bastien Jacques, Rio's copper and coal chief. "We have all been on a very steep learning curve," he said, adding that "despite a very volatile market environment, they understand the long term value of Oyu Tolgoi."

The news comes as other copper producers have cut output amid a sharp slump in metal prices. Copper, which is trading at a six-year low, has fallen by more than half since its 2011 peak of more than $10,000 a ton, to about $4,670.

Copper is used in everything from phones to cars to plumbing, but slower economic growth in China, the world's top commodities buyer, has translated into sluggish demand for the metal. Miners including Glencore PLC and Freeport McMoRan Inc. have cut production as prices have fallen.

But Mr. Jacques said he expects copper to rebound faster than most other commodities.

"We expect the market to recover three to four years down the road, which is perfect timing as far as Oyu Tolgoi is concerned," he said. The underground mine is expected to take between five and seven years to build.

And Oyu Tolgoi isn't the only big project that Rio is pressing ahead with. Last month, it approved a $1.9 billion bauxite project called Amrun in northeastern Australia. Bauxite is a raw material that is used to make alumina, a key ingredient in the manufacturing of aluminum.

Executives said they were eager to grow that business as well, citing expectations of strong future demand from China, the world's No. 1 aluminum producer.

Rio has been bruised by steep falls in commodity prices this year, but its shares have been outperforming those of its chief rivals. Competitors such as Anglo American PLC and Glencore have been cutting dividends and closing mines, while Rio has vowed to maintain payouts and invest in bold new projects.

To be sure, Rio is taking a stricter approach to spending. Earlier this month, the company revised its 2016 budget for major-project spending to about $5 billion from an earlier forecast for less than $6 billion.

As recently as 2012, Rio was spending more than $17 billion a year on major projects. The company invested billions expanding its network of iron-ore pits and infrastructure in western Australia during that period and has since been criticized for becoming too reliant on the steelmaking ingredient, which now trades at its lowest price in a decade.

When fully operational, Oyu Tolgoi is set to produce an average of 430,000 metric tons of copper and 425,000 troy ounces of gold a year, in addition to vast quantities of silver and molybdenum.

Rio's board still needs to approve the project. It is waiting on necessary permits for the underground mine, as well as an internal review of construction costs, which is currently under way. Mr. Jacques said he expects a final decision to be made in the first half of 2016, after which the project financing will be drawn down.

Rio didn't disclose the interest rate that the joint venture will pay for the loans, although it said lenders had factored in the potential for challenges in the developing country, where foreign investors have grappled with repeated regulatory changes.

"The cost of the project finance is reflective of the sovereign risk on one side—on the other, people fully factor in that it is a 'tier-one' asset," Mr. Jacques said.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

(END) Dow Jones Newswires

December 15, 2015 02:45 ET (07:45 GMT)

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