UPDATE: Rio Tinto: Oyu Tolgoi 2011 Capex May Be More Than $1 Billion

More than $1 billion is likely to be spent on the massive Mongolian Oyu Tolgoi copper and gold project in 2011, a senior executive on the project said Wednesday.

Andrew Harding, chief executive of Rio Tinto PLC's (RIO) copper division said "pretty much" $1 billion was spent on the Oyu Tolgoi project this year and "more than $1 billion" would likely be spent next year, although the final capital expenditure program still needs to be approved. He was speaking at the Mongolian investment summit in London.

Ivanhoe Mines Ltd. (IVN), the principal owner in the project, still needs to approve the final capital expenditure plan in unison with Rio Tinto, the project operator and 34.9% shareholder in Ivanhoe.

Ivanhoe owns a 66% stake in Oyu Tolgoi and the Mongolian government owns the rest.

The timeline of the capital expenditure program will be key in determining when Ivanhoe will need to tap the debt and equity markets or find an equity investor to finance the project.

Ivanhoe initially estimated, based on an independent review, the company would need to spend $4.6 billion to start producing from Oyu Tolgoi's open pit by 2013.

The company has already spent $1.5 billion on developing and constructing the project to date, Ivanhoe Chairman and Chief Executive Richard Friedland said at the conference.

Ivanhoe has announced its intention to raise up to $1 billion through a rights issue but the company hasn't set a date yet. It is also arranging loans of more than $2 billion from international banks.

Ivanhoe is in the midst of an arbitration process with Rio Tinto over Ivanhoe's shareholders' rights plan, which Rio says conflicts with a private placement agreement that Ivanhoe signed with Rio in 2006.

Analysts say the shareholder rights plan was adopted earlier this year to prevent Rio Tinto from creeping in and taking majority control of Ivanhoe.

Rio Tinto's private placement agreement with Ivanhoe allows the Anglo-Australian miner to raise its stake in the Canada-based mining company to about 46.65% and no more before 2011.

Friedland declined to comment on whether the rights issue would be contingent on resolving the arbitration process.

He, however, later noted that the rights issue was unanimously approved by all of Ivanhoe's board of directors, including board members who represent Rio's interests.

Oyu Tolgoi expects to start production in late 2012 and expects to start commercial production in 2013.

Oyu Tolgoi is expected to ramp up annual production to more than 450,000 metric tons of copper and 650,000 troy ounces of gold.

-By Alex MacDonald, Dow Jones Newswires; +44 20 7842 9328; alex.macdonald@dowjones.com

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