By Alex MacDonald
LONDON--Canada-based Turquoise Hill Resources Ltd (TRQ.T) said
Thursday that an option to restart the underground development of
the massive Mongolian Oyu Tolgoi gold and copper project has been
proposed even as negotiations with the Mongolian government
continue to resolve outstanding issues that led to the project's
suspension.
Turquoise Hill, majority-owned by Oyu Tolgoi's project operator
Rio Tinto PLC (RIO), said that an option has been proposed to
restart the underground expansion project, subject to certain
conditions met, but cautioned that "further delays may occur if
outstanding shareholder issues, including project finance, are not
resolved before the expiration of lender commitments on existing
project finance arrangements."
Turquoise Hill, Rio Tinto and the Mongolian government have been
at loggerheads for more than a year about the investment terms for
the second phase of expansion of the Oyu Tolgoi project. The
Mongolian government is concerned that escalating project costs
could delay the timing of government revenue from the project,
among other things.
The protracted talks prompted Rio Tinto and Turquoise Hill,
which owns 66% of Oyu Tolgoi, to put the underground expansion on
hold in July and lay off workers. Rio Tinto, however, managed to
secure 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 from December of last year in order to
allow the three parties to resolve their outstanding issues.
Turquoise Hill said that all parties are committed to further
construction of the underground project and development of Oyu
Tolgoi, subject to resolution of shareholder issues, agreement of a
comprehensive funding plan including project finance, approval of
the feasibility study by all shareholders and the Mongolian
Minerals Council and receipt of permits required for the
project.
Turquoise Hill said that 60% of Oyu Tolgoi's production is under
contract with additional volume contracts in the process of being
finalized. Oyu Tolgoi continues to target production of 150,000 to
175,000 metric tons of copper in concentrates and 700,000 to
750,000 ounces of gold in concentrates this year, although
production rates were dented recently by various post-commissioning
issues of the mine that will result in the shutdown of one
production line for a period of six to eight weeks. The company is
taking advantage of this opportunity to pull forward plant
maintenance that would have required a plant slowdown later in the
year.
Write to Alex MacDonald at alex.macdonald@wsj.com