Turquoise Hill Eyes Oyu Tolgoi Underground Project Restart Proposal

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.

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