Rio turning Turquoise to gold
Rio Tinto could emerge with a bigger slice of Mongolia's Oyu Tolgoi project, as funding delays threaten to squeeze other partners' hold on the lucrative copper and gold mine.
A global effort to raise $US4 billion ($4.3 billion) to expand the mine to its full potential continues to be delayed on the back of unresolved disputes with the Mongolian government.
The funding delay has forced the company building the project - Canada's Turquoise Hill Resources - to launch a multibillion-dollar rights issue, which could allow its 51 per cent shareholder, Rio Tinto, to boost its shareholding and thereby increase its exposure to Oyu Tolgoi.
In a statement published on Friday, Turquoise Hill said Rio Tinto had rejected pleas for an extension of existing loans that were due to expire on December 31.
"The company has requested but has been unable to secure an extension of the 'New Bridge Facility' and the 'Interim Funding Facility' from Rio Tinto to coincide with the completion of the project financing," the company said.
Turquoise Hill is now compelled to raise the money through a rights issue, with pundits expecting it to raise at least $US2.4 billion.
Rio Tinto will underwrite the issue, meaning it may have a bigger stake in Turquoise Hill by the end of the process.
JPMorgan estimated Rio Tinto could emerge with as much as 75 per cent of Turquoise Hill if other shareholders were reluctant to participate in the raising, and the transaction would be made at a cheap price given the recent falls in the Turquoise Hill share price.
The first stage of Oyu Tolgoi came into production in the middle of this year, but the much bigger and more important second stage of the project has been caught up in dispute for some time, with Mongolia wanting a bigger slice of the wealth from the mine, and expressing concerns at the construction cost estimates calculated by Rio and Turquoise.
The companies have already reduced the scale of the expansion project in a bid to satisfy Mongolia's desire for lower costs.
Turquoise said issues such as "the sharing of economic value from the project", "clarification of initial development and construction costs", and "access to water" remained unresolved with the government.
A Rio Tinto spokesman said the company was in "continuing discussions" with the government.
"Rio Tinto together with [Turquoise Hill] is working to achieve a resolution of the outstanding issues and good progress is being made, but there is still more to be done," the company said.
Oyu Tolgol mine
34% owned by Mongolian government
66% owned by Turquoise Hill Resources
Turquoise Hill Resources
51% owned by Rio Tinto
49% listed on Toronto Stock Exchange