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Rio Tinto, Turquoise Hill Resources and Mongolia reach Oyu Tolgoi agreement

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Global Mining Review,

Rio Tinto, Turquoise Hill Resources (TRQ) and the government of Mongolia have reached an agreement that will move the Oyu Tolgoi (OT) project forward, resetting the relationship between the partners and increasing the value the project delivers for Mongolia.

As a result, the OT Board, comprised of representatives of Rio Tinto, TRQ and Erdenes Oyu Tolgoi (EOT), which is wholly owned by the government of Mongolia, has unanimously approved commencement of underground operations. This step unlocks the most valuable part of the mine and is expected to begin in the coming days, with first sustainable production expected in 1H23.

Project budget, funding and agreements

As part of a comprehensive package, TRQ will waive the US$2.4 billion EOT carry account loan in full, comprising the amount of common share investments in OT LLC funded by TRQ on behalf of EOT to build the project to date, plus accrued interest.

The Parliament of Mongolia has approved a resolution (Resolution 103) that resolves the outstanding issues that have been subject to negotiations with the government of Mongolia over the last two years in relation to addressing Parliament Resolution 92 (December 2019).

With this approval, the Parliament of Mongolia has required that certain measures be completed in order for Resolution 92 to be considered formally implemented. To date, conditions relating to the following measures have been addressed:

  • The waiving of the carry account loan.
  • The improved cooperation with EOT.
  • The implementation of measures to monitor OT underground development financing mechanisms and enhance environmental, social and governance (ESG) matters.
  • The approval of the electricity supply agreement.
  • The establishment of a funding structure at OT that does not incur additional loan financing prior to sustainable production for Panel 0 (expected in 1H23).

Rio Tinto continues to work with the government of Mongolia and TRQ to finalise the remaining outstanding measures of Resolution 92, namely the formal termination of the Oyu Tolgoi Mine Development and Financing Plan (UDP) and resolution of the outstanding OT LLC tax arbitration.

An updated funding plan has been agreed to address TRQ’s current estimated remaining funding requirement for the OT Underground Project. Until sustainable underground production is achieved, OT will be funded by cash on hand and rescheduling of existing debt repayments, together with a pre-paid copper concentrate sales agreement with TRQ. This is in line with restrictions on debt financing contained in Resolution 103, passed on 30 December 2021.

Rio Tinto and TRQ have amended the Heads of Agreement signed in April 2021 to ensure they appropriately fund OT. The capital forecast for the project is US$6.925 billion, including US$175 million of known COVID-19 impacts to the end of 20212. Forecasted remaining underground capital expenditure is approximately US$1.8 billion. A re-forecast will be undertaken during 1H22 to determine a revised cost and schedule estimate that will reflect:

  • Any further COVID-19 impacts.
  • Any additional time-based impacts and market price escalation arising from re-sequencing due to 2021 budget constraints (as a result of the OT Board not approving the capital budget uplift at the time the definitive estimate was finalised).
  • Updated risk ranging reflecting the latest project execution risks.

The key elements under the amended heads of agreement include:

  • Pursuing the rescheduling of principal repayments of existing OT project finance to potentially reduce the OT funding requirement by up to US$1.7 billion.
  • Seeking to raise up to US$500 million of senior supplemental debt at OT from selected international financial institutions which could be put in place after sustainable underground production is achieved.
  • Rio Tinto providing a co-lending project finance facility to OT of up to US$750 million to be made available after sustainable underground production is achieved (with up to US$300 million of such amount being available under a short-term secured advance directly to TRQ pending such co-lending).
  • TRQ agreeing to conduct equity or rights offerings of up to US$1.5 billion (with an initial offering of at least US$650 million by no later than 31 August 2022).

The re-profiling of the existing OT project finance and any additional senior supplemental debt at OT will be subject to availability and terms and conditions being acceptable to Rio Tinto and TRQ.


The OT Board has also approved the signing of an electricity supply agreement to provide OT with a long-term source of power from the Mongolian grid, under terms already agreed with the government of Mongolia. In meeting OT’s commitment to sourcing power domestically, Rio Tinto will work with the government to support long-term renewable energy generation in support of the Mongolian grid. The government of Mongolia and OT are in constructive discussions with the Inner Mongolia Power International Cooperation Company (IMPIC) for an extension of current power import arrangements beyond the current agreement of July 2023. IMPIC have indicated their support for an extension and commercial terms are being finalised.

Luvsannamsrain Oyun-Erdene, the Prime Minister of Mongolia, said: “The commencement of Oyu Tolgoi underground mining operations demonstrates to the world that Mongolia can work together with investors in a sustainable manner and become a trusted partner. As part of our ‘New Recovery Policy’, I am happy to express Mongolia’s readiness to work actively and mutually beneficially with global investors and partners.”

Rio Tinto Chief Executive, Jakob Stausholm, added: “We would like to thank the government of Mongolia for their commitment to working productively with Rio Tinto and TRQ to reach this crucial agreement, that will see one of the world’s largest copper growth projects move forward and firmly establish Mongolia as a global investment destination. This agreement represents a reset of our relationship and resolves historical issues between the OT project partners. We strongly believe in the future of this country and I am personally committed to ensuring that the people of Mongolia benefit strongly from OT along with our shareholders.”

“I have visited Mongolia twice in the last few months and I cannot help but be proud of what has been achieved by our workforce, hand-in-hand with communities, suppliers and other partners. I would like to thank the many thousands of people involved for what they have achieved.”

“The OT underground development will consolidate Rio Tinto’s position as a leading global supplier of copper at a time when demand is increasing, driven by its role in enabling decarbonisation and electrification in the race to net zero. We will also explore additional opportunities to decarbonise the OT operations, including sourcing renewable power.”

Steve Thibeault, Interim CEO of Turquoise Hill Resources, concluded: “Today is a landmark day for Turquoise Hill and a major milestone in the development of the Oyu Tolgoi underground development project. We are very excited to be starting work on the undercut, which is critical to unlocking the immense potential of this world-class, high grade deposit for the benefit of all stakeholders. Following the agreements with the government of Mongolia and the amended heads of agreement with Rio Tinto being put in place, we now have greater certainty and confidence to complete construction of this once-in-a-generation mine that, when finished, is expected to be one of the largest copper producing mines in the world and a generator of vast economic value and employment in Mongolia and of returns for our shareholders for years to come. I want to thank the government of Mongolia for its commitment to securing a balanced agreement that helps to advance the project while ensuring that all stakeholders including the people of Mongolia truly benefit from the development of this resource. This agreement says a lot about the positive environment for foreign investment in the country.”

By 2030, OT is expected to be the fourth largest copper mine in the world. It is a complex greenfield project comprising an underground block cave mine and copper concentrator as well as an opencast mine, which has been successfully operating for almost 10 years. It is also one of the most modern, safe, sustainable and water-efficient operations globally, with a workforce which is more than 96% Mongolian. Since 2010, OT has spent a total of US$13.4 billion in-country, including US$3.6 billion of taxes, fees and other payments to the state budget. The size and quality of this Tier 1 asset provides additional expansion options, which could see production sustained for many decades.

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