Benzinga | Apr 9, 2021 05:54AM EDT

Turquoise Hill Resources, Rio Tinto Reached Binding Agreement on Funding Plan for Oyu Tolgoi

Turquoise Hill Resources Ltd. ("Turquoise Hill" or the "Company") and Rio Tinto (NYSE:RIO) today announced that they have entered into a binding Heads of Agreement (HoA) to provide an updated funding plan (the "Funding Plan") for the completion of the Oyu Tolgoi LLC (OT) underground project in Mongolia. The Funding Plan is designed to address the estimated remaining funding requirement of approximately US$2.3 billion[1] and replaces the non-binding Memorandum of Understanding that Rio Tinto and Turquoise Hill previously entered into on September 9, 2020.

Under the HoA, subject to securing approval by OT LLC and any required support from the Government of Mongolia, Turquoise Hill and Rio Tinto will:

pursue re-profiling of existing project debt to better align with the revised mine plan, project timing and cash flows to reduce the currently projected funding requirements of OT by up to US$1.4 billion; andseek to raise up to US$500 million in senior supplemental debt (SSD) under the existing project financing arrangements from selected international financial institutions.In addition, Rio Tinto has committed to address any potential shortfalls from the re-profiling and additional SSD of up to US$750 million by providing a senior co-lending facility (the "Co-Lending Facility") on the same terms as OT's project financing, while Turquoise Hill has committed to complete an equity offering of common shares for up to US$500 million in the form of, and at Turquoise Hill's discretion, either (i) a rights offering of common shares or (ii) a public offering or private placement of common shares, in either case sufficient to satisfy any remaining funding shortfall of up to US$500 million within six months of the Co-Lending Facility becoming available.

"We are pleased to have reached a constructive and equitable agreement with Rio Tinto to fund the Oyu Tolgoi underground development," stated Steve Thibeault, Interim Chief Executive Officer of Turquoise Hill. "With a binding funding agreement now in place that sets out a process along a known timeline, we will be able to move ahead as expeditiously as possible with the development of the underground project at Oyu Tolgoi. We remain committed to continue delivering a benefit to all stakeholders, including Mongolia and its citizens, and to delivering significant long-term value for Turquoise Hill as this project progresses."

Rio Tinto Copper Chief Executive Bold Baatar said, "This agreement and alignment with Turquoise Hill represents a major milestone in the continued development of Oyu Tolgoi, which is expected to become one of the world's largest copper mines and a significant contributor to the Mongolian economy for years to come. Commencing the re-profiling whilst concurrently listening, engaging and resolving the concerns of the Government of Mongolia are critical steps to maintaining momentum on the timely delivery of the Oyu Tolgoi Underground Project."

Given the HoA sets out a collaborative and binding contractual framework designed to address the known funding requirement in order to complete the development of the OT underground project, Turquoise Hill has determined that entering into the HoA addresses the principal objectives that the arbitration instituted in November 2020 had been initially intended to achieve and, to that end, Turquoise Hill and Rio Tinto have jointly agreed to obtain an order dismissing the current arbitration on a without prejudice basis and without costs, including an order vacating the interim measures order.