Our friends at OT LLC are planning to finance the underground development through project financing, as everyone has been informed. It includes IFC, EBRD, EDC, MIGA, EXIM and other commercial banks. Senior lenders will have tenors of 13.5 years in average and 5 year grace period taken into consideration of ramp up of underground development. Rio Tinto gives a pre-completion support – as it required by the lenders. Project completion is scheduled at 2021, because it will achieve the capacity stated in the term-sheet.
The sunk cost, that the government and Rio Tinto argue about is established at USD8.1 billion. When the two sides’ advisers calculated NPV it also included the USD669 million paid to the government in taxes. The cash flow to the government includes royalties, fees and charges, withholding taxes, VAT and customs etc. Withholding tax is charged on shareholder loan interest – loaned to Erdenes OT, the 2% royalty payable to TRQ – that it had bought from BHP for USD37 million, and Erdenes OT dividends. However, it is not chargeable to management fees, investor dividends or the Rio Tinto guarantee. Except for US Exim, EDC and EFIC.
Financing plan includes:
- IFC USD350 million
- EBRD USD400 million
- EDC USD750 million
- US Exim USD495 million
- EFIC USD100 million
- MIGA USD800 million
- IFC&EBRD B-Loans USD1.3 billion
- Supplemental Debt USD1.7 billion
The total would be USD6 billion. Including the equity the total resource will be around USD20 billion to complete the mine.
IFC, EBRD and MIGA insured loans include 15 banks such as Soicete Generale, Tokyo Mitsubishsi UFJ, BNP Paribas, HSBC, ING Hong Kong, Sumitomo Mitsui etc. each committing USD25-90 million. The guarantee of Rio Tinto is through TRQ.
We will post more in case our readers are interested in the details of the biggest project financing deal in the mining industry.