Turquoise Hill Resources Ltd. (“Turquoise Hill” or the “Company”) is today providing an update on developments with respect to its ongoing engagement with the Company’s controlling shareholder, Rio Tinto plc (“Rio Tinto”), concerning the long-term funding of Oyu Tolgoi LLC (“Oyu Tolgoi”).
On September 9, 2020, Turquoise Hill and Rio Tinto signed a non-binding Memorandum of Understanding (MOU) concerning the funding of Oyu Tolgoi that reflects the parties’ understanding to pursue a re-profiling of existing project debt in line with current cash flow projections, including by deferring scheduled principal repayments and extending tenors (Re-profiling). The MOU also reflects the parties’ understanding with respect to the raising of supplemental senior debt (SSD), the process for identifying and considering other funding options, and the scope and timing for a Turquoise Hill equity offering (to the extent required) to address any remaining funding gap with respect to Oyu Tolgoi, all within the framework of existing agreements between Turquoise Hill and Rio Tinto.
Turquoise Hill and Rio Tinto will jointly pursue the Re-profiling process by engaging with Oyu Tolgoi’s existing project finance lenders, and expect that a successful Re-profiling would reduce the currently-projected funding requirements of Oyu Tolgoi by up to US$1.4 billion and extend political risk mitigation.
Turquoise Hill and Rio Tinto will further seek to extend political risk mitigation through the planned raising of SSD in the form of amortizing term loans to Oyu Tolgoi in the aggregate amount of up to US$500 million from selected international financial institutions.
Turquoise Hill will continue to prioritize funding by way of debt and/or hybrid financing over equity funding for the eventual balance of Oyu Tolgoi’s funding requirements. Turquoise Hill has been informed by Rio Tinto that it does not currently support, or expect to consent to, additional debt or other non-equity sources of funding at Turquoise Hill or Oyu Tolgoi, although Rio Tinto has committed in the MOU to consider all reasonable financing proposals presented to it by Turquoise Hill, subject to the parties’ respective rights and obligations under the existing agreements between them.
“We are pleased to have reached this understanding with Rio Tinto, which establishes a pathway for advancing the funding requirements of Oyu Tolgoi”, stated Ulf Quellmann, Chief Executive Officer of Turquoise Hill. “This MOU is a meaningful step towards addressing the long-term funding needs of the project, and we look forward to working together with Rio Tinto to reprofile Oyu Tolgoi’s existing debt and raising an additional US$500 million of project debt.”
To the extent that the funding gap to complete the Oyu Tolgoi underground project is not eliminated by the Re-profiling, the raising of additional SSD, and additional debt and / or hybrid financing, Turquoise Hill and Rio Tinto have acknowledged that the balance of the funding gap will need to be satisfied by way of a TRQ equity offering. In the MOU, the parties have recorded their shared objective of ensuring that any required equity offering is completed not less than 90 days prior to Turquoise Hill becoming unable to meet its obligations as they become due.
If the Re-profiling is achieved and, SSD in the amount of US$500 million is raised but no other debt or hybrid financing option is successfully completed, Turquoise Hill estimates that it would need to raise additional equity of at least US$ 1.7 billion (based on the facts, circumstances and the market environment which formed the basis for the assumptions underlying Turquoise Hill’s most recent public disclosures). If the Re-profiling is not achieved and no additional debt (including SSD) or hybrid financing is completed, Turquoise Hill expects that it would need to raise additional equity of at least US$3.6 billion (based on the same assumptions).
The Oyu Tolgoi Funding Memorandum of Understanding is now available under Turquoise Hill’s profile on SEDAR at www.sedar.com, and will also be posted on our website at www.turquoisehill.com