Sunday, December 13, 2015

Rio Tinto close to financing deal on Oyu Tolgoi expansion


Rio Tinto could sign off on a $US4 billion finance package for its giant Oyu Tolgoi copper and gold project in Mongolia as early as this week. 

Investors had expected it to be executed early in the new year, but there is a push on to finalise the funding before Christmas. 

It is understood the package involves up to 15 banks and could be signed as early as Wednesday. But the timing could be pushed back depending on final sign-off from banks and the Mongolian government.

This has been talked about for a while. I think all parties want to see the financing get put into place as soon as possible. All parties understand this is a 50 year trophy asset so the current low copper price is really not important to the longer term success of the mine. Having said that I expect Rio Tinto to have a go slow approach in developing the underground part of the mine. The big effect will be on the Mongolia economy which has really slowed down due to the commodity bear market. However this too will pass and taking a position in the country at these cheap prices will yield results for the patient. 

For example, Mongolia Growth Group is selling at 75% discount to net asset value. The economy in Mongolia looks ugly now but eventually there will be a recovery and real estate in Mongolia, along with MGG's share price, will recover. 

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