Turquoise Hill starts a mutiny over Rio's funding plans for Oyu Tolgoi
Turquoise Hill Resources has launched arbitration proceedings against its own parent company, Rio Tinto, over how to finance the Oyu Tolgoi mine.
The company launched arbitration proceedings in British Columbia, Canada, to ‘clarify the provisions of certain agreements with Rio Tinto’ over the parent company’s role in seeking more money for the mine, which has seen large cost blowouts that are partly due to ‘stability issues’ affecting underground expansion.
To cover the costs, Rio told Turquoise Hill to undertake an equity raising to find the extra billions of dollars that it needs to cover the budget overruns. The subsidiary, however, says it would rather ‘reprofile’ its debt and is looking at other options, including borrowing from banks or offering global medium-term notes.
“Rio Tinto's approach to the financing of the Oyu Tolgoi project is incompatible with [our] announced strategy to maximize debt and/or hybrid financing for the Oyu Tolgoi project,” Turquoise Hill said in a statement. “[We] believe that the arbitration will provide needed clarity from an independent third party as to the parties' respective rights and obligations with respect to the financing process.”
Rio Tinto declined to comment to the AFR on the matter.
The news means the company is now in disputes with both the Mongolian government and its own subsidiary over Oyu Tolgoi (Rio owns just over 50 percent of Turquoise Hill). It has also been taken to court in New York over allegations that it failed to inform investors of OT’s growing costs.
The arbitration is expected to take three to five months and will be legally binding for both companies.