Source: Reuters.com                  June 18, 2010

BNP Paribas and Standard Chartered have won the mandate to work on the USD4.6 billion Oyu Tolgoi copper and gold mine project.  The two will work on structuring the proposed USD1.2 billion B loan part of the debt financing backed by the EBRD and the IFC. The decision on the two will now need to be approved by the project company's board.

The EBRD and the IFC are considering providing a two-part debt package in a limited-recourse project financing consisting of up to USD300 million each as part of a group of primary lenders and mobilizing of a further USD1.2 billion from commercial banks under a B loan structure.

Ivanhoe Mines has received expressions of interest from export credit agencies to provide up to a further USD500 million in direct financing. Canada's EDC is likely to be involved. Other agencies could be U.S. Ex-Im and KfW. In addition, it is believed the Oyu Tolgoi funding package could include a Chinese bank tranche totaling USD1 billion. However, the eventual size of all the tranches in the deal will depend on what can be raised in the market at the time of financing. It is not expected that the deal will be in the market officially until at least early next year.

The financing options are complicated by the scheme being essentially two projects - a surface operation and an underground mine. If both were financed together, the project would take seven years to complete. It might be easier to finance the first phase and then to start producing cash flows. The underground part would enable more export credit type financing to be procured, based on heavy equipment orders. A total of 13 commercial banks submitted expressions of interest on the deal. Other banks shortlisted for the structuring mandate are believed to have included Credit Agricole, ING, HSBC, SG and Standard Bank. Hatch Corporate Finance is advising Ivanhoe.

It is possible that the Chinese will become more involved in the project. Chinalco has a 9% stake in Rio Tinto and Chinese co-operation and involvement would also be sensible, albeit politically sensitive.  The Mongolian government is aiming to list the Oyu Tolgoi mine on the local and international stock markets.

The recently released 2010 Oyu Tolgoi Integrated Development Plan (IDP-10) estimated that the initial capital cost required to achieve first production from the open-pit mine was USD4.6 billion. This amount includes USD1.1 billion to be spent advancing underground development in preparation for the start of block-cave mining following the start of production from the open pit.