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Rio Tinto Said to Set Terms for Dispute-Hit Mongolia Mine Loans

Rio Tinto Group proposed initial terms on a $4 billion project financing for the Oyu Tolgoi copper-gold mine in Mongolia as it tussles with the government over profits, three people with knowledge of the deal said.

The world’s second-largest mining company sent a request for proposals to lenders after holding bank meetings, said the people, who asked not to be named because the transaction is private. They have been asked to respond by mid-March, the people said.

Rio Tinto is seeking about $2 billion of 12-year loans from banks and a further $2 billion from export credit agencies and international development funds for the project, the people said. The company is said to be considering a temporary halt to work as the government demands a greater share of profit from the mine.

David Outhwaite, a London-based spokesman for Rio Tinto, declined to comment.

The mine, in the South Gobi desert 80 kilometers (50 miles) from Mongolia’s border with China, is controlled by Rio through its 51 percent stake in Turquoise Hill Resources Ltd. which holds a 66 percent stake in the project. The Mongolian government owns the remaining 34 percent stake.

President Tsakhia Elbegdorj said Feb. 1 Mongolia should have more control of the mine that will be the biggest contributor to the country’s economy once it’s in full production.

Interest Rate

About half of the bank debt will pay an interest rate of 2 to 3 percentage points more than benchmarks and be insured against political risks by the World Bank’s Multilateral Investment Guarantee Agency, according to the people with knowledge of the financing.

The cost of building the first phase of mine rose to $6.6 billion from an initial 2010 costing of $5.7 billion, along with $500 million of interest payments on existing loans, according to a Feb. 5 statement on Oyu Tolgoi’s website. The project financing will enable the next stage of development of the mine and help reduce costs for shareholders, Oyu Tolgoi said.

Turquoise Hill predecessor Ivanhoe Mines selected BNP Paribas SA and Standard Chartered Plc to arrange the financing in July 2010, along with the European Bank for Reconstruction and Development, the World Bank’s International Finance Corp. and Export Development Canada.

Export-Import Bank of the U.S., Australia’s Export Finance & Insurance Corp. and the World Bank’s MIGA unit subsequently joined the deal, according to the IFC’s website.

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