Mining giant Rio Tinto plc (RIO) recently agreed to provide a convertible bridge loan facility to Turquoise Hill Resources Ltd. (TRQ). The loan is a short-term convertible credit facility worth $225 million. The total sum required to be repaid comprises the principal, interest and requisite fees. The repayment is scheduled for Aug 12, 2013.
Rio Tinto currently occupies 50.8% common shares of Turquoise Hill, with roughly 511 million shares. In addition, roughly 74 million Series D warrants of Turquoise Hill are with Rio Tinto.
The agreement entitles Rio Tinto to convert the debt into common shares of Turquoise Hill, after it reaches its maturity date or in case of any default of payment. In such a situation, the debt can be converted to common shares of Turquoise Hill at a conversion price of 85% of the volume-weighted average price of the stock. The price will be calculated based on five preceding trading days, till the day the conversion notice is provided. However, at any given time, the conversion cannot exceed 10% of the current outstanding shares of Turquoise Hill.
The loan is provided to fulfill the short-term fund requirements of Turquoise Hill at its Oyu Tolgoi copper-gold mine in Mongolia. Turquoise Hill owns a 66% stake in the mine, which is one of the largest copper-gold-silver mines in the world. Turquoise Hill is expected to utilize the new funding to satisfy the cash-call obligation of the mine, due Jul 2, 2013.
With the receipt of the necessary permits, the mine is set to start shipments of its concentrate. However, the approval from the Mongolian government is still awaited.
The funding is seen as a strategic step by Rio Tinto to safeguard its interests in Turquoise Hill. Rio currently carries a Zacks Rank #5 (Strong Sell). However, other mining stocks that are currently performing better and are worth a watch include Golden Minerals Company (AUMN) and Hi-Crush Partners LP (HCLP), each carrying a Zacks Rank #2 (Buy).
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