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Rio eyes production from Mongolia copper project in 2022 www.ft.com
Rio Tinto expects to achieve first production from the expansion of its giant copper mine in the Gobi Desert by October 2022 but only if it can reach agreement on several outstanding issues with the government of Mongolia and a Canadian subsidiary.
The company said on Wednesday that the budget for the first phase of the underground project at Oyu Tolgoi would come in at $6.75bn and it would start caving operations once it had received outstanding approvals, finalised a new power source and reached agreement on financing.
Its comments drew an angry response from Ulaanbaatar, which said it was surprised at Rio’s multiple references to “government approvals”.
“We are not aware of any approval requirements pending and necessary for the underground mine development,” a government representative said.
She added: “It could also be possible that any pending regulatory
approval is an excuse to blame the government of Mongolia for causing
issues for the project as was in the case in the past 10 years.”
Once complete, Oyu Tolgoi will be the world’s fourth-largest copper mine, initially producing 480,000 tonnes of the metal a year from its existing open pit and underground mine.
It is important for this strategically important project to deliver shareholder value as well as benefits to the government of Mongolia via taxes
Erdenes Oyu Tolgoi, state-owned company that holds the Mongolia government’s stake in the project
However, the project has been plagued by problems. Rio originally said the underground mine would reach first sustainable production in the first quarter of 2021 with a $5.3bn budget.
Tensions with the government, which is seeking to improve the agreements underpinning the mine development, have been mounting. Last month Ulaanbaatar called for an independent review of the cost blowout and overrun.
Rio is also at odds with the Canadian subsidiary through which it has exposure to the mine.
Oyu Tolgoi is 66 per cent owned by Toronto-listed Turquoise Hill Resources (TRQ), in which Rio has a 50.8 per cent controlling stake, and 34 per cent by the government.
Ulaanbaatar is funding its share of the underground development costs through loans from Rio. It will not receive any dividends from the project until these debts are paid back.
Oyu Tolgoi is a crucial part of Mongolia’s economy. Not only is it the country’s biggest source of foreign direct investment, it also provides thousands of well-paid jobs.
Erdenes Oyu Tolgoi, the state-owned company that holds the government stake, was also critical of Rio’s management of the project, saying the management team had “delivered negative financial value to its shareholders over the last five years.”
“It is important for this strategically important project located in Mongolia to deliver shareholder value as well as benefits to the government of Mongolia via taxes,” it said.
Rio is in a face-off with TRQ over how to plug a $3bn funding gap. The Anglo-Australian group wants to use a mixture of debt, equity and reprofiling of loans, while TRQ favours a package that does not include a sale of new shares.
TRQ launched arbitration proceedings against Rio in October in an effort to settle the financing dispute. It believes existing agreements allow it to raise supplemental debt.
Rio said on Wednesday that “all shareholders should contribute proportionately and share equitably in the benefit” from the expansion project.
Published Date:2020-12-18
