Rio Delays $5.1 Billion Mongolia Expansion Pending Funding Pact
Rio (RIO) Tinto Group, the world’s second-biggest mining company, said it’s delaying work on a $5.1 billion underground expansion of its Oyu Tolgoi copper mine, pending financing approval by Mongolia’s parliament.
“The parliamentary approval process may take some time to work through,” London-based Rio said today in a statement. “In view of the current uncertainty, including continued discussions with the government on a range of other issues, all funding and work on the underground development will be delayed until these matters are concluded and a new timetable has been agreed.”
Rio earlier this month made its first commercial copper shipment from the mine, which has so far cost $6.6 billion to build, following months of tension with the government. Shipments started after the government demanded a bigger stake in the project and new mining royalty rates, which the company rebuffed. The company and the government have also clashed over cost over-runs, tax payments and a lack of local participation in the management of the copper and gold mine, which is forecast to account for a third of Mongolia’s economy.
Enough of the disputes were resolved to allow the copper shipments, after two postponements, as Mongolia sought to ensure revenue from the mine is passed through domestic banks.
“Rio Tinto has been notified by the government of Mongolia that the terms of the project financing provisionally secured for the underground development of Oyu Tolgoi will need to be approved by the Mongolian parliament,” Rio said, according to the statement.
Rio declined 0.2 percent to close at A$57.11 in Sydney. Trading closed before the statement on Oyu Tolgoi was announced.
Rio controls Oyu Tolgoi through its 51 percent stake in Turquoise Hill Resources Ltd. (TRQ), which in turn owns owns 66 percent of the operation, located 80 kilometers (50 miles) north of the Chinese border. The government owns 34 percent.
Rio is considering expanding Oyu Tolgoi, which would include building an underground mine and enlarging its concentrator, and could involve constructing a power station. The work may cost $5.1 billion, Turquoise Hill said in a March report.
Oyu Tolgoi’s average annual production over 20 years from the open pit and planned underground mine is estimated at 430,000 metric tons and 425,000 ounces of gold, Rio said this month.
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