Rio looks to reduce OT expansion costs

RIO Tinto CEO J-S Jacques has met with the Mongolian Prime Minister to explore ways to lower the cost of the US$5.3 billion Oyu Tolgoi underground expansion.
Rio looks to reduce OT expansion costs Rio looks to reduce OT expansion costs Rio looks to reduce OT expansion costs Rio looks to reduce OT expansion costs Rio looks to reduce OT expansion costs

Rio Tinto CEO J-S Jacques at Oyu Tolgoi.

Kristie Batten

PM U Khurelsukh and other Mongolian government representatives met in Ulaanbaatar yesterday to explore “win-win partnership solutions”.

A working group will be set up to look at whether costs can be reduced at OT, an accelerated development path for a power solution, and an acceleration of OT’s strategy to enable private and public investment towards sustainable community development near the mine.

Rio-controlled Turquoise Hill Resources owns 66% of the mine, with the remainder held by the Mongolian government.

Jacques said Rio remained fully committed to OT and Mongolia.

“Our nearly 14,000 employees and the people of Mongolia should be proud that Oyu Tolgoi is one of Rio Tinto’s safest and most productive mining businesses in the world,” he said.

“We remain committed to creating opportunities for talented Mongolians to build their careers on a global stage.

“We want to work with the government of Mongolia to create long-term sustainable solutions that benefit all stakeholders and the country while staying true to the established investment frameworks.

“We will continue to work together to solve outstanding issues as the joint working group progresses win-win solutions on matters such as power and community development.”

Rio this week announced it was establishing a new office in Ulaanbaatar to be headed up by Mongolian businessman Munkhtushig Dul.

The news comes as Oyu Tolgoi faced two new setbacks last week.

Rio noted that Oyu Tolgoi’s operating subsidiary had received a tax assessment for around $155 million from the Mongolian Tax Authority relating to an audit on taxes imposed and paid by the company between 2013 and 2015.

Rio subsidiary Turquoise Hill Resources said it was of the firm view that Oyu Tolgoi LLC had paid all taxes and charges required under the investment agreement (and reconfirmed in the underground mine development and financing plan) and Mongolian law.

Then later in the week, Oyu Tolgoi declared force majeure over customer contracts due to a protest by Chinese coal transporters in the area of the Ganqimaodu Border Zone on the China-Mongolia border.

The protestors used a large number of vehicles to obstruct the main access road within China to the border, preventing any traffic from safely traversing the border.

The mine continues to operate as normal, with no production impacts.

The underground expansion is currently underway.

The open pit operation started production about four years ago, but the high-grade underground represents 80% of Oyu Tolgoi’s value with Hugo North lift 1 reserves of 499 million tonnes at 1.66% copper and a further 2.3 billion tonnes of resources defined for the Hugo Dummett deposit.

First underground production is expected in 2020, with output expected to peak in 2025 at 622,000 tonnes of copper and 669,000 ounces of gold.