Rio Tinto expects to achieve first production from the expansion of its giant copper mine in Mongolia’s Gobi Desert by October 2022 if it can reach an agreement on funding with its partners.
The Anglo Australian 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 that it would start caving operations in 2021 once it had received outstanding government approvals, finalised a new power source and reached agreement on financing.
Once complete, Oyu Tolgoi will be the world’s fourth largest copper mine, producing 480,000 tonnes of the metal a year from 2028.
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.
An independent review of the cost blowout and overrun, which had been requested by the Mongolian government, is set to commence.
Although Rio operates Oyu Tolgoi, it does not have a direct shareholding. The mine 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 Ulan Bator.
Rio is at odds with TRQ on how to plug a $3bn funding gap. It 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, which is looking for a new chief executive, said on Wednesday that its view remained that “all shareholders should contribute proportionately and share equitably in the benefit” from the expansion project.
It also said that underground caving work could not progress until Ulan Bator had signed off an updated feasibility study and followed through on its pledge to build a domestic power station to supply the mine.
“It is encouraging that capex and the timeline for the project is on track, although no reasons are given for the government approval delays and the funding comment appears to offer limited new insight, other than the comment that arbitration progress has been limited and that it is holding its ground on the funding strategy,” said analysts at Berenberg.
The Government of Mongolia and TRQ could not immediately be reached for comment.