Oyu Tolgoi start-up, costs under threat from Mongolia–China stand-off

Rio Tinto's Turquoise Hill Resources subsidiary announced this week that its massive Mongolian copper gold mine near the Chinese border – one of the biggest mining projects in the world – is now 94% complete.

Rio will spend $6.2 billion on phase one of Oyu Tolgoi (turquoise hill in the vernacular) which is within the mining giant's budget but The Australian now reports the project is being complicated by a stand-off in long-running talks over power supply between Mongolia and China:

While the sticking point is said to be commercial terms, talks between the two nations cannot have been helped by Mongolian political opposition to Chinese state-controlled aluminium giant Chalco's $US926 million takeover bid for Mongolia-focused SouthGobi Resources.

This week, Reuters reported SouthGobi's chief executive as saying he thought Chalco (whose parent company Chinalco is Rio's biggest shareholder) had stopped working on the deal because Mongolia had made the takeover "impossible".

The mine is set to produce more than 1.2 billion pounds of copper, 650,000 ounces of gold and 3 million ounces of silver each year with commercial production scheduled for the first half of 2013.

However, Rio has publicly stated that if a deal on electricity supply could not be reached, it is unlikely to achieve this start-up target date because it will have to build a dedicated power plant. It is relying on diesel generators during construction.

Rio is in the process of putting together a finance package of an additional $3.5 billion – $4 billion to take Oyu Tolgoi to full production status, but a research report leaked earlier this year indicated final overall costs could come in at as much as $13 billion.

Turquoise Hill Resources holds 66% of Oyu Tolgoi and Mongolia's government the rest.

Image is of Naadam festivities at Oyu Tolgoi where famous Mongolian bands and singers such as Quiza, Lemons, Shar Airag, Kharsh, UB Night and VIVA as well as comedian Bataa from the X-Tuts production performed. Copyright Oyu Tolgoi 2012.