Rio Tinto to axe hundreds of jobs at Oyu Tolgoi mine

Rio Tinto to axe hundreds of jobs at Oyu Tolgoi mine

Mining giant Rio Tinto (ASX, LON, NYSE: RIO) will lay off up to 300 workers at its $6.6 billion Oyu Tolgoi copper and gold mine in Mongolia, amid continuing efforts to reduce costs.

Workforce reductions are part of the life cycle of a mining business,” Oyu Tolgoi LLC Chief Executive Officer Craig Kinnell said in an internal memo sent to staff Wednesday, which was obtained by Bloomberg News.

“Given where we are in the life cycle of our project, and the urgent need to reduce our costs, it is critical to the success of the business to address this now,” it added, without mentioning how many jobs would be axed.

The move, unlikely to make negotiations between Rio and Mongolian authorities over Oyu Tolgoi’s expansion any easier, follows the loss of about 2,000 jobs last year, when Rio postponed work on a $5bn expansion of the mine because of discrepancies with local authorities.

The government, which owns 34% of Oyu Tolgoi, has been at loggerheads with operator Turquoise Hill Resources (TSX:TRQ), which is controlled by Rio and is the owner the remainder of the mine, for over a year.

The parties don’t seem to find common ground when it comes to decide how to share revenue from Oyu Tolgoi, solve access to water issue or how to address a $2bn cost blowout on the first stage of the mine.

Both sides provided fresh faces for the mine’s board in September to break the impasse and resumed talks in December. By the end of March, they had to ask for an extension to project financing, after negotiations failed again.

Rio Tinto to axe hundreds of jobs at Oyu Tolgoi mine

At full tilt Oyu Tolgoi will account for 30% of the economy of Mongolia, a nation of just over 3 million people.

Since then the parties have said they expect issues to be resolved by September, the deadline that prospective lenders have put on their project financing commitments.

The central Asian nation has become more conciliatory in the last few weeks, announcing it plans to overturn last year’s cancellation of more than 100 mining licenses.

For 2014, Oyu Tolgoi is targeting production of 150,000 to 175,000 tonnes of copper in concentrates and 700,000 to 750,000 ounces of gold in concentrates. But after phase 2 the mine in the southern Gobi desert close to the Chinese border could produce more than 1.2 billion pounds of copper, 650,000 ounces of gold and 3 million ounces of silver each year.

Oyu Tolgoi will account for 30% of the economy of the nation of just over 3 million people.