Rio Tinto’s (ASX, LON, NYSE: RIO) chief executive Jakob Stausholm met this week with Mongolia’s Prime Minister Luvsannamsrain Oyun-Erdene, aiming to iron out issues still threatening the future of the company’s vast Oyu Tolgoi copper-gold mine.
The ongoing expansion of the project in the Gobi desert has been plagued by delays and costs overruns, which have triggered the Mongolian government’s ire to the point of threatening to revoke the 2009 investment agreement, which underpins the mine development.
Relations between Rio Tinto and the Central Asian nation hit a fresh low in August, when an independent review rejected the mining giant’s explanation for the project’s delays and climbing costs.
Mongolia’s position is that Rio should cover cost overruns while debts accrued on Ulaanbaatar’s share of the project (34%) should be fully removed, Mongolian news agency Montsame reports.
It is understood that L. Oyun-Erdene also wants Rio Tinto and its majority-owned Turquoise Hill Resources to revisit the economic benefits that the expansion will bring to the state’s coffers.
“This week for the first time since becoming Chief Executive, I was able to return to the beautiful wintry country of Mongolia, home to Oyu Tolgoi, the world’s largest greenfield underground copper mining project,” Stausholm said in a post on LinkedIn on Wednesday.
He also engaged other ministers and members of parliament, “to hear and understand their concerns,” he said.
“This was a vital first step in our relationship reset that engages based on trust and we are committed to earning it step by step,” he said.
Sources familiar with the matter told MINING.COM that Rio is prepared to make concessions to the Mongolian government to complete the troubled project, including reducing interest rates on loans to the nation to fund its share of the construction costs.
Rio may also consider a “restructuring” of Oyu Tolgoi’s ownership order, the sources said.
A definitive estimate for the development of the new mine level, announced in December 2020, pegged the cost of Oyu Tolgoi’s underground section at $6.75 billion, about $1.4 billion higher than its original estimate in 2015.
First production, initially expected in late 2020, was rescheduled for October 2022, and Rio blamed unfavorable geological conditions as the main cause for the cost and timeline review. The independent report published in August suggested it was rather caused by the miner’s mismanagement.
Financial regulators in the UK and US kicked off their own probes into Rio’s disclosures about the delays and swelling costs, which hit a new high two months later.
Shares in Canada’s Turquoise Hill Resources (TSX, NYSE: TRQ), in which Rio has a 50.8% stake, cratered on October 14 after announcing that the expansion would require an additional $1.2 billion. It also said that due to covid-19 related issues first commercial production would be no earlier than January 2023, around three months’ later than the previous target.
Oyu Tolgoi is Rio Tinto’s main copper growth project. Once completed, the mine’s underground section will lift production from 125,000–150,000 tonnes in 2019 to 560,000 tonnes at peak output, which is now expected by 2025 at the earliest.
By 2030, the operation would be the world’s fourth largest copper mine, according to Rio Tinto.
The mine is the country’s biggest source of foreign direct investment, having created thousands of jobs and generating almost $3 billion of taxes and fee revenue over the past decade.