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Turquoise Hill okays Oyu Tolgoi $75m bridging budget

Oyu Tolgoi open pit has been producing since 2012. (Image courtesy of Turquoise Hill.)

Turquoise Hill Resources’ (TSX, NYSE: TRQ) board has approved a bridging budget of $75 million that allows the parties involved in the vast Oyu Tolgoi copper-gold mine in Mongolia to progress the operation’s underground expansion.

The Canadian miner, in which Rio Tinto (ASX, LON, NYSE: RIO) has a 50.8% stake, said the board’s decision reflected the progress made in the ongoing negotiations between the Government of Mongolia, Rio Tinto and the company.

It also said the approved budget “should be sufficient” to sustain development work on the underground mine up to mid-January 2022.

Turquoise noted that, while it believes the budget approval was a “necessary and positive step”, there can be no assurance that the board of Oyu Tolgoi LLC will approve any future crucial additional investments to continue progressing the mine’s underground section.

Shares in the company climbed on the news and were trading 2.5% higher at $15.2 in New York  at the opening.

Rio Tinto’s chief executive Jakob Stausholm met last week with Mongolia’s Prime Minister Luvsannamsrain Oyun-Erdene, aiming to iron out issues still threatening the future of the huge copper 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.

On shaky ground

Relations between Rio Tinto and the Central Asian nation hit a 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.

The Prime Minister reportedly wants Rio Tinto and Turquoise Hill to revisit the economic benefits that the expansion will bring to the state’s coffers.

Sources familiar with the matter told MINING.COM earlier this year 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.

Fourth largest copper mine

First production from Oyu Tolgoi’s underground section, initially expected in late 2020, has been rescheduled a few times since 2015, when Rio approved the expansion project.

The latest estimate, announced in October, sees the underground mine kicking into commercial production not earlier than January 2023.

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 in taxes and fee revenue over the past decade.