The global miner Rio Tinto (ASX:RIO)(LON:RIO)(NYSE:RIO) is said to be looking to make an agreement with the Mongolian government by cutting rates on the loans given to them to fund its share of construction costs for the Oyu Tolgoi copper gold mine in the Gobi Desert.
Bold Baatar, the head of Rio’s copper division, and Steve Thibeault, head of Rio’s Turquoise Hill Resources (TSX:TRQ)(NYSE:TRQ) addressed Mongolia’s Prime Minister L Oyun-Erdene in a letter cited by Financial Times. It explained they are looking to speed up development and returns from the $6.75B underground expansion of the giant mine, solve several regulatory and budgetary issues and determine a long-term power agreement for Oyu Tolgoi in exchange for the cuts, the Financial Times reported on Monday.
Turquoise Hill owns 66% of Oyu Tolgoi and is an international mining company “focused on the operation and further development of the Oyu Tolgoi copper-gold mine in southern Mongolia.” Rio has a 50.8% stake and the rest is held by the Mongolian government.
This offer comes after an independent report that rejected Rio Tinto’s reasoning for the project’s delays and cost overruns. The cost of Oyu Tolgoi’s underground section was originally estimated around $5.35 billion back in 2015, but a new definitive estimate announced in December puts the cost of the new mine level around $6.75 billion.
The first production which was planned to start in late 2020 was pushed back until October 2022. Rio blamed not ideal geological conditions as the main cause for the cost and starting delay, but the independent report published earlier this month had raised “certain questions in relation to the project management process,” and suggests it was rather caused by mismanagement on behalf of the miner.
In the first months of 2021, Rio and Turquoise Hill were stuck at a standstill over the funding to expand the huge mine. This caused Turquoise Hill’s CEO Ulf Quellmann of three years to take Rio to arbitration and quit his job shortly after doing so.
An agreement was finally reached in April, figuring out the $2.3 billion still needed to complete the underground project and “replaces deals set up under a memorandum of understanding from last September.”
Oyu Tolgoi is Rio Tinto’s main copper growth project. The company was originally founded in 1873 on the banks of the Rio Tinto river in Andalusia, Spain, and operate various mines, smelters and refineries in 35 different countries. Rio has 60 projects and operations to date and once the Oyu Tolgoi is completed, the mine’s underground section will lift production from 125,000–150,000 tonnes in 2019 to 560,000 tonnes at the highest output, which is now expected by 2025 at the earliest. This would make it the biggest new copper mine to come on stream in several years.