Tuesday, April 22, 2014

Rio’s Oyu Tolgoi woes deepen

MONGOLIA has stepped up criticism of Rio Tinto over continuing delays to expansion of the pair’s $US11.5 billion ($12.3bn) Oyu Tolgoi copper and gold mine, revealing a big divide still stands in the way of the profitable second stage of the giant mine.

In a letter to Rio chief Sam Walsh leaked to the Mongolian press at the weekend, Prime Minister Norov Altankhuyag chided Rio over behind-the-scenes moves to declare it was seeking an end-of-year extension to project financing for the $US5.1bn underground expansion of Oyu Tolgoi.

Lenders’ commitments for a $US3.6bn financing package for the stalled expansion expired last month because Rio and the government could not agree on Mongolia’s take from the project, access to water, and a $US2bn cost blowout on the first-stage ­expansion.

The disagreement threatens to derail the underground expansion of the project, which is where most of the value is set to be ­realised.

The March 27 letter from Mr Altankhuyag, who has declared Mongolia is ready to wrap up the funding, shows the government is unhappy with Rio’s public statements on the project.

“We stressed the importance of Rio Tinto maintaining a positive stance in addressing the public, but instead we have received a press release proposal from (Rio copper chief) Jean Sebastian ­Jacques, which was insisting on a request to extend lenders’ commitments to December 31,” the Prime Minister said in the letter, which was printed by Mongolia’s English language UBPost.

“It is unfortunate that we ­acknowledge the doubtful approach for finalising the project financing in such an extended ­period of time.”

Rio has said it will not be rushed into financing until all the issues are sorted out.

In apparent concessions on both sides, Turquoise Hill, the Canadian listed company through which Rio holds its stake in Oyu Tolgoi, said on April 14 that agreement had been reached by “all parties” to ask for lenders to extend their commitment until September 30.

But the agreement does not look that strong.

Two days later, Mr Altan­khuyag told a business lunch in Ulan Bator that funding was ­urgent and that the government had told potential lenders that the Mongolian government was ready to press ahead.

Yesterday, Rio would not comment on the letter or confirm if it had received it.

Mongolia’s letter about it being ready to push ahead with project financing came after comments last month by Mr Walsh that Rio would not be rushed into settlement of the dispute.

“It would be nice to bring the discussions with the government of Mongolia to a conclusion, but I’m not going to speculate whether the government is ready to bring that to a conclusion,” Mr Walsh told reporters in Brisbane as the funding deadline loomed.

Development of the underground addition to the recently started Oyu Tolgoi open-pit mine has been stalled since August last year because of the dispute with the Mongolian government.

In its annual accounts released on March 26, Turquoise Hill said the project expansion was uncertain.

“There can be no assurance that these matters will be resolved in a manner that is satisfactory to Turquoise Hill or Rio Tinto and that Oyu Tolgoi Project Financing will be available within a reasonable timeframe to permit development of the underground mine within current cost estimates, on schedule or at all,” the company said.

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