Wednesday, May 28, 2014

Rio’s Mongolia Mine to Cut Staff Amid Market Challenges

Rio Tinto Group will cut jobs today at its Oyu Tolgoi copper and gold mine in Mongolia following a review aimed at reducing costs.

“Workforce reductions are part of the life cycle of a mining business,” Craig Kinnell, chief executive officer of Oyu Tolgoi LLC, said in an internal memo sent to staff today and obtained by Bloomberg News. It didn’t say how many jobs would be cut. “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.”

Enkhtsetseg Samban, a spokeswoman for Oyu Tolgoi in Ulaanbaatar, confirmed job reductions are happening today though declined to give the number of positions affected when contacted by phone.

The cuts come after an expansion at the project had already stalled due to a funding dispute. Rio Tinto and Mongolia’s government have been in talks for more than a year on funding the underground expansion of the mine. When negotiations stalled last August Oyu Tolgoi laid off 1,700 workers and suspended construction of the mine shafts.

“Copper operations around the world are facing significant challenges with volatile markets and prices,” Kinnell said in the memo to staff. “Oyu Tolgoi is no different.”

The Oyu Tolgoi project employed more than 7,000 Mongolian workers as of Dec. 31, accounting for 95 percent of the staff at the project, according to the company’s website.

‘Natural Progression’

The project is moving from post-commissioning to steady state operations, Kinnell said in the memo.

“The mine is working perfectly but they don’t need to involve more human resources because the first phase is finished,” Erdenebulgan Oyun, Mongolia’s vice minister for mining, said today. “It’s a natural progression.”

Rio controls Oyu Tolgoi through its Turquoise Hill Resources Ltd. (TRQ) unit, which has a 66 percent stake in Oyu Tolgoi LLC. The Mongolian government owns the other 34 percent.

Oyu Tolgoi achieved its first month of positive operating cash flow in March, Turquoise Hill said in a May 12 statement. Production at the mine is expected to be as much as 160,000 tonnes of copper in concentrates and as much as 700,000 ounces of gold in concentrates this year, it said.

Fourteen of 15 global banks participating in the $4 billion project finance package to fund the underground expansion agreed to extend their commitment letters to September 30, Turquoise Hill said in the May 12 statement.

Investment Slows

Work on the underground mine is expected to commence once outstanding shareholder issues have been resolved, the funding plan has been agreed, a feasibility study has been completed and approved by shareholders and all necessary permits for the mine are obtained, Turquoise Hill said that day.

As Mongolia’s biggest investment project, the funding delay has weighed on the economy and contributed to a drop in investment. Foreign direct investment fell 65.2 percent to $294 million in the first quarter from a year earlier and has slumped from $1.27 billion in the first quarter of 2012.

Oyu Tolgoi, which means Turquoise Hill, began commercial production of copper concentrate in July. After expansion it will be the world’s third-largest copper mine, according to the Turquoise Hill website.

To contact the reporter on this story: Michael Kohn in Ulaanbaatar at mkohn5@bloomberg.net
To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net Madelene Pearson, Andrew Hobbs

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