Rio Tinto’s ambitious copper project in Mongolia, Oyu Tolgoi, is starting to hit its straps operationally, but its future remains clouded by a growing number of disputes with the Mongolian government.
Rio and the Mongolian government have traditionally sparred over the size of the developing nation’s stake in the giant copper and gold mine. But the two parties are also yet to agree on an outstanding $127 million tax bill, how to finance a proposed expansion of the mine, how to build it and certain mine permits.
The disputes are holding back development of the $6 billion second stage underground project at Oyu Tolgoi, which contains a much bigger prize than the existing open pit.
The Rio subsidiary developing Oyu Tolgoi, Turquoise Hill Resources, indicated on Wednesday that the tax dispute was the “key” issue yet to be resolved.
“Everyone recognises the value of this amazing resource and reserve, and we are doing everything we can to move forward with the discussions,’’ said Turquoise chief executive Kay Priestly.
Funding commitments from 15 global banks to provide support to the underground project expire in seven weeks’ time – and that deadline was an extension of six months.
The protracted dispute has some fearing the worst. Ms Priestly was asked by some Canadian investors on Wednesday about the risk of the underground never being developed, or the asset being nationalised.
Ms Priestly responded by saying: “I can’t speak on behalf of the government.
“We are very focused on reaching a resolution, and that’s why this is such a critical juncture. We’re in a space now where we need some assurety on the investment climate and the investment agreement being the foundation before we can advance further funds.”
Despite the uncertainty around the exact scope and budget for the project, several export credit agencies including Australia’s EFIC have gone further, telling Turquoise they have “conditional board approval” to go ahead with financial support.
In the meantime, the existing open pit at Oyu Tolgoi completed its best quarter so far, producing almost 40 per cent more copper concentrate than the previous quarter and selling 320 per cent more than the previous quarter.
The operation is expected to mine higher-grade sections of the ore body in coming months, meaning production numbers and costs may improve further in coming quarters.