Mine cost raises pressure on Rio Tinto in Mongolia

The cost of completing a huge copper mine in Mongolia has ballooned by $1.5 billion, adding further strain to Rio Tinto’s difficult relationship with the Mongolian Government.

Rio Tinto’s Oyu Tolgoi mine has been hailed as one of the company’s most important projects, expanding its share of the growing market for copper, a metal that is increasingly scarce.

But Rio’s latest technical report, written by external consultants, puts the cost of expanding its underground mine, key to accessing the richest copper ore, at $5.1 billion (£3.4 billion) — $1.5 billion higher than previous estimates.

The report also suggests that Rio might not go ahead at all with a significant expansion of its ore processing plant and that it will ditch plans to build a power plant in addition to expanding its mine.

The new spending figure is unlikely to impress government officials in Ulan Bator. It comes at a sensitive time, with Rio locked in talks with officials about the cost of its operational, open-pit copper mine at Oyu Tolgoi.

“Oyu Tolgoi is a multi-decade project,” Kay Priestly, the chief executive of Turquoise Hill, Rio Tinto’s Mongolian subsidiary, said. “We are looking at all possible development scenarios for the mine. This ranges from no expansion to [expanding from 100,00 tonnes] to 300,000-plus tonnes per day.”

Mongolia, which owns a third of the existing mine, has attacked Rio Tinto for recently revising up the cost of building the mine. The Government will not start to receive dividends until it has paid its share of the costs.