Rio says Mongolia mine remains on track
Rio Tinto said it remained on track to start production by the middle of the year at its giant copper-gold mine in Mongolia, playing down reports that it might temporarily halt construction.
According to Bloomberg News, the Anglo-Australian miner was considering suspending activities at the $6.2bn Oyu Tolgoi mine in protest over Mongolian government demands for a bigger stake in the project and new mining royalty rates.
“The power is secured, first ore produced and the concentrator switched on and we are on schedule for first commercial production in the first half of the year,” Rio said on Thursday. “We continue to work together with all stakeholders including the government of Mongolia to bring the benefits of Oyu Tolgoi to all parties.”
Rio’s challenges at the mine, which accounts for about a third of Mongolia’s gross domestic product, have become a symbol of the difficulty of doing business in the resource-rich country.
The Mongolian government has tried twice in the past two years to renegotiate the investment agreement that governs the mine. During election campaigning last year, several members of the current parliament vowed to prevent foreign miners from unduly benefiting from Mongolia’s mineral resources.
Ownership of the mine is currently split between the Mongolian government, which owns 34 per cent, and Canada-listed Turquoise Hill, which owns the remaining 66 per cent and is in turn controlled by Rio.
Shares in Turquoise Hill fell by as much as 10 per cent on the Toronto stock exchange and were placed in a temporary trading halt as the report circulated on Wednesday evening. They closed down 3.4 per cent at C$7.87.
Shares in Rio were down 0.9 per cent in Sydney on Thursday morning.
Traders said the share fall illustrated investor nervousness about the threat of resource nationalism in developing countries.
The mine, located in the Gobi desert, will be one the world’s five biggest copper mines once it reaches full production.
In October, Rio rebuffed an attempt by the Mongolian government to renegotiate the investment agreement for the development of the mine, which was signed in 2009 after several years of negotiations. The country’s new ruling coalition has promised to amend a number of agreements previously signed by the government.
Rio said earlier this month that it was on track to start commercial production by June. Analysts said a delay, should it materialise, would not trigger a profit warning. Production from the mine is expected to hit 74,000 tones this year, or 1.1 per cent of forecast net profit.
However, a delay would present a challenge for Rio’s new chief executive Sam Walsh, who replaced Tom Albanese earlier this month. Mr Albanese resigned after Rio took a $14bn in writedowns on its aluminium businesses and coal operations in Mozambique.
Rio has launched an in-depth review of its assets in Mozambique and is considering bringing in a partner to help share the costs of developing its mines in the country’s Tete province. Copyright The Financial Times Limited 2013.
According to Bloomberg News, the Anglo-Australian miner was considering suspending activities at the $6.2bn Oyu Tolgoi mine in protest over Mongolian government demands for a bigger stake in the project and new mining royalty rates.
“The power is secured, first ore produced and the concentrator switched on and we are on schedule for first commercial production in the first half of the year,” Rio said on Thursday. “We continue to work together with all stakeholders including the government of Mongolia to bring the benefits of Oyu Tolgoi to all parties.”
Rio’s challenges at the mine, which accounts for about a third of Mongolia’s gross domestic product, have become a symbol of the difficulty of doing business in the resource-rich country.
The Mongolian government has tried twice in the past two years to renegotiate the investment agreement that governs the mine. During election campaigning last year, several members of the current parliament vowed to prevent foreign miners from unduly benefiting from Mongolia’s mineral resources.
Ownership of the mine is currently split between the Mongolian government, which owns 34 per cent, and Canada-listed Turquoise Hill, which owns the remaining 66 per cent and is in turn controlled by Rio.
Shares in Turquoise Hill fell by as much as 10 per cent on the Toronto stock exchange and were placed in a temporary trading halt as the report circulated on Wednesday evening. They closed down 3.4 per cent at C$7.87.
Shares in Rio were down 0.9 per cent in Sydney on Thursday morning.
Traders said the share fall illustrated investor nervousness about the threat of resource nationalism in developing countries.
The mine, located in the Gobi desert, will be one the world’s five biggest copper mines once it reaches full production.
In October, Rio rebuffed an attempt by the Mongolian government to renegotiate the investment agreement for the development of the mine, which was signed in 2009 after several years of negotiations. The country’s new ruling coalition has promised to amend a number of agreements previously signed by the government.
Rio said earlier this month that it was on track to start commercial production by June. Analysts said a delay, should it materialise, would not trigger a profit warning. Production from the mine is expected to hit 74,000 tones this year, or 1.1 per cent of forecast net profit.
However, a delay would present a challenge for Rio’s new chief executive Sam Walsh, who replaced Tom Albanese earlier this month. Mr Albanese resigned after Rio took a $14bn in writedowns on its aluminium businesses and coal operations in Mozambique.
Rio has launched an in-depth review of its assets in Mozambique and is considering bringing in a partner to help share the costs of developing its mines in the country’s Tete province. Copyright The Financial Times Limited 2013.
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