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Rio Tinto to move swiftly to resolve Mongolian mine dispute www.smh.com.au
Rio Tinto's new chief executive Jakob Stausholm will move swiftly to strengthen the resources giant's relationship with the Mongolian government in an attempt to defuse a deepening dispute over the $8.7 billion Oyu Tolgoi copper-gold mine expansion.
In a fresh setback for Rio's problem-plagued project, the Mongolian government this week warned the Anglo-Australian miner it was dissatisfied with the progress of the Oyu Tolgoi underground mine expansion and was now considering revoking its 2015 mine development and financing plan unless economic returns were improved.
The plan to enlarge the Oyu Tolgoi mine has been beset by a series of delays and cost blowouts since construction began in 2019.
Mr Stausholm, formerly Rio's chief financial officer, was elevated to the CEO role at the mining giant in December. His predecessor in the role, Jean-Sebastien Jacques, was ousted last year following investor outrage over the destruction of ancient caves in the Pilbara region of Western Australia.
The new Rio CEO has made it clear that forging closer relationships with governments and greater trust with stakeholders in the countries it operates will be one of his top priorities across its global mining operations.
A Rio Tinto spokesperson told The Age and The Sydney Morning Herald the miner is open to lifting the benefits to the Mongolian government from the project, as analysts warn looming renegotiations risk causing further delays and cost blowouts.
"Rio Tinto has been engaged with the government in good faith in relation to the topics raised ... and remains open to improving the underground development plan to increase the benefits of Oyu Tolgoi to all shareholders," a spokesman said.
The Oyu Tolgoi deposit in Mongolia's Gobi Desert is one of the world's largest-known copper and gold deposits. The Mongolian government holds a 34 per cent stake in Oyu Tolgoi and Rio Tinto's majority-owned Turquoise Hill Resources owns 66 per cent.
Top growth project
Rio's long-held plan to enlarge the mine is considered its most important growth project and a key plank of the company's ambition to diversify away from iron ore, which accounts for more than 80 per cent of its earnings. But the project has been beset by a series of long delays and cost blowouts since construction began in 2019. The mine's expansion was first anticipated to cost $US5.3 billion ($6.8 billion) but is now likely to exceed $US6.7 billion ($8.7 billion), Rio told investors in October.
The problems at Oyu Tolgoi loom as an early challenge for Mr Stausholm.
Morgan Stanley analyst Alain Gabriel said the potential renegotiation of the Oyu Tolgoi agreement increased risks around the project's timing and budget.
"Any delays in obtaining approvals beyond the first half of 2021 may result in further value erosion of the project, which we expect to ramp up in October 2022," he said. "A potential renegotiation of the mining agreement could result in some value leakage as the government seeks to accelerate its access to cash flows."
Rio Tinto and its partners have invested more than $11 billion in Oyu Tolgoi over the past decade.
The New York and Toronto-listed shares of Rio's Turquoise Hill Resources, which provides the miner's exposure to Oyu Tolgoi, dropped by nearly 20 per cent following the news of the dispute. Rio shares were down 0.8 per cent to $121.41 on the ASX on Tuesday.
"The government of Mongolia has indicated that if the Oyu Tolgoi project is not economically beneficial to the country, it would be necessary to review and evaluate whether it can proceed." Turquoise Hill said.
"In particular, the government of Mongolia has expressed its intention to initiate discussions with respect to the termination and replacement of the UDP [underground development plan]."
In a statement, Turquoise Hill said it was committed to "engage immediately" with the Mongolian government and Rio Tinto to "revisit the sharing of economic benefits" arising from the Oyu Tolgoi project.
Rio pledged to work with the Mongolian government to ensure the project stayed on track for the next phase of development, which would unlock the most valuable part of the project.
The Oyu Tolgoi mine is Mongolia's biggest source of foreign investment and provides thousands of local jobs.
Published Date:2021-01-13
