Copper production from Rio Tinto’s most important growth project will not increase as rapidly nor efficiently as expected, after tensions with the Mongolian government forced Rio to make a major engineering change at the Oyu Tolgoi mine.
Rio has been forced to halt eight months of tunnelling work to move the giant underground mine in a northerly direction because the Mongolian government has delayed approval for the mine to enter tenements that are partly owned by Canadian company Entree Resources.
Rio and Entree were close to a deal to include those tenements into the Oyu Tolgoi mine plan, but Mongolia’s refusal to transfer the tenements has forced Rio to adopt “an alternative mine plan” that will be less lucrative.
Rio will now try to expand the mine in a southerly direction towards tenements that are not owned by Entree, in a bid to limit the damage to production rates and productivity caused by the Mongolian government’s brinksmanship.
“Development work in the Entrée joint venture area is now being paused until the necessary transfer of licences from Entrée to Oyu Tolgoi LLC is processed by the Government of Mongolia,” said Rio in a statement on Friday night.
Rio did not quantify the hit to copper production or value from the change. The company said its goal of producing an average of 500,000 tonnes of copper from Oyu Tolgoi between 2028 and 2036 remained intact.
But Rio copper boss Katie Jackson made clear that Mongolia’s refusal to approve the transfer of tenements, and the adoption of an “alternative mine plan”, was a negative result.
Rio chief Jakob Stausholm (pictured) gave Mongolian President Khurelsukh Ukhnaa a tour of the Oyu Tolgoi underground mine two months ago. Bloomberg
“Transferring the licences for the Entrée joint venture area will maximise the value Oyu Tolgoi delivers for all parties, and we are continuing to work with the Government of Mongolia and Entrée Resources towards this outcome,” she said in a statement.
The change to the Oyu Tolgoi mine plan is the latest example of the toxic relationship between Rio and the Mongolian government, with the developing nation relying on the mine for approximately 30 per cent of its gross domestic product.
Rio and Mongolia are in arbitration over $US438 million ($674 million) worth of disputed taxes, and Mongolia has filed a separate claim in the British High Court that accuses Rio of engaging in political bribery more than a decade ago.
The huge engineering changes forced upon Oyu Tolgoi on Friday also appear to be linked to Mongolia’s desire to get a great share of the wealth from the mine.
The agency responsible for the delay in transferring the tenements is the Mongolian Tax Authority, which has the right to judge the payable tax on the transfer of the tenements.
Tensions over the tenement transfer also come at a time of political instability in Mongolia; Prime Minister Oyun-Erdene Luvsannamsrai resigned on Tuesday after losing a no-confidence vote.
The parliamentary instability has cemented the power of Mongolia’s President Khurelsukh Ukhnaa, who was given a personal tour of the Oyu Tolgoi underground mine by Rio chief Jakob Stausholm two months ago.
Entree Resources chief executive Stephen Scott said the people of Mongolia would be among the victims of the engineering changes forced upon the Oyu Tolgoi mine on Friday.
“Our top priority is to try to reduce the adverse economic impact on all Oyu Tolgoi project stakeholders, including the people of Mongolia, that will result from a Panel 1 underground development delay,” he said.
Entree shares fell by 9 per cent in Canadian markets on Friday in response to the news.
Rio has spent the past eight months tunnelling towards the Entree tenements in preparation for extracting high-grade rock from that area as the next zone in the mine plan.
Blasting of the first drawbell on the Entree leases – a critical excavation that symbolises the start of underground mining in the zone – was expected in 2026 under the terms of a mine plan published in 2023.
Rock from the Entree leases was expected to feed Oyu Tolgoi’s processing plant in 2027.
It is now unclear when the first drawbell will be blasted.
Entree has the right to 30 per cent of the value extracted from the tenements down to a depth of 560 metres, and 20 per cent of the value extracted from below that depth.
Mongolia and Entree are in talks for the host nation to own 34 per cent of the value extracted from the Entree tenements.
The decision to move the mine in a southerly direction means a section of rock called “panel 2 south” will likely be mined two years sooner than was planned in 2023.
Rio said its promise to produce between 780,000 to 850,000 tonnes of copper in 2025 from its global portfolio of mines was unaffected by Friday’s changes at Oyu Tolgoi.
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Peter Ker covers resource companies for The Australian Financial Review, based in Melbourne. Connect with Peter on Twitter. Email Peter at pker@afr.com

Published Date:2025-06-09