Rio Tinto’s development costs for the Oyu Tolgoi underground mine in Mongolia have potentially risen by more than a third on its previous expectation.
The company revealed that preliminary estimates for the copper-gold-silver project’s capital spend now range from $6.5 to $7.2 billion, an increase of roughly 22 to 36 per cent on the $5.3 billion it had forecast.
In addition, the mine’s expected start to sustainable first production has slipped from first quarter 2021 to sometime between May 2022 and June 2023, a delay of 16 to 30 months.
Rio Tinto is evaluating options to finalise the first panel of mining, with work expected to continue until early 2020 due to identified flaws in the original mine design.
“We have made significant progress on a number of key elements in the construction of the underground project during 2019,” Rio Tinto group executive, growth and innovation Stephen McIntosh said.
“However, the ground conditions are more challenging than expected and we are having to review our mine plan and consider a number of options.
“Delays are not unusual for such a large and complex project, but we are very focused as a team on finding the right pathway to deliver this high value project.”
The mine is not only the largest in Mongolia, but also the most significant single investment in the country’s history.
Turquoise Hill Resources, the Canadian operator that runs the mine (51 per cent owned by Rio Tinto), announced yesterday that the mine was well positioned to meet its annual guidance after producing 39,156 tonnes of copper and 71,825 ounces of gold in the company’s 2019 second quarter.
The decision reflects “challenging operational performance” in the company’s first half 2019, according to company chief executive Jean-Sébastien Jacques.
Rio Tinto, meanwhile, recorded a drop to its Pilbara iron ore output in a second quarter production report due to the impact of Tropical Cyclone Veronica in April.
Its shipments and production were down three per cent and seven per cent year on year to 85.4 million tonnes and 79.7 million tonnes, respectively.
However, the company’s shipments and production did show improvement on the previous quarter, up 24 per cent and five per cent, respectively.
The company’s copper production was also down 13 per cent year on year and five per cent on the previous quarter to 137,100 tonnes.
Rio Tinto has also completed the sale of its majority stake in the Rössing uranium mine in Namibia, southern Africa.
The company sold its 68.2 per cent share in the mine to China National Uranium Corporation for $106.5 million.
Jacques said the sale demonstrated the company’s commitment to “further simplifying and strengthening our portfolio and brings the total divestment proceeds received since 2017 to $11.2 billion, of which $9.7 billion has been returned to our shareholders”.