Rio Tinto’s Oyu Tolgoi moves underground

Rio Tinto has approved underground development of its tier one Oyu Tologoi copper gold mine in Mongolia. Development of the underground mine will commence mid 2016 following the approval of a $5.3 billion investment.

First production is expected in 2020, with the underground complex predicted to have an average copper grade of 1.66 per cent, more than three times higher than its open pit.

The mine has a current annual production rate of 175,000 – 200,000 tonnes of copper, and is expected to increase to more than 500,000 tonnes per year during full production in 2027. It will also benefit from gold by-products, with a grade average of 0.35 grams per tonne.

The expansion is expected to have an internal rate of return of more than 20 per cent.

Rio’s deputy chief executive, and soon to be CEO, Jean-Sebastien Jacques said this new investment will unlock 80 per cent of the mine’s value, and transform it into a major global copper mine.

“Long-term copper fundamentals remain strong and production from the Oyu Tolgoi underground will commence at a time when copper markets are expected to face a structural deficit,” he said.

“In line with Rio Tinto’s other tier one assets, Oyu Tolgoi offers opportunities for further expansions, leveraging existing infrastructure and supply chains and will provide attractive returns for all shareholders and Mongolia more broadly for decades to come.

“This is a long term partnership, built to create mutual benefit.”

Oyu Tologoi’s open cut mine began production in 2013 and was completed in 24 months, with more than 440,000 tonnes of copper sold since then. It has nearly 3000 employees, 95 per cent of which are Mongolian, and has paid more than $1.4 billion in fees and taxes to the Mongolian Government.

Mongolian prime minister Chimediin Saikanbileng said the investment will boost Mongolia’s business attractiveness, and is a catalyst for future investments.

“The development of the underground [mine] will create further jobs, support Mongolian suppliers, and unlock substantial value for stakeholders, delivering benefits for all Mongolians for generations to come,” he said.

“This is a proud day for Mongolia and is a clear demonstration that the country is back to business.”

This decision follows the signing of a $4.4 billion project financing agreement in December 2015 for the development of the underground mine, despite prior disputes and financing issues with the Mongolian Government over royalties. The agreement secured funding from international financial institutions and export credit agencies representing Australian, Canadian, and American governments as well as 15 commercials banks.

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