LONDON/TORONTO, March 26 Miner Rio Tinto
has pointed to rising costs at its giant Oyu Tolgoi copper mine
in Mongolia, in technical documents that confirm a $5.1 billion
budget for the project's second phase, but reduce the scale of
that planned expansion.
Rio and Mongolia are at loggerheads over Oyu Tolgoi and the
future of one of the world's largest untapped copper deposits,
just as the mine ramps up output and the Rio subsidiary that
owns it tries to secure $4 billion for the next stage of
The report's evidence of inflation - including a 30 percent
rise in the cost of building the underground mine - is unlikely
to ease Mongolian fears that rising costs will erode prospective
earnings. A feasibility study with revised cost estimates,
already delayed, is due to be completed by next year.
A 2013 technical report, released by Rio subsidiary
Turquoise Hill, excludes a power plant and the expected
expansion of the concentrator to 160,000 tonnes per day from an
initial 100,000 tonnes, from the growth plan.
Both were in a 2012 report.
A decision to expand the concentrator to allow it to process
ore from the open pit mine also "does not need to be made until
2015," as the miner considers all options.
The report, released alongside Turquoise Hill's full-year
earnings, does, however, confirm that the first phase of the
mine's development is on time and on budget at $6.2 billion.
Commercial production is expected to start in June.
"The scope change could be to put additional pressure on the
Mongolian government, as it could be seen that Rio
Tinto/Turquoise Hill are unwilling to commit increased levels of
capital to a project with uncertain economic outcomes," BMO
mining analyst Tony Robson said in a note to clients.
"Until the political situation has been resolved, the news
should weigh on the stock near term."
Rio and Turquoise Hill are currently in talks with numerous
lenders to raise $3 billion to $4 billion in project financing.
It expects to have a financing deal in place in the first half
Rio is the largest single investor in Mongolia - a country
where livestock outnumber people 15 to 1 - and one of few with
the financial might and technological know-how to build and run
a giant mine.
Turquoise Hill's shares fell 4.6 percent to C$6.16 in early
trading on the Toronto Stock Exchange.