Representatives at Rio Tinto denied reports today that they
were planning to suspend construction at Mongolia’s US$6.2 billion copper-gold mine
at Oyu Tolgoi. The firm reiterated that it is on course to start production by
the middle of this year.
The comments came in response to reports that Rio was
considering halting construction in response to the government’s demand to
renegotiate the ownership of the mine and impose new royalties.
“The power is secured,
first ore produced and the concentrator switched on and we are on schedule for
first commercial production in the first half of the year,” Rio said, speaking
on Thursday, “we continue to work
together with all stakeholders including the government of Mongolia to bring
the benefits of Oyu Tolgoi to all parties.”
The mine, which accounts
for a third of Mongolian GDP, has been subject to much controversy of late, as
the Mongolian government has twice attempted to renegotiate the terms of the
contract in the last two years.
Currently, the
Mongolian government owns 34% of the mine, with the remaining 66% being owned
by Canadian listed Turquoise Hill Resources, itself controlled by Rio Tinto.
The move by the
government to attempt to renegotiate the terms of the contract is further
evidence of the resource nationalist sentiment that had been persistent
throughout 2012. During the election campaign last year, some members of
parliament promised to not allow foreign miners to exploit Mongolia’s
tremendous mineral wealth.
In October 2012, Rio
Tinto rejected Mongolia’s request to renegotiate the contract signed in 2009,
after several years of negotiations.
Despite the uncertainty, Rio is adamant that it is on track
to start production in the first half of this year. The mine is expected to
produce 74,000 tons this year, accounting for 1.1% if Rio’s forecast net
profit. Given this, the conclusion from analysts is that a delay would not
trigger a profit warning for the mining giant.
