Mongolia has issues about Rio Tinto’s management of Oyu Tolgoi

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Mongolia has concerns about Rio Tinto's management of Oyu Tolgoi

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Mongolia is worried about Rio Tinto’s management of the Oyu Tolgoi copper and cash cow in the Gobi desert in the southern part of the nation, a federal government authorities informed CNBC.

“We have concerns about the transparency and we also have concerns whether this mine is being operated efficiently,” Solongoo Bayarsaikhan, deputy chief of the Mongolian federal government’s cabinet secretariat, stated Friday on CNBC’s “Squawk Box Asia.”

The open-pit and underground mining job is being collectively established by the federal government, which owns about 34% of Oyu Tolgoi, and Rio Tinto’s Canadian subsidiary Turquoise Hill Resources that has a 66% stake in it.

The Anglo-Australian miner owns almost 51% stake in Turquoise Hill Resources.

What occurred?

Oyu Tolgoi’s underground growth has actually been hamstrung by hold-ups, advancement concerns and expense overruns for many years.

Rio Tinto and Turquoise Hill Resources signed an advancement and funding strategy with Mongolia in 2015 that offered basis for moneying the job– however 6 years on, production has yet to start in a sustainable method.

Once the underground growths are finished, Oyu Tolgoi is anticipated produce more than 500,000 tonnes of copper annually.

Initial forecasts approximated that the mine would have the ability to sustainably produce copper from 2021 onwards.

However, last December, Rio Tinto pressed the timeline back and stated “sustainable production” was anticipated to start in October2022 The miner likewise stated the underground growth would cost $6.75 billion, greater than previous quotes.

On Friday, Rio Tinto once again postponed that projection and stated sustainable production will occur “no earlier than January 2023.”

The business pointed out the effect of Covid-19 and exceptional concerns around caving operations. It cautioned that Mongolia’s extra Covid limitations this year to deal with neighborhood transmission is set to include an approximated $140 million to the spending plan since completion of September.

While Rio Tinto blamed the hold-ups and increasing expenses on difficult ground conditions, an independent evaluation this year opposed that description.

Workers stroll through a tunnel in the underground mining job at the Oyu Tolgoi copper-gold mine, collectively owned by Rio Tinto Group’s Turquoise Hill Resources system and state-owned Erdenes Oyu Tolgoi, in Khanbogd, Mongolia, onSept 22, 2018

Taylor Weidman|Bloomberg|Getty Images

The Independent Consulting Group’s report, commissioned by Rio Tinto’s partners on the job, concluded that bad management was the primary factor the mine’s underground growth was running nearly 2 years late and $1.45 billion over spending plan, the Financial Times reported.

Mongolia responds

Rio Tinto supposedly challenged the findings of the report in a letter to Mongolia’s justice minister and stated the evaluation did not completely acknowledge the complete effect of weaker-than-expected conditions that required the mine to be upgraded.

“We asked Rio Tinto to explain the discrepancies between the independent review report and Rio Tinto’s position,” Bayarsaikhan informed CNBC on Friday.

“We didn’t find the letter satisfactory, in terms of responding to our specific queries and specific concerns over why there is a cost overrun and scheduled delays, why there’s very different conclusions in the independent review report,” she stated. “Rio Tinto didn’t provide sufficient responses.”

Bayarsaikhan described that the Mongolian federal government wishes to discover a “mutually beneficial solution” and prevent more surprises in regards to more boost and hold-ups.

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