Rio Tinto settles Oyu Tolgoi dispute in Mongolia
Turquoise Hill Resources Ltd. [TRQ-TSX], a company owned 51% by Rio Tinto Rio Tinto Plc [RIO-NYSE], is set to start underground production at the Oyu Tolgoi copper-gold mine after striking a deal with the Government of Mongolia.
“Consequently, the company expects to begin caving operations in the coming days,” Turquoise Hill said in a press release.
One of the world’s largest known copper-gold deposits, Oyu Tolgoi is held 34% by Mongolia, with the other 66% owned by Rio Tinto through its interest in Turquoise Hill. Rio is the mine operator.
At peak production, Oyu Tolgoi is expected to operate in the first quartile of the copper cash cost curve, producing around 500,000 tonnes of copper annually on average from 2028 to 2036 from the open pit and underground, plus an average of 350,000 tonnes for a further five years.
That compares with 163,000 tonnes in 2021, according to a Rio Tinto fourth quarter operations review, published on January 17, 2022.
The underground ore reserve has an average copper grade of 1.52%, which is more than three times higher than the open-pit ore reserve, and contains 0.31 g/t gold.
“The decision to approve the undercut follows the resolution of key outstanding issues related to the Oyu Tolgoi underground mine development project and represents a reset of the relationship with the government of Mongolia with a view to delivering economic benefits to all stakeholders, including the people of Mongolia,” Turquoise Hill said in a press release.
As part of the agreements, Turquoise Hill has agreed to waive in full, the US$2.4 billion carry account loan of the government of Mongolia’s state-owned entity through which it owns its interest in the mine.
The loan consists of the amount of equity invested (US$1.4 billion) in the mine by Turquoise Hill on behalf of Mongolia to date, plus US$1.0 billion of accrued interest.
Further, the parties have also agreed to improve co-operation with Mongolia in monitoring the underground development and enhancing environmental and social governance matters.
The parliament of Mongolia has approved a resolution to resolve the outstanding issues regarding which the company and Rio Tinto have been negotiating with the government of Mongolia over the past two years in relation to parliament Resolution 92.
“The commencement of Oyu Tolgoi underground mining operations demonstrates to the world that Mongolia can work together with investors in a sustainable manner and become a trusted partner,” said Luvsannamsrain Oyun-Erdene, the Prime Minister of Mongolia.
The Oyu Tolgoi board of directors has approved the signing of an electricity supply agreement to provide the mine with a long-term source of power from the Mongolian grid on terms fully agreed with the government of Mongolia.
While the Mongolian national grid prepares to connect to the mine, Oyu Tolgoi will continue to import its power from Inner Mongolia, China.
On January 24, 2022, Turquoise Hill shares closed at $19.12 and currently trade in a 52-week range of $26.45 and $12.15.