Mining giant Rio Tinto has reported a write-down of $4.7bn due to an impasse with the Mongolia Government over starting underground operations at its Oyu Tolgoi copper and gold mine.
According to the company, the overall write-down includes $1.1bn of pre-tax impairment charges of goodwill and $3.6bn of property and equipment write down.
A further $800m may be written-down if the underground mining fails to begin operations in the next 12 months.
Oyu Tolgoi mining project has being touted as a major revenue generator for the country.
The gold-copper project is situated in the south Gobi region of Mongolia, around 80km north of the Chinese-Mongolian border and 550km due south of the capital Ulaanbaatar.
Turquoise Hill Resources, a unit of Rio Tinto, owns a 66% stake in Oyu Tolgoi mine, while the remaining stake is owned by the Mongolian Government.
Rio Tinto’s plan to develop a $6.6bn underground expansion of Oyu Tolgoi copper-gold mine in Mongolia was on hold due to months of disagreement between the government and Rio regarding taxes and royalties, as well as revenue sharing from the mine.
Mongolia believes that only the state has the right to collect royalties.
London-based Rio, the world’s second-biggest mining company by value, noted that 1,700 jobs were cut at its Oyu Tolgoi mine after the underground expansion at the copper mine was put on hold.
The Oyu Tolgoi mine is expected to produce an average of 430,000t of copper and 425,000oz of gold annually for 20 years.
Image: Oyu Tolgoi copper-gold mine. Photo: courtesy of Rio Tinto.