Oyu Tolgoi Mongolia Project

Rio Tinto expects to face increasing costs to develop the second phase of its huge copper and gold mine, Oyu Tolgoi, in Mongolia.

A technical report, commissioned by Rio Tinto‘s majority-owned subsidiary Turquoise Hill Resources, shows that the development of the second phase would require a budget of $5.1bn, a cost increase of $1.4bn.

This budget does not include plans to construct a power facility and expansion of the concentrator from 100,000t a day to 160,000t a day.

Turquoise Hill says the estimates have increased because of a 30% surge in direct capital costs connected with the construction of an underground mine, reports Reuters.

The company added that a decision to expand the concentrator need not be made until 2015 and study of all the options is underway.

The technical report, however, points out that the first phase of the Oyu Tolgoi mine is running on schedule and on budget, with commercial production likely to begin in June this year.

Earlier this month the US refused to vote on World Bank funding to expand the project but Rio and its subsidiary have been negotiating with several banks in order to raise funds for the project and expect to have a financing deal in place by the first half of fiscal 2013.

Turquoise Hill owns 66% stake in Oyu Tolgoi and the government owns the remaining equity in the project, which is expected to account for about 30% of Mongolia’s domestic product when it reaches full production

Rio Tinto and its subsidiary have been holding talks with the government on several issues since last year, including project development costs, operating budget, management fees and tax dues.

The government has alleged that the cost of the project has increased by 40% and says it will approve the budget for 2013 only after looking at the feasibility study for the second phase.

Image: A technical report estimates that the development of the second phase of Oyu Tolgoi copper and gold mine project would require a budget of $5.1bn. Photo: Turquoise Hill Resources.

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