Delay to underground mine at Oyu Tolgoi could worsen expected copper shortage in coming years
By
Rhiannon Hoyle
SYDNEY— Rio Tinto RIO -1.76% PLC said it will take longer and cost more than expected to finish building one of the world’s biggest copper mines in Mongolia’s southern Gobi Desert.
The company said Tuesday it is preparing a new mining plan but it probably won’t be ready until next year.
“The ground conditions are more challenging than expected,” said Stephen McIntosh, Rio Tinto’s head of growth and innovation.
Prospects of a roughly two-year delay to an underground mine at the Oyu Tolgoi operation risks worsening a global shortage of copper already predicted to deepen in coming years.
Copper is used in everything from smartphones to electric cars and power cables, and demand for the industrial commodity has grown as household income rises in China and India.
At Oyu Tolgoi, located near Mongolia’s border with China where locals have historically relied on nomadic herding and animal husbandry, Rio Tinto wants to build a network of tunnels some 4,000-feet deep. That has proven to be increasingly difficult, with the varying strength of underground rock heightening the risk of rockfalls.
Mining safety has become a more-urgent issue in the wake of two devastating spills of waterlogged waste from mines in Brazil and the deaths of potentially dozens of miners working illegally on an African copper mine.
Oyu Tolgoi is Rio Tinto’s biggest new investment after management completed a major expansion in Australian iron-ore production. It reflects a big shift in global mining away from commodities such as coal that powered Asia’s first phase of industrialization to materials used in consumer products.
On Tuesday, Rio Tinto said it may not be able to produce copper sustainably from the underground pit until as late as June 2023. That represents a delay of up to 30 months from its earlier forecast, and means the cost of the project could rise by as much as $1.9 billion to $7.2 billion.
Rio Tinto’s net profit could take a near-term hit, with management reviewing the carrying value of Oyu Tolgoi. The company plans to update investors on Aug. 1 when it is due to release its half-year results.
Rio Tinto, which manages the Oyu Tolgoi project, has an indirect interest in the mine. It holds 50.8% of publicly traded Turquoise Hill Resources Ltd. , which in turn controls 66% of Oyu Tolgoi LLC, the mine’s owner. The Mongolian government owns 34%.
The development of Oyu Tolgoi was overseen for a long time by Jean-Sébastien Jacques when he was head of Rio Tinto’s copper unit. before his promotion to chief executive.
Oyu Tolgoi has a record of delays, the victim of fraught talks with Mongolia’s government over how to divide profits. While copper has been produced via an open pit at the site since 2013, Rio Tinto needs to dig underground to access the most valuable ore. Management estimates 80% of the value can’t be reached directly from the surface.
When the underground mine is completed, Oyu Tolgoi will be the world’s third-largest copper mine, according to Rio Tinto’s projections.
Rio Tinto projects the world will need the same amount of copper in the next 25 years as was produced in the previous five centuries. That estimate is tied to continued economic growth in China and emerging markets, as well as a rising global population and a ballooning middle class.
Global copper output totals around 25 million metric tons annually, but the market is expected to fall short by 190,000 tons this year, and by 250,000 tons in 2020, according to the International Copper Study Group, an organization of copper-producing and -consuming countries. Many analysts think the shortage will worsen next decade.
Rio Tinto’s other main copper project, Resolution, a joint venture with BHP Group Ltd. in Superior, Ariz., isn’t expected to be built until the middle or later part of the next decade. It recently discovered a copper deposit in Australia, called Winu, where exploration drilling is continuing.
Source:Wall Street Journal
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