Rio plans another big Mongolia expansion of Oyu Tolgoi

After its planned expansion, Rio Tinto’s Oyu Tolgoi copper-gold mine will produce more than 500,000 tonnes a year.

Rio Tinto's Oyu Tolgoi copper mine in Mongolia is slated for further expansion.

With the ink barely dry on investment approval for a $US5.3 billion ($7.2 billion) expansion of Rio Tinto’s Oyu Tolgoi copper-gold mine in Mongolia, company talk has turned to the giant deposit’s further growth potential.

Late on Friday, Rio announced it had finally approved underground expansion of the mine, hopefully putting behind two years of dispute with the Mongolian government, which has a 34 per cent stake.

After the expansion, the mine will produce more than 500,000 tonnes a year, up from 175,000 -200,000 tonnes currently, making it one of the world’s biggest copper mines.

But Turquoise Hill, the Canadian-listed subsidiary through which Rio owns its stake in the mine, is already talking up potential expansions, based on nearby deposits not within the current mine plan.

Rio operates the mine but its ownership exposure comes through 51 per cent of Turquoise Hill, which owns 66 per cent of the project.

“We don’t expect Oyu Tolgoi to stay at current (ore) production for the long term,” Turquoise Hill chief Jeff Tygesen said after project approval was signed. “We are planning to evaluate our options to expand the concentrator.”

Underground expansion requires very little growth of the plant’s current concentrator capacity of 100,000 tonnes of ore per day, despite a doubling in copper production.

That is because underground copper grades are up to three times those of the open pit.

Turquoise Hill said previously the concentrator could be expanded progressively to three times its current size, to mine the nearby Hugo South and Heruga deposits. That implies eventual copper production of 1 million tonnes or more annually, rivalling Chile’s giant Escondida.

“Oyu Tolgoi is a truly amazing asset,” Mr Tygesen said. “It’s expected to be a multi-generational asset and is hands-down the best copper mine in development today.”

The $US5.3bn cost revealed last week was up from 2014 company estimates of $US4.9bn, though some analysts had predicted costs would reduce in the aftermath of the commodities boom.

Costs have remained high because most of the work is on labour-intensive tunnel digging.

The new budget implies about a $US200m real increase once inflation is taken into account.