Rio Tinto slashes copper reserves, confirms time and cost blowouts at Oyu Tolgoi
Rio Tinto says expansion at Oyu Tolgoi in Mongolia will cost more, take longer, and produce less copper than initially thought.
Rio Tinto has cut billions of dollars worth of copper from the latest underground mining plan at its flagship Mongolian copper mine even before a full review of its long-term plans for the expansion of Oyu Tolgoi is complete.
Outgoing growth and innovation boss Stephen McIntosh is due to deliver a full review of the likely cost and output of the massive underground block-cave mine at Oyu Tolgoi by the end of the year.
But an interim update, released on Friday as part of regular reporting requirements under Mongolian mining laws, adds a big downgrade of the mine’s copper, gold and silver reserves to cost and time blowouts first flagged a year ago.
And, while Rio and its Turquoise Hill subsidiary say they could still reach first underground production between October 2022 and May 2023 – within the boundaries of previously disclosed delays – that assessment does not include potential delays from the impact of the coronavirus.
Turquoise Hill noted in a separate release that the impact of COVID-19 has already slowed work on the primary crusher for the underground mine and forced Rio to cease work on access shafts to other parts of the deposit.
Rio released the results of a rejig of its underground mine plan at Oyu Tolgoi on Friday, confirming the expansion will cost up to 35 per cent more than initial expectations of a $US5.3bn ($7.64bn) capital cost.
The results are in line with projections released by the mining major a year ago, when Rio flagged delays of 16 to 30 months and total costs of $US6.5bn to $US7.2bn.
But Rio’s revised mine plan also cuts 1.12 million tonnes of “recoverable” copper from Oyu Tolgoi’s mining reserves, or about 15.4 per cent of likely production from its first stage, along with 770,000 ounces of gold and 6.5 million ounces of silver.
At current prices the copper alone would be worth about $US6.7bn, raising the prospect the company could be forced to take a fresh impairment on the value of the asset, on top of the $US2.2bn it slashed from the mine’s total value in 2019, when the problems were first disclosed.
The discovery of significant geotechnical issues risking the stability of the underground mine last year forced the revision of its plans for a massive block caving operation, and Rio said on Friday the need to reinforce the stability of the first mining area means it needs to leave intact two major sections of ore alongside the panel it plans to mine, forcing it to slash the amount of metal it will initially be able to recover.
The decision means the amount of copper produced from the first mining area will be reduced from 7.29mt to 6.17mt, with gold down 770,000oz to 3.54 million ounces, or 17.9 per cent.
Although Rio said it may be able to recover that metal at a future point, it also flagged the prospect of revisions to reserves at other areas of the underground deposit as it firms up mining plans for the rest of Oyu Tolgoi.
“As a consequence of leaving the pillars in place, the material contained in the pillars has been reclassified from ore reserves to mineral resources. It is expected that part of the material contained in these pillars will be recoverable at a later stage following additional studies which are currently underway,” the company said.
Despite confirming the cost and timeline blowouts, Rio copper boss Arnaud Soirat said in a statement the amended mine plan was “another positive step in the development of the underground mine which will unlock the most valuable part of Oyu Tolgoi”.
“We remain focused on delivering the underground project safely and within the guidance ranges we have announced on both cost and schedule,” he said.
Rio shares closed Thursday at $96.39, down 1.5 per cent.
