Saturday, November 28, 2015

Rio Tinto close to decision on Oyu Tolgoi expansion


Rio Tinto is lining up project financing for a $4 billion expansion of its long-delayed Oyu Tolgoi copper mine in Mongolia and will make a final investment decision early next year, a senior executive said on Thursday.

The mine, which started producing from an open pit over two years ago, is the biggest single foreign investment in Mongolia, and resolution of disputes over its second phase in May revived hopes for a string of other stalled mining projects.

"At the end of the day, what we need is consistency and stability and we believe we have the right environment today," Rio Tinto copper and coal chief executive Jean-Sebastien Jacques said at a Bloomberg News-sponsored forum.

"As we speak, we are putting together the project finance and anticipate that will happen this year," he said.


This is great news for Turquoise Hill and Mongolia. I fully expect that barring any further stupid actions to derail the project from the GOM that Rio will decide to move forward. This is a trophy asset (25 billion pounds of copper and 12 million ounces of gold) and will produce copper for over 50 years once the expansion is complete. This mine is one of the lowest cost producers and Rio has already stated in wants to diversify away from iron ore projection. The billions that will be invested into the underground expansion will have a outsized effect on the Mongolian economy as the yearly GDP of the country is only around $12 billion per year. This project could take Mongolia back to the boom times of several years ago when the economy was growing at 17% per year. I am still a big believer in Mongolia long term. I still hold all my shares in Mongolia Growth Group and my shares in various Mongolian local companies. I will looking to pout new money to work here especially if this deal gets nailed down and gets formalized.

What is encouraging is the comments from Rio's copper chief, "At the end of the day, what we need is consistency and stability and we believe we have the right environment today," That is a signal to all players that things are now on track. These people do not speak out of turn or without intent. Hopefully the GOM doesn't put its head up its own backside again.

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