Rio Tinto today unveiled a pathway for the ongoing development of the underground project at Oyu Tolgoi in Mongolia, one of the largest known copper and gold deposits in the world. The definitive estimate details how Oyu Tolgoi underground will achieve sustainable production for Panel 0 by October 2022 for development capital of $6.75 billion.
“Rio Tinto and its partners, the Government of Mongolia and Turquoise Hill Resources (TRQ), need to continue to work together to finalise three other milestones – the outstanding government approvals, funding and a power solution – in order to ensure that the project can commence caving operations in 2021. This will unlock the most valuable part of Oyu Tolgoi, delivering significant benefits for the shareholders of Oyu Tolgoi and the people of Mongolia.”
At peak production, Oyu Tolgoi is expected to operate in the first quartile of the copper cash cost curve and by 2030 is expected to be the fourth largest copper mine in the world. Oyu Tolgoi is expected to produce 480,000 t of copper per year on average from 2028 to 2036 from the open pit and underground, compared with 146,300 t in 2019 from the open pit. The underground Ore Reserve has an average copper grade of 1.52%, which is more than three times higher than the open pit Ore Reserve, and contains 0.31 g per tonne of gold.
“The size and quality of this Tier 1 asset provides additional expansion options, which could see production sustained for many decades.” Arnaud Soirat, Chief Executive of Copper & Diamonds said: “We now have a pathway to bring the underground project into production, which will unlock the most valuable part of Oyu Tolgoi. We will continue to work together with the Government of Mongolia and TRQ to progress the project, including finalising all necessary approvals and agreeing a solution on power and funding.”
Rio Tinto has completed the definitive estimate work for Panel 0 of the Oyu Tolgoi Underground Project, confirming a revised budget of $6.75 billion with sustainable production expected to commence in October 2022, in line with previously announced ranges. These estimates now include the known and forecast impacts of COVID-19. Panel 1 and Panel 2 (which are required to support the ramp-up to 95,000 t of ore per day) are currently subject to further studies, with initial recommendations expected by mid-2021. These studies will also consider options and associated costs to recover the copper contained within the pillars added to the mine design of Panel 0.
On 3 July 2020, Rio TInto announced the completion of an updated feasibility study (OTFS20) prepared in accordance with Mongolian regulations and standards. Registration of supporting documents required before formal acceptance of the OTFS20 has been delayed. In accordance with the 2009 Investment Agreement and Mongolian regulation, the Government of Mongolia is required to approve the OTFS20. The definitive estimate, the mine design and the budget uplift for the underground project need to be approved by the Board of Oyu Tolgoi LLC, which is jointly owned by Erdenes Oyu Tolgoi LLC on behalf of the Government of Mongolia (34%) and TRQ (66%), of which Rio Tinto owns 50.8%.
“The Government of Mongolia agreed to prioritise building of a government funded power plant as part of their desire to provide domestically-sourced power to the Oyu Tolgoi mine, in the June 2020 amendment to the Power Source Framework Agreement (PSFA). The Government has committed to provide stable, reliable, and uninterrupted power to Oyu Tolgoi from a domestic power plant, which will be owned and funded by the Mongolian Government. Until this domestic power solution is in place, existing power supply arrangements will be extended by the Government, on terms that are acceptable to Oyu Tolgoi, to ensure that the mine has a continuous and competitive power supply. The parties have agreed that key milestones include 1 March 2021 for an extension of existing power supply arrangements and 31 March 2021 for the signing of a power purchase agreement with the state-owned power plant.”
In September 2020, Rio Tinto and TRQ entered into a memorandum of understanding (MOU) to progress the financing for completion of the Oyu Tolgoi underground project. Subsequent to signing the MOU, TRQ commenced arbitration proceedings seeking a declaration to clarify the provisions of certain agreements with Rio Tinto entities. “Against this backdrop, progress has been limited although Rio Tinto remains committed to implementation of the funding plan agreed in the MOU. Rio Tinto has, through TRQ, made significant equity contributions to fund Oyu Tolgoi to date and is providing completion support undertaking in respect of the $4.4 billion project finance facility. Rio Tinto remains of the view that all shareholders should contribute proportionately and share equitably in the benefit.”
More than $11 billion has been invested in Oyu Tolgoi to date, including the open-pit mine, concentrator and associated infrastructure. Of this, $4 billion has been spent on the underground project, with more than $3 billion awarded to Mongolian companies and suppliers. Oyu Tolgoi has a workforce of over 12,000, of which 95% is Mongolian. It has paid more than $2.8 billion in taxes, fees and other payments to the Government of Mongolia since 2010. Oyu Tolgoi has consistently been one of the top three taxpayers in Mongolia. The Oyu Tolgoi Development Support fund invests over $5 million per year into projects that support economic and social development in South Gobi communities.
The “Made in Mongolia” initiative has focused on the development of local supply chains with over 486 Mongolian companies supplying goods and services to support the operation of the open pit and development of the underground mine. Oyu Tolgoi is amongst the safest operations and is also one of the most water-efficient mines in the world, with average water use of 0.35 cubic metres of water per tonne (m3/t) of ore processed in 2019 (global average 1.22 m3/t). The water used by Oyu Tolgoi comes from a deep and saline aquifer and has no impact on drinkable water in the region. In 2019, water used by Oyu Tolgoi was continuously recycled at an average rate of 87.5%.
