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Home Press Releases

Rio Tinto & co approves development of Oyu Tolgoi

May 6, 2016
in Press Releases

Rio Tinto and its partners, the Government of Mongolia and Turquoise Hill Resources, have approved the next stage in the development of the world-class Oyu Tolgoi copper and gold mine in Mongolia. The development of the underground mine will start in mid-2016 following the approval of a $5.3 billion investment by the partners and the recent granting of all necessary permits.

First production from the underground, which has an average copper grade of 1.66 per cent, more than three times higher than the open pit, is expected in 2020. When the underground is fully ramped up in 2027, Oyu Tolgoi is expected to produce more than 500,000 tonnes of copper a year,1 compared with current annual production of 175,000-200,000 tonnes. The mine also benefits from significant gold by-products, with an average gold grade of 0.35 grams per tonne.

This expansion provides an attractive investment for all shareholders with an expected internal rate of return of more than 20 per cent.2 The material from this brownfield expansion will utilise the existing concentrator and infrastructure. The size and quality of this tier one resource provides additional expansion options, which could see production sustained for many decades.

Rio Tinto deputy chief executive Jean-Sébastien Jacques said “Rio Tinto’s partnership with Mongolia began over a decade ago and we are proud of what we have already achieved in building a world-class and safety-focused operation which has already been selling copper for nearly three years. Today’s investment takes it to another level and will transform Oyu Tolgoi into one of the most significant copper mines globally, unlocking 80 per cent of its value.

“Long-term copper fundamentals remain strong and production from the Oyu Tolgoi underground will commence at a time when copper markets are expected to face a structural deficit. In line with Rio Tinto’s other tier one assets, Oyu Tolgoi offers opportunities for further expansions, leveraging existing infrastructure and supply chains and will provide attractive returns for all shareholders and Mongolia more broadly for decades to come. This is a long-term partnership, built to create mutual benefit.”

The open-pit mine at Oyu Tolgoi was completed on schedule in less than 24 months and production started in 2013. Since then, more than 440,000 tonnes of copper have been sold. Oyu Tolgoi has a workforce of approximately 3000, of which 95 per cent is Mongolian, and to date has paid more than $1.4 billion in taxes, fees and other payments to the Government of Mongolia.

Prime Minister of Mongolia MP Chimediin Saikhanbileg said “This significant investment demonstrates the confidence of all the partners in both the Oyu Tolgoi mine and in Mongolia. It also demonstrates the attractiveness of Mongolia as a place to do business and invest, which will be a catalyst for further investments that will strengthen Mongolia’s economy.

“The development of the underground will create further jobs, support Mongolian suppliers and unlock substantial value for all stakeholders, delivering benefits for all Mongolians for generations to come. This is a proud day for Mongolia and is a clear demonstration that the country is back to business.”

Today’s investment decision follows the December 2015 signing of a $4.4 billion project financing agreement with international financial institutions and export credit agencies representing the Governments of the United States, Canada and Australia, along with 15 commercial banks, for the development of the underground mine. The parties have agreed a senior debt cap of $6 billion, providing the option for $1.6 billion of supplemental senior debt.

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