Rio Tinto, Turquoise Hill count cost of wall slip at Oyu Tolgoi mine in Mongolia
The wall slip occurred in the open pit section of Oyu Tolgoi, which is in a remote section of the south Gobi desert.
Rio Tinto’s exposure to the mine comes through its 51 per cent stake in Toronto-listed miner Turquoise Hill Resources, which owns 66 per cent of Oyu Tolgoi.
Turquoise Hill has not announced the incident to the market, and there have been varying views about the severity of the wall slip.
Though it is understood that no one was hurt, one Mongolian source said the wall slip was significant, particularly for a single mine company such as Turquoise Hill.
He said full-year guidance could be affected, and mine staff were understood to be working on a plan to recover sufficiently to avoid the impact on annual production guidance.
But a second source said the incident was a “bench scale failure”, meaning it was smaller than a wall slide.
The second source said he was confident the incident would not affect Turquoise Hill’s production guidance.
Under full-year guidance revealed earlier in March, Oyu Tolgoi should produce up to 195,000 tonnes of copper in 2016, and as much as 260,000 ounces of gold.
The incident came just days after the management of Turquoise Hill presented their March-quarter results, meaning investors may have to wait almost three months before getting a chance to ask management about the impact of the incident.
Grades of copper and gold in the Oyu Tolgoi open pit are expected to be weak for the next two years, but both Turquoise and Rio are focused on developing the second, underground stage of the mine, which is estimated to contain 80 per cent of its value.
The companies made significant steps towards developing the mine in 2015, when they settled their differences with the Mongolian government and secured a $US4.4 billion debt package from a syndicate of banks and financial institutions, including the Australian Government’s Export Finance and Insurance Corporation.
The miners are now re-evaluating the exact capital cost of the underground expansion and are expected to reveal that sum shortly.
In 2014 the expansion was tipped to cost $US4.9 billion, and the revised estimate is expected to be of a similar scale.
The boards of Rio and Turquoise Hill are likely to make a final decision to proceed with the expansion within the next three months, which would allow construction to begin in mid-2016.
Oyu Tolgoi’s underground mine is expected to start producing around 2021, which should coincide with a stronger copper market, with many miners expecting a shortage of copper to emerge later this decade.
Oyu Tolgoi will represent a large portion of the Mongolian economy when the underground mine is in full production, and the project is never far from political debate in the developing nation.
Elections will take place in Mongolia in coming months, and they will be closely watched by Rio and Turquoise.