www.unuudur.com » Rio Tinto upbeat on Oyu Tolgoi expansion

Rio Tinto upbeat on Oyu Tolgoi expansion

[Нийтэлсэн: 11:44 27.10.2016 ]


An improved outlook for copper and gold has helped add $US1.3 billion ($1.7bn) to the value of the $US5.3bn expansion of Rio Tinto’s Oyu Tolgoi copper and gold mine, which the miner says could ramp up in seven years to ­release $US1.5bn of annual free cash flow.

Rio yesterday hosted an investor tour of the giant copper and gold mine, amid a mixed project outlook from analysts.

In preview reports, UBS analysts highlighted the risks of operating in Mongolia — where disputes with the government set the project back two years — while Macquarie focused on the potential for the mine to grow to beyond 1 million tonnes of copper production a year.

Boosted net present value and details on cash flow and ramp up were provided in a technical report released last Friday.

In the report, the company said estimates of net present value for the Oyu Tolgoi underground expansion had jumped from $US4.6bn — in a May announcement from Rio subsidiary Turquoise Hill, which owns a 66 per cent stake in the mine — to $US6.9bn.

Demonstrating the impact prices will have on returns, the main reason for the jump was more buoyant copper price assumptions, up from $US2.86 a pound to $US3, and gold price assumptions, up from $US1200 an ounce to $US1300.

The underground expansion of what is now an open-pit operation was approved in May after a stand-off with the Mongolian government was finally resolved.

In project slides released last night, Rio said first production from underground was expected in 2020, with full production and $US1.5bn of free cash generation in 2027.

From 2025 to 2030, production is expected to average 524,000 tonnes a year while peak annual free cash flow of $US2.82bn will be reached two years after full production is hit.

As Rio group executive of growth and innovation Stephen McIntosh led investors on the mine tour, chief executive Jean-Sebastien Jacques was in Beijing last night for a dinner to celebrate Rio’s 50th anniversary of iron ore exports.

At the ceremony, which followed a celebration in Perth in August, Mr Jacques said Rio’s long-held view about strong long-term demand for iron ore had been reinforced.

“We firmly believe there’s a lot more of the China story to come,” Mr Jacques said.

“There’s been some volatility from time to time, but the under­lying fundamentals remain strong, reinforcing our optimism about the long-term outlook.”

Ahead of the Mongolian mine tour, UBS analyst Glyn Lawcock emphasised the project’s risks.

“In our opinion, Oyu Tolgoi is a high-risk project for Rio Tinto and Turquoise Hill due to country risk, single customer (China) risk, technical/geological risk and commodity risk,” Mr Lawcock said.

Macquarie analysts were more buoyant, saying a potential expansion to 1 million tonnes a year or more of copper — flagged by Turquoise Hill earlier this year — could have a net present value of $US11bn. “Our deep dive into the potential of Oyu Tolgoi indicates that the larger development options are conservative,” they said.



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