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Shares in Turquoise Hill Resources (TSX:TRQ), operator of the massive Oyu Tolgoi mine in Mongolia, dropped 18% after controlling company Rio Tinto (LON:RIO) said its putting on hold a $5bn underground expansion of the mine.
Rio Tinto said in a statement it has been notified by the Government of Mongolia that the terms of the project financing provisionally secured for the underground development of Oyu Tolgoi will need to be approved by the Mongolian Parliament:
“The Mongolian Parliament is currently in summer recess and the parliamentary approval process may take some time to work through. Rio Tinto remains committed to working with the Government of Mongolia to secure project financing. However, in view of the current uncertainty, including continued discussions with the Government on a range of other issues, all funding and work on the underground development will be delayed until these matters are concluded and a new timetable has been agreed.”
Mongolia owns 34% of Oyu Tolgoi located in the South Gobi desert and the government of the Asian nation has been at loggerheads with Turquoise Hill, owner the remainder of the mine, for months.
The Asian nation twice held up shipments from the $6.6 billion mine which is set to contribute as much as a third of the nation’s economy if the second phase underground expansion were to go ahead.
Turquoise Hill losses accelerated in afternoon trade with shares in the company changing hand for $4.47, a four-and-a-half-year low.
The Vancouver-based firm is now worth $4.8 billion on the Toronto big board after losing 37% of its market value this year. The counter peaked at $28 a share in February 2011.
Apart from disagreement over Oyu Tolgoi’s expansion, which Turquoise Hill (then Ivanhoe Mines) has been advancing for more than a decade, cost overruns, the employment and pay of Mongolian workers, contractors and corporate governance, taxation and the repatriation of earnings also remain sticking points.
Mongolia has also long coveted a bigger slice of the mine and has twice in the past couple of years floated proposals to take majority control.
Vancouver-based Turquoise Hill said yesterday Oyu Tolgoi will produce 75,000 to 80,000 tonnes of copper in concentrate this year.
At full tilt, the mine is set to produce more than 1.2 billion pounds of copper worth over $4 billion at today’s prices, 650,000 ounces of gold ($800 million) and 3 million ounces of silver (under $100 million) each year.
Comments
Mike Failla
Should have had this hammered out before the mine was approved. Oh well, that’s the way the mine crumbles I guess. Perhaps they should let Mongolia run it 100% of the way and write it all off as a savings on expenses. I am sure the government can run it just fine, just like in the U.S.(intentional sarcasm)