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Shares in Turquoise Hill Resources (TSE,NYSE:TRQ) jumped in after hours trade on Monday after the company’s parent Rio Tinto and the Mongolia government signed an agreement for the expansion of the Vancouver-based company’s massive copper-gold mine in the Asian country.
After the close Monday Turquoise Hill gained 12% in massive volumes affording the company a $9.8 billion market value on the New York Stock Exchange. The stock is up a whopping 57% in 2015. Turquoise Hill owns 66% of the massive project in the Gobi Desert and the Mongolian government the rest.
In a statement Rio Tinto said the plan “addresses the key outstanding shareholder issues and sets out an agreed basis for the funding of the project:
With a new pathway to development of the underground mine agreed, the focus now shifts to finalising the project finance, the feasibility study and securing all necessary permits so that the underground mine development can proceed.
The decision to go ahead with the nearly $5 billion second phase at Oyu Tolgoi comes after two years of often bitter negotiations between the government and the Anglo-Australian giant.
In a country with a population of around 3 million the project, could contribute as much as a third of the economy when in full production.
The two camps have been at loggerheads over funding for the underground expansion – where 80% of the resource is located – and during the protracted battle $4.5bn funding commitments led by the World Bank expired and a $100m-plus tax dispute was raised and settled. Construction was halted in October 2013 and resulted in more than 2,000 layoffs at the mine.
Turquoise Hill mined 589,000oz of gold and 148,000t of copper in concentrates last year and expects to produce 600,000oz – 700,000oz of gold and 175,000t to 195,000t of copper in concentrates in 2015.
Oyo Tolgoi phase II is a truly giant project – an updated feasibility study including the underground expansion released in September shows recoverable copper of 24.9 billion pounds, 11.9 million ounces of gold and 78 million ounces of silver over a mine life of 41 years. At today’s metals prices that’s worth an eye-watering $92 billion.
A separate economic assessment to develop Oyu Tolgoi further and include other deposits at the property shows just what a rich find Oyu Tolgoi really was. This scenario provides a 94 year mine life and recoverable copper of 56.5 billion pounds, 27.9 million ounces of gold and 195.2 million ounces of silver, pushing the value of the mine to closer to $200 billion.
The construction of the first phase of the pioneering Oyu Tolgoi project – the open-pit mine – was completed on schedule in less than 24 months Rio Tinto said.
The operation celebrated one million tonnes of copper concentrate shipped in March 2015, less than two years after the first production left the mine.
Oyu Tolgoi has a workforce that is 95 per cent Mongolian and Oyu Tolgoi LLC has paid $1.3 billion in taxes, fees and other payments to date.
Comments
Mar
Metallurgically speaking, phase 2 (the underground development) definitely is the best undeveloped copper play on the planet. Politically speaking, it is a
different story which looks like it may be getting better but has a ways
to go before this proves out. Foreign investors have stayed away for
Mongolia because the GOM has been notorious for not honoring agreements
and changing its mind on a dime. The troubles of South Gobi resources
and Khan resources are examples of how bad it can get.
The antics of the GOM have economically forced Mongolia to its knees as investors stayed away, the currency rapidly headed south and foreign reserves were depleted as bankers stayed away from any form of GOM debt. This forced the GOM to change its tune and make a deal with RIO to get this project moving.
Even so, their are still many in the GOM that are against foreigners and
foreign investment and want to cling to the old corrupt shake down
ways.
For foriegn investors, the Oyu Tolgoi project is really
the canary in the coal mine as if a company like Rio Tinto can not take
the best copper/ gold ore body in the world today and get it developed
as a money maker, then other would just be wasting their time trying to
do anything in Mongolia. Whether Mongolia is a good place for foriegn
investment or not will take a few more years to play out. A key event
that is soon approaching is the next election in 2016 – will the anti-
foreigners be re-elected or will Mongolia elect a more progressive
government? This will be key in determining which way Mongolia goes.
TRQ has the potential to go much higher but their is still work to do.
JMO based on 10 plus years of following this situation.