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At full tilt Oyu Tolgoi will account for 30% of the economy of Mongolia, a nation of just over 3 million people.
Mining giant Rio Tinto (LON, ASX:RIO) is set to take a US$2.5 billion writedown on its embattled Oyu Tolgoi copper project in Mongolia, as a long-running tax dispute with the country’s government has caused delays and losses.
According to The Times (subs. required) Rio had flagged the possibility of a writedown as it reported its half-year results in August.
Citing a technical report by mine operator Turquoise Hill (TSX, NYSE:TRQ), the article adds the project’s value has dropped from $9.9 billion to $7.4 billion in the last year, the report says.
The massive Oyu Tolgoi’s open pit mine began operating last year, but an underground expansion was put on hold shortly after, as the Mongolian government became concerned that cost overruns would cut into profits.
A total $1.1 billion of that reduction was due to the delays and slower production ramp-up.
Chronicle of a writedown foretold
Talks between the world’s second largest mining company and Mongolia on the expansion and reworking of the initial 2009 deal that first triggered an investment boom in the country, have dragged on for more than a year. Both sides provided fresh faces for the Oyu Tolgoi board in September to break the impasse and resumed talks in December.
In March, Rio Tinto said talks with the government on restarting development had been “constructive,” and that the feasibility study would be finished by the end of June.
In May the mining giant fired about 300 workers from Oyu Tolgoi following a review aimed at reducing costs.
For 2014, Oyu Tolgoi is targeting production of 550,000 to 600,000 ounces of gold in concentrates this year, down from the 600,000 to 700,000 ounces Turquoise Hill, controlled by Rio, had forecast in August.
According to the International Monetary Fund thee mine has the potential to transform an economy that is on a par with Angola or Swaziland in national income per head. The IMF believes Oyu Tolgoi —located 80 kilometers north of the Chinese border—will be responsible for a third of the country’s GDP growth by the time it is fully operational.
Oyu Tolgoi and will be the world’s third-biggest copper mine.
6 Comments
axel
Tax tax tax will lead to the axe axe axe. Time to start chopping!
miket
Come on Sam, it’s rabbit-out-of-the-hat time !
Mike Failla
Well put axel! Greed & politicians=when will we learn?
Captain Obvious
Come on, did the Mongolian really expect RT to bring this project in on time and on budget! That’s asking quite a lot.
Bill Infante
If Rio writes down $2.5 million on OT — does the government of Mongolia which owns 34% also write down the value of its holding?
frankinca
I believe the number is $2.5 billion, but in a country so near China maybe it was unwise to go there for their for mining project. Geo politics and bribery should be considered a normal possibility, since only the company from the outside is the sure loser, if an agreement can’t be found.. It seems in recent years very large projects instance (SA) seem to fail when the resource controller finds better bids from other sources and closes a partially started project with the future of getting a better deal than the original, with only having to wait more time, and time they have MUCHO!