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Rio Tinto (ASX, LON, NYSE: RIO) is said to be ready to cut interest rates on loans to the Mongolian government, given to fund its share of the construction costs of an underground expansion at the vast Oyu Tolgoi copper-gold mine in the Gobi Desert.
In return, the company wants several regulatory and budgetary issues resolved and a long-term power agreement for Oyu Tolgoi, Financial Times reported on Monday, citing a letter from Rio Tinto and its majority-owned Turquoise Hill (TSX, NYSE: TRQ) to Mongolia’s prime minister.
Turquoise Hill, in which Rio has a 50.8% stake, owns 66% of Oyu Tolgoi. The rest is held by the Mongolian government.
The move follows an independent report that rejected Rio’s explanation for the project’s delays and cost overruns
The move comes after relations between the companies and the government hit a fresh impasse earlier this month, following an independent report that rejected Rio’s explanation for the project’s delays and cost overruns.
A definitive estimate for the development of the new mine level, announced in December, pegged the cost of Oyu Tolgoi’s underground section at $6.75 billion, about $1.4 billion higher than its original estimate in 2015.
First production, initially expected in late 2020, was rescheduled for October 2022, and Rio blamed unfavorable geological conditions as the main cause for the cost and timeline review, but the independent report published earlier this month suggested it was rather caused by the miner’s mismanagement.
Financial regulators in the UK and US are also examining Rio’s disclosures about the delays.
Rio and Turquoise Hill Resources spent the first months of the year in a standoff over the funding to expand the mine. The spat forced the Canadian miner’s CEO to quit, not before taking Rio to arbitration.
The firms finally reached an agreement in April, which addressed the remaining $2.3 billion needed for the underground project and replaces deals set up under a memorandum of understanding inked in September last year.
Oyu Tolgoi is Rio Tinto’s main copper growth project. Once completed, the mine’s underground section will lift production from 125,000–150,000 tonnes in 2019 to 560,000 tonnes at peak output, which is now expected by 2025 at the earliest. This would make it the biggest new copper mine to come on stream in several years.
