Oyu Tolgoi hits COVID-19 hurdles

Measures put in place by Mongolia’s government to contain the spread of COVID-19 have slowed progress on the underground development of Rio Tinto’s Oyu Tolgoi project, although open-pit operations continue, the major said on Monday
Oyu Tolgoi hits COVID-19 hurdles Oyu Tolgoi hits COVID-19 hurdles Oyu Tolgoi hits COVID-19 hurdles Oyu Tolgoi hits COVID-19 hurdles Oyu Tolgoi hits COVID-19 hurdles

Rio Tinto's Oyu Tolgoi mine is a combined open pit and underground mining project approximately 235 kilometres east of Mongolia's Ömnögovi province capital Dalanzadgad

Staff reporter

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"Since January the movement of goods and people within Mongolia have been restricted within and across its border and this has further escalated recently as the first case of COVID-19 has occurred in the country," said Rio.

"Work on the underground project continues, however, progress is being slowed as a result of these measures," the major added.

The restrictions have meant reduced availability of specialist technical service providers Rio needs to continue work on tasks such as commissioning the headframe of two shafts at the mine.

Rio said the full impact of the slowdown was "unknown at this time and the company will update the market once more information is available".

Rio owns a 33.5% indirect interest in Oyu Tolgoi through its 50.8% shareholding in Canada's Turquoise Hill Resources, which holds 66% of the project in joint venture with the Mongolian government.

In July last year, Rio and Turquoise Hill warned of a cost blowout of as much as US$1.9 billion on the $5.3 billion capital costs of the underground expansion after challenging ground conditions required major changes to mine design and a delay of 16-30 months.

However, Rio said yesterday the mine design remained on track to be completed in the first half of 2020, "with a definitive estimate to be provided for the development of this world-class orebody in the second half of 2020".

On the health front, Turquoise Hill said its 'business resilience team' was meeting daily to manage its response and actions to prevent COVID-19.

Turquoise Hill has also donated over $100,000 to the federal and local governments.

Meanwhile, the open pit at Oyu Tolgoi "continues to operate and deliver shipments of copper concentrate to its customers", although Rio did not say whether volumes had been affected.

RBC's Tyler Broda said Rio's announcement was "likely to be the first of many changes to the underlying project path, production profile and capex spending across not just Rio Tinto but the entire mining industry".

"With growing restrictions on activities, mining companies are likely to see delays across the board, with a side benefit of delaying capex, for the benefit of the balance sheet," said Broda.

"Balance sheets in the sector generally remain very strong, but like almost all other industries, the potential for operational stoppages is likely to create a material build of working capital.

"We see the miners generally being in a strong relative position to cope but clearly these are volatile times and estimates and forecasts are likely to be changing rapidly."