Rio Tinto Clears Major Power Setback in Mongolia

on Nov 5, 2012
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**Lights Come On at Rio Tinto’s Oyu Tolgoi Mine**

British-Australian mining company Rio Tinto (LON:RIO) has cleared a major roadblock towards production of its Mongolian copper-gold mine Oyu Tolgoi. The Financial Times reported on 5 November 2012, citing Mongolia’s vice-minister for mining, Erdenebulgan Oyun, and two other Mongolian government officials, that Rio Tinto had signed a power supply deal with the Chinese grid for its Oyu Tolgoi project, putting it on course to start production in the first half of next year.

In September, the British-Australian mining giant found itself in the middle of complex negotiations between China and Mongolia regarding the commercial terms of the power supply contract for Oyu Tolgoi, located in the Gobi desert of Mongolia, near the Chinese border. After the electricity setback caused significant delays to the copper-gold mine project being able to begin production, Rio Tinto has finally reached a binding agreement with a Chinese power company for the supply of electricity to the already-completed mine. The deal paves the way for the copper processing facilities at Oyu Tolgoi to be prepared for production. Within the next few weeks, the mine will begin a seven-week commissioning of the ore-processing equipment, while first concentrate production should follow within one month and the commencement of commercial production is expected to begin three to five months thereafter, the company said in a statement.

!m[](/uploads/story/724/thumbs/pic1_inline.png)Rio Tinto Copper chief executive Andrew Harding said: “This agreement means we are on track to bring the first phase of the world-class Oyu Tolgoi mine into production in the first half of 2013. When fully developed it will be a top-five copper producer with significant gold production.”
Oyu Tolgoi is the biggest foreign investment in Mongolia to date. The mine, which is 34 per cent owned by the Mongolian government with the rest owned by Rio Tinto and Turquoise Hill Resources (TSE:TRQ), a Canadian mining company in which Rio has a controlling stake, is set to produce more than 1.2 billion pounds of copper, 650,000 ounces of gold and 3 million ounces of silver a year. Rio Tinto and its partners have invested nearly $6 billion (£3.7 billion) in this vast project, completing it in only 28 months.

**Mongolia to Open Discussions over Investment Agreement**
Separately from the power supply deal announcement, Mongolia’s vice-minister for mining, Mr Erdenebulgan, said the government hoped to discuss details of the Oyu Tolgoi investment agreement with Rio Tinto, including royalty fees and the government’s share of payment for the start-up costs. With the cost of building the mine having risen, the government wants to clarify how much of the cost it must shoulder, Mr Erdenebulgan said, adding that the government is not seeking to change or increase its 34 per cent share of the mine. In October, the Mongolian government wrote to Turquoise Hill requesting discussions over the investment agreement that governs the mine, but the company rejected the request.

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