The second-largest miner in the world, Rio Tinto (NYSE: RIO) has come across some new challenges at one of its largest potential mines in the world.
The Oyu Tolgoi mine, which is one of the largest high-grade copper deposits in the world, is located in the southern Gobi desert in Mongolia and is one of Rio Tinto’s most promising projects. Unfortunately for shareholders, the company just announced that they would face setbacks of up to $2 billion.
In a press release, the company revealed that difficult ground conditions would end up increasing the total cost of the project by around 35 percent. Originally, the project was estimated to cost $5.3 billion, but that figure could reach $7.2 billion thanks to the poor conditions.
Even worse, the company warned that they could face further delays of up to two and a half years before the mine could be operational. Rio Tinto has also agreed to build a power plant to supply the mine, which would further increase the cost of the project.
“Ground conditions are more challenging than expected and we are having to review our mine plan. Delays are not unusual for such a large and complex project, but we are very focused as a team on finding the right pathway to deliver this high value project,” said Rio Tinto executive of growth and innovation Stephen McIntosh. Other industry experts chimed in on the issue as well. “Starting a block cave correctly is critical to its long-term safety and viability. Analysis suggests that the current mine design carries stability risks leading to a number of alternative mine designs being considered with work currently at the conceptual study phase. The alternative plans may require relocation of critical underground infrastructure and a change in mining sequence,” added Edward Sterck, an analyst at BMO Capital Markets, said in a note to investors.
Rio Tinto has increased its efforts in finding new copper deposits since the demand for the industrial metal is expected to surge as the world moves to cleaner forms of energy. The You Tolgoi mine in Mongolia was approved three years ago but has faced a number of problems with the country’s government, such as disagreements over taxes owed as well as a power contract.
Shares of Rio Tinto were down 1.7 percent in response to the news. However, Turquoise Hill (NYSE: TRQ), a Rio-controlled company that owns 66 percent of the Mongolian mine, was the biggest loser to this development.
Shares of the smaller, $1.2-billion company fell by almost 44 percent on Tuesday, ending the day at $0.60 per share. This has added to an already drastic decline for the penny stock which previously was trading as high as $2.2 back in March.
Rio Tinto Company Profile
Rio Tinto searches for and extracts a variety of minerals worldwide, with the heaviest concentrations in North America and Australia. Iron ore is the dominant commodity, with contributions from aluminium, copper, diamonds, energy products, gold, and industrial minerals.
The 1995 merger of RTZ and CRA, via a dual-listed structure, created the present-day company. The two operate as a single business entity. Shareholders in each company have equivalent economic and voting rights. – Warrior Trading News