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Rio warns of Oyu Tolgoi blow-out amid slow quarter

16th July 2019

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

     

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PERTH (miningweekly.com) – Mining giant Rio Tinto has warned of costs blow-outs and delays to its Oyu Tolgoi underground project, in Mongolia.

The miner on Tuesday said that capital spend to bring the copper project into production was expected to range between $6.5-billion and $7.2-billion, an increase of between $1.2-billion and $1.9-billion compared with the previous cost estimate of $5.3-billion.

In addition to the cost blow-out, Rio has also warned that first sustainable production from Oyu Tolgoi would only be achieved between May 2022 and June 2023, which was between 16 and 30 months later than the original feasibility study guidance in 2016.

Rio is considering a number of mine design options for the Oyu Tolgoi project, after enhanced geotechnical information and data modelling suggested that there could be stability risks with the previously approved mine design.

These options are being evaluated to determine the final design of the first panel of mining, ‘Panel 0’, and this work is anticipated to continue until early 2020.

The miner noted that given the further technical work which was needed, the definitive estimate, which would include the final estimate of cost and schedule for the remaining underground project, was now expected to be delivered in the second half of 2020, reflecting the preferred mine design approach.

“We have made significant progress on a number of key elements in the construction of the underground project during 2019. However, the ground conditions are more challenging than expected and we are having to review our mine plan and consider a number of options,” said Rio’s group executive for growth and innovation, Stephen McIntosh.

“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.”

McIntosh said that the company would continue to focus on minimising the impact to project schedule and cost as it worked through the detailed analysis and testing of each mine design option.

Although further work is necessary to reach definitive conclusions, Rio is reviewing the carrying value of its investment in the project and will announce if any changes are required, in the half-year results on August 1.

Meanwhile, the miner on Tuesday reported a tough second quarter, as operational and weather conditions impacted the bottom-line.

“We saw a challenging operational performance across our portfolio in the first half, while also investing in future growth at Richards Bay Minerals and Resolution. Whilst we experienced operational and weather issues at our iron-ore operations in Australia, pricing and market demand have remained robust,” CEO Jean-Sebastian Jacques said.

Iron-ore production for the quarter was down 7% on the previous corresponding period, to 79.7-million tonnes, with iron-ore shipments also down by 3% over the same period, to 85.4-million tonnes.

In the first half of 2019, iron-ore production was down 8% on the previous corresponding period, to 155.7-million tonnes.

The iron-ore operations were impacted by recovery works in April this year, following Tropical Cyclone Veronica.

BHP in June revised its full-year production guidance to between 320-million and 330-million tonnes, down from the previous estimate of between 333-million and 343-million tonnes, while the cost guidance for the iron-ore division has also been increased to between A$14/t and A$15/t, up from the previous estimate of between A$13/t and A$14/t.

Meanwhile, copper production for the second quarter was down 13% on the 2018 figures, reaching 137 100 t, while half-year production was down by 5% on the previous corresponding period, to 281 000 t.

Both the Kennecott and Escondida operations delivered lower copper output during the quarter under review, reflecting lower grades.

Meanwhile, bauxite production for the quarter was up 1% on the previous corresponding period, to 13.4-million tonnes, and up 1% in the half-year, to 26.1-million tonnes.

Aluminium production remained stagnant at 803 000 t in the second quarter ended June, and 1.5-million tonnes in the half-year.

“We remain focused on safely improving and optimising the performance and productivity of our assets in order to drive future cash flow. This, combined with our value over volume strategy and the disciplined allocation of capital, will continue to deliver superior returns to our shareholders in the short, medium and long term,” Jacques said.

Edited by Creamer Media Reporter

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