Canada-listed project developer Turquoise Hill said on Monday that it was engaging with major shareholder Rio Tinto over its criteria for caving operations at the Oyu Tolgoi underground project, in Mongolia, stating that it did not believe the nontechnical specifications were necessary.
“The criteria supporting the undercut decision, including the nontechnical criteria publicly announced by Rio Tinto, have not been agreed to by the shareholders of Oyu Tolgoi. Turquoise Hill does not agree that all of these additional non-technical criteria are either appropriate or necessary,” the Montreal, Quebec-headquartered junior said in a statement.
Rio Tinto’s criteria for beginning the undercut process, currently scheduled for June, include securing Mongolia’s nod for the 2020 feasibility study, an agreement with Turquoise Hill and Mongolia on the funding plan to bring the project to completion, and an extension of the existing power supply arrangements, as well as signing a power purchase agreement with the State-owned power company.
Rio Tinto announced in 2019 a 30-month delay to a project to expand the mine underground and a cost overrun due to difficult geology. The project will cost $6.75-billion, about $1.4-billion more than originally estimated in 2016.
Based on Rio Tinto’s development timeline, underground production will start in October next year. However, this timeline could be disrupted by the undercut decision.
“If agreement is not reached on the undercut criteria in a timely manner, or if the undercut criteria proposed by Rio Tinto are included and not met, there is a risk that the undercut will not occur as planned. Any significant delay to the undercut would have a materially adverse impact on schedule as well as the timing and quantum of underground capital expenditure and would materially adversely impact the timing of expected cash flows from the Oyu Tolgoi underground project, thereby increasing the amount of Turquoise Hill's incremental funding requirement,” the Turquoise Hill warned.
The Mongolian government is already unhappy with Rio Tinto’s plans for the underground expansion of Oyu Tolgoi. Earlier this week, Turquoise Hill said that Mongolia was considering terminating the expansion citing concern that the rising development costs have eroded the economic benefits that Mongolia had hoped to get.
According to newswire Reuters, the companies have already sunk $11-billion into the mine in the last ten years.