Higher Costs and Delays at Rio Tinto’s Oyu Tolgoi (ASX:RIO)

Today, Rio Tinto released the details of their updated feasibility study for Oyu Tolgoi to be submitted to the government of Mongolia.

The Oyu Tolgoi mine is located in the South Gobi region in Mongolia. According to Rio, it’s the largest known gold and copper deposit in the world. Mongolia’s government holds a 34% stake in it while Turquoise Hill Resources, of which Rio Tinto owns 50.8%, has the remaining 66%.

Rio Tinto announced they’ve had to update the original mine design due to stability issues. The new design leaves two rock pillars on either side of Panel 0 instead of in the mining area. This means that the company has had to reduce the amount of ore reserves it can extract, but Rio expects it will recover these pillars later on.

Expansion to be more expensive and longer

The new design means the expansion at Oyu Tolgoi will cost more than initially though. Around $1.3–1.8 billion over the original $5.3 billion price tag.

It will also take longer, with an expected 21–29 month delay.

Rio Tinto’s Chief Executive of Copper and Diamonds Arnaud Soirat remained upbeat on the update. As he said:

This amended mine design is another positive step in the development of the underground mine which will unlock the most valuable part of Oyu Tolgoi. We remain focused on delivering the underground project safely and within the guidance ranges we have announced on both cost and schedule.

But markets weren’t too impressed…

Shares for Rio Tinto Ltd [ASX:RIO] are trading 1.5% lower today, with the RIO share price trading at $96.26 at time of writing.

Still, demand for gold has been increasing with the pandemic. So far this year gold has returned 18.50% in Aussie dollars.

Could the gold price keep going higher? It might be a good time to invest in gold stocks. Check out Greg Canavan’s guide on ‘How to Pick Winning Gold Stocks‘, to access the guide now, click here.


Selva Freigedo

Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.

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