Canada’s Turquoise Hill Resources (TSX, NYSE: TRQ) said this week that an ongoing expansion of the giant Oyu Tolgoi copper-gold-silver mine in Mongolia is expected to cost as much as an additional $1.8 billion.
The Rio Tinto-controlled company and mine operator had expected the underground expansion to cost $5.3 billion when it was approved in 2015. Last year, however, Turquoise Hill flagged stability risks associated with the original project design, adding that amendments to it could increase cost by as much as an additional $1.9 billion.
The Vancouver-based miner also warned at the time of further delays of up to two and a half years, noting it wouldn’t know the exact scale of schedule and costs blowouts until mid-2020.
It also narrowed the estimated 16-30 months delay in the completion of the mine’s underground expansion to a 21-29-months range.
Oyu Tolgoi’s operator now says the
expansion will need an extra $1.5 billion, with a range of $1.3bn to $1.8bn.
This, however, may change due to any additional scheduling delays or increases
in capital costs arising from the impacts of the covid-19 pandemic, it said.
In terms of project completion, Turquoise
anticipates it would take two extra years than originally planned for the
project to begin production, with a 21 to 29 months range.
“It is still a range. It is still
fairly broad, but it is narrower (than the 2019 estimates), and importantly, it
stayed within the range we have given,” chief executive officer, Ulf Quellmann, said.
Block caving
Turquoise’ boss noted the company had selected block caving for the mine design, as it considers it a “more resilient mine plan that provides the best opportunity for success.”
Quellmann also said that the decision
was based on an extensive trade-off analysis taking into account the reserve
recovery, geotechnical, constructability, operability, schedule, as well as cost
and value risks.
Turquoise Hill has $1.8 billion,
which Quellmann says is sufficient to fund operations, underground and power
development into the third quarter of 2021.
He also said that a definitive
estimate will be published in the second half of the year.
Turquoise Hill is currently in
discussions with Oyu Tolgoi’s 50.8%-owner, Rio Tinto (ASX, LON, NYSE: RIO), regarding
a proposal for an interim $4 billion funding over and above the liquidity
currently available.
The massive deposit was
discovered in Mongolia’s south Gobi Desert in 2001. Rio Tinto gained
control of it in 2012, with the government of Mongolia retaining a one-third ownership
of the asset.
The ongoing expansion is expected
to lift production from 125,000–150,000 tonnes in 2019 to 560,000 tonnes at
peak output, targeted for 2025. This would make it the biggest new copper mine
to come on stream in several years.
Oyu Tolgoi produced 35,203 tonnes
of copper and 26,154 ounces of gold in the first three month of this year,
which puts it on track to achieve 2020 production guidance.
One of Rio Tinto’s top investors,
US hedge fund Pentwater Capital, said in April it would push for a management shakeup at the operation,
due to what it calls “a massive devaluation” of the asset.