The development of the underground mine will start in mid-2016 following the approval of a $5.3 billion investment by the partners and the recent granting of all necessary permits.
Rio Tinto’s partners include the Government of Mongolia and Turquoise Hill Resources.
First production from the underground, which has an average copper grade of 1.66%, more than three times higher than the open pit, is expected in 2020.
When the underground is fully ramped up in 2027, Oyu Tolgoi is expected to produce more than 500 000 t of copper a year, compared with current annual production of 175 000 – 200 000 t.
The mine also benefits from significant gold by-products, with an average gold grade of 0.35 g/t.
[quote]This expansion provides an attractive investment for all shareholders with an expected internal rate of return of more than 20%.
The material from this Brownfield expansion will utilise the existing concentrator and infrastructure. The size and quality of this tier one resource provides additional expansion options, which could see production sustained for many decades.
Rio Tinto deputy chief executive Jean-Sébastien Jacques says: “Rio Tinto’s partnership with Mongolia began over a decade ago and we are proud of what we have already achieved in building a world-class and safety-focused operation which has already been selling copper for nearly three years.”
“Today’s investment takes it to another level and will transform Oyu Tolgoi into one of the most significant copper mines globally, unlocking 80% of its value.”
“Long-term copper fundamentals remain strong and production from the Oyu Tolgoi underground will commence at a time when copper markets are expected to face a structural deficit. In line with Rio Tinto’s other tier one assets, Oyu Tolgoi offers opportunities for further expansions, leveraging existing infrastructure and supply chains and will provide attractive returns for all shareholders and Mongolia more broadly for decades to come. This is a long-term partnership, built to create mutual benefit.”
Oyu Tolgoi is fully consolidated in Rio Tinto’s accounts. On drawdown, the project finance will be recognised on Rio Tinto’s balance sheet as cash and debt.
Underground production will come from the Hugo Dummett North deposit (including the North Extension) which contains probable ore reserves of 499 Mt.
It is expected to produce 560 000 t of copper a year, on average, between 2025 and 2030, when it is expected to operate in the first quartile of the copper cost curve.