Mongolia wants Rio to speed up Oyu Tolgoi expansion

Mongolia's prime minister is urging mining giant Rio Tinto (LON:RIO) and its Canadian subsidiary Turquoise Hill (TSE:TRQ) to speed up work on a $5.3 billion expansion of their massive Oyu Tolgoi copper and gold mine.

Reuters reports PM Jargaltulga Erdenebat sent a message to Rio Tinto's copper chief Arnaud Soirat in an official statement on the Mongolian government website urging the company to "comply with contract obligations and speed up the momentum of work" adding that "Oyu Tolgoi should procure construction materials like cement from Mongolian service providers only."

In June 2016, Oyu Tolgoi signed a contract with Jacobs Engineering Group to provide engineering, procurement and construction management services for the planned 95,000-tonne-per-day underground block-cave mine.

Oyu Tolgoi in the South Gobi is approximately 550 km south of the capital Ulaanbaatar. (Image courtesy of Oyu Tolgoi LLC)

Major contractor mobilization for the sinking of Shafts #2 and #5, underground development, critical construction works and maintenance are all progressing," the company said with the release of its second quarter production update.

The Oyu Tolgoi open pit in production since 2013 is expected to produce 175,000 to 195,000 tonnes of copper and 255,000 to 285,000 ounces of gold in concentrates for 2016 (the mine also produces small quantities of silver).

First sustainable underground production is expected around 2021 and the project has a five to seven-year ramp up period. The planned expansion, with its nearly 200 km (125 miles) of underground tunnels that will track three times as deep as the Empire State Building is tall, will more than double the copper output from Oyu Tolgoi.

The world's second biggest miner began production from the open pit of Oyu Tolgoi in 2013. (Image courtesy of Oyu Tolgoi LLC)

The May decision to construct an underground mine, set to cost about $400 million more than previously thought, ended a three-year stalemate and political tension over revenue sharing and the role of foreign investors in Mongolia's economy. The project "will transform Oyu Tolgoi into one of the most significant copper mines globally," said Rio Tinto's deputy chief executive, Jean-Sebastien Jacques, at the time of the announcement.

Once the expansion is fully completed, Oyu Tolgoi - located in Mongolia's remote southern Gobi desert, close to the country's border with China - will produce 560,000 tonnes of copper per year.

The mine expansion is part of Rio's strategy to reduce its reliance on iron ore for profits and increase copper's share of revenues. Financing for the project was mostly secured in December and involves international financial institutions and export credit agencies representing the governments of the U.S., Canada and Australia, along with 15 commercial banks

Rio-controlled Turquoise Hill holds a 66% stake in Oyu Tolgoi. The Mongolian government owns the rest.