Rio Tinto goes ahead with $5.3 billion expansion of Oyu Tolgoi

Oyu Tolgoi, a copper-gold mine in the South Gobi region of Mongolia, approximately 550 km south of the capital Ulaanbaatar, holds one of the largest undeveloped high-grade copper deposits in the world. (Image courtesy of Oyu Tolgoi LLC)

In a fresh sign that the downturn in the resources industry may be finally over, mining giant Rio Tinto (LON:RIO) and its Canadian affiliate Turquoise Hill (TSE:TRQ) have signed off on a $5.3 billion expansion of their massive Oyu Tolgoi copper and gold mine in Mongolia.

The decision ends a three-year stalemate and political tension over revenue sharing and the foreign role in Mongolia's mining sector.

Oyu Tolgoi's development, set to cost about $400 million more than previously thought, will begin within months, the companies said. First production from the underground expansion is expected by 2020, when a shortage of copper is tipped to emerge.

Turquoise Hill chief executive Jeff Tygesen said the decision to go ahead with the long-awaited plan to develop a huge underground mine at the site was a "historic milestone."

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.

It is also expected to help Rio and Turquoise Hill get to the most valuable part of the deposit, which also contains gold and silver, and where there has been a open pit mine running since 2013.

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

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, in the statement. "This is a long-term partnership, built to create mutual benefit."

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, along with gold and silver by-products.

The mine expansion is part of Rio's master plan to reduce its reliance on iron ore for profits and become one of the world's biggest copper producers. 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 the Oyu Tolgoi project. The Mongolian government owns the rest.