June 20, 2013 8:04 pm

Rio delays shipments from flagship Mongolian mine

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Trucks move tons of ore at the open pit mining area as a rainstorm approaches at the Oyu Tolgoi mine on October 11 2012 in the south Gobi desert, Khanbogd region, Mongolia©Getty

Rio Tinto has had to delay inaugural shipments from its flagship Mongolian copper project after the government withheld support on the eve of the expected start.

Rio was ready to start sending copper concentrate from Oyu Tolgoi on Friday but called the plan off “at the request of the government of Mongolia”, the company said on Thursday.

Oyu Tolgoi is set to be one of the world’s five-largest copper mines when in full production in several years time and is a key project for Rio to reduce its dependency on iron ore for earnings.

Rio and its partners have invested $6.5bn in the first phase of the project in the Gobi desert and the mining group has repeatedly said it wants to start commercial production from Oyu Tolgoi by the end of June.

After disputes this year between the government and the partners in the project, Rio said it had now obtained the permits it needed to start copper shipments.

However, one outstanding issue appears to be a Mongolian demand for sales revenues from the mine to be deposited in the country. It was reported this week that Norov Altankhuyag, the prime minister, said one ceremony planned to mark the first shipments was postponed because this had not been resolved.

Mongolia is also holding a presidential election next week and the role of Oyu Tolgoi in the economy – and the revenues that Mongolia will earn from the project – have been an election issue, with opposition candidates more critical of large-scale mining projects. Some people connected to the project believe the government would like to avoid fuelling further debate over the issue by delaying shipments until after the poll.

Rio, which does not expect all Oyu Tolgoi revenues to have to be deposited locally, did not say whether any specific issues needed to be resolved with the Mongolian government.

“Rio Tinto is keen to start shipping as soon as possible in order for the benefits from Oyu Tolgoi to start flowing to all parties, including the people of Mongolia. Shipping will commence as soon as the government indicates its support for us to do so,” the company said.

Rio is the lead partner in Canada-listed Turquoise Hill, which owns 66 per cent of Oyu Tolgoi. The government owns 34 per cent. The mine is the biggest project in Mongolia and is expected to add one-third to the country’s gross domestic product when fully operational from 2020.

Iron ore brings Rio about 80 per cent of earnings, raising the stakes over Oyu Tolgoi as a means of diversifying away from a commodity where demand is heavily influenced by China’s need for steel.

Global copper supply is expected to grow this year because of new mine production but supply has been temporarily squeezed because of a landslide at Rio’s largest mine, in Utah, as well as a fatal accident that led to the closure of an Indonesian mine owned by Freeport-McMoRan.

Shares in Rio fell 4.5 per cent to £26.74.

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