Name of the Project
Oyu Tolgoi underground mine project.

Location
Mongolia.

Project Owner/s
Oyu Tolgoi is jointly owned by the Mongolia government (34%) and Turquoise Hill Resources (66%, of which Rio Tinto owns 51%). Rio Tinto has been managing the project since 2010.

Project Description
The Oyu Tolgoi openpit mine was completed on schedule in less than 24 months and production started in 2013. Since then, more than 440 000 t of copper have been sold.

About $6.4-billion has been invested to develop the openpit mine, concentrator and associated infrastructure, with an additional $500-million of capital costs for initial development of the underground mine.

The underground mine is expected to produce more than 500 000 t/y of copper, compared with current openpit production of 175 000 t/y to 200 000 t/y.

The mine also benefits from significant gold by-products, with an average gold grade of 0.35 g/t.

Underground production will come from the Hugo Dummett North deposit, including the North Extension, which contains probable ore reserves of 499-million tonnes, with an average grade of 1.66% copper and 0.35 g/t of gold.

The material from this brownfield expansion will use the existing concentrator and infrastructure.

The size and quality of this Tier-1 resource provides additional expansion options, which could sustain production for many decades.

Potential Job Creation
Not stated.

Net Present Value/Internal Rate of Return
The project has an expected internal rate of return of more than 20%.

Capital Expenditure
The capital spend to bring the copper project into production is expected to range between $6.5-billion and $7.2-billion, an increase of between $1.2-billion and $1.9-billion, compared with the previous cost estimate of $5.3-billion.

Planned Start/End Date
Rio has also warned that first sustainable production from Oyu Tolgoi will be achieved only between May 2022 and June 2023, which is between 16 to 30 months later than the original feasibility study guidance in 2016.

Latest Developments
Work on the Oyu Tolgoi underground is continuing, and Turquoise Resources is achieving strong productivity in underground advancement.

Despite these gains, the unprecedented circumstances caused by Covid-19 have had an impact on the underground development by restricting access for teams from Oyu Tolgoi, Rio Tinto and its construction partners. Although the openpit has continued to operate uninterrupted, Covid-19 restrictions have challenged the company’s supply logistics.

Shafts 3 and 4 have been placed on care and maintenance until expert service providers can return to site to complete technical commissioning of specialised equipment and start sinking activities. Work has also slowed on some critical underground materials handling infrastructure, particularly the construction of primary crusher one, which has been reduced to day-shift activity only.

Ordinary course elongation of newly commissioned ropes may impact on Shaft 2 ore hoisting and, consequently, underground development progress may be impacted on by as much as 30%, as a result of travel restrictions owing to Covid-19 preventing experts from travelling to the Oyu Tolgoi site.

Payload and speed have been reduced to prolong the ability to use the hoist until specialised personnel can reach the site to perform rectification work. Mine management believes the situation is manageable; however, development progress could be impacted on, should experts not be able to get to site by the end of the second quarter. People and materials movement through the service hoist continues to operate normally.

Meanwhile, work on Oyu Tolgoi is continuing on the mine design and Turquoise Hill still expects this to be completed in the first half of 2020, with the definitive estimate of project cost and schedule to be provided in the second half of 2020.

Based on current information, the underground project remains within the range announced in July 2019 of a 16- to 30-month delay in schedule, and an increase of $1.2-billion to $1.9-billion in development capital. Indications are that the preferred technical solution falls in the upper half of the schedule delay range and the development capital overrun is trending away from the lower end of the range.

Oyu Tolgoi has notified its project lenders that the Covid-19 pandemic constitutes a force majeure event under its project finance facilities, which will extend the June 30, 2028, project longstop date under those facilities for the duration of the force majeure. Certain Oyu Tolgoi suppliers have also declared force majeure on their contracts; however, this has not had a material adverse impact on the business to date.

Key Contracts and Suppliers
Jacobs Engineering (EPCM) and Cimic Group’s Thiess (underground decline contractor).

Contact Details for Project Information
Rio Tinto media relations: Australia/Asia, Ben Mitchell, tel +61 3 9283 3620 or email media.enquiries@riotinto.com.
Turquoise Hill Resources investors and media, Tony Shaffer, tel +1 604 648 3934 or email tony.shaffer@turquoisehill.com.