Rio Tinto’s Oyu Tolgoi mine in Mongolia to begin shipments – by Robb M. Stewart (Dow Jones/The Australian – June 20, 2013)

RIO Tinto plans to make its first shipment of copper and gold from the Oyu Tolgoi mine in Mongolia on Friday, an operation the mining company estimates will account for over 30 per cent of the country’s gross domestic product when it reaches full production in 2020, says a person familiar with the matter.

A ceremony marking the event would be held that day at the mine in the southern Gobi Desert, about 100km north of the Mongolia-China border, the person said.

The $US6.2 billion Oyu Tolgoi mine is key to Rio Tinto reducing its dependence on iron ore, which accounts for about 80 per cent of its earnings. Faced with volatile commodities markets, new Chief executive Sam Walsh is moving to simplify the company’s structure and is selling non-core and poor performing assets and targeting more than $US5bn in cost savings by the end of next year. A number of senior managers at Rio Tinto’s iron ore division in Western Australia were laid off this week.

The first copper-gold concentrate was produced at Oyu Tolgoi in January and Rio Tinto had forecast commercial output would begin by the end of June, provided it could settle a dispute with Mongolia’s government over costs and the further development of the mine.

Rio Tinto operates and controls Oyu Tolgoi through its majority stake in Turquoise Hill Resources, which owns 66 per cent of Oyu Tolgoi and the Mongolian government the remaining 34 per cent.

Mr Walsh, who took over as CEO after the departure of Tom Albanese in January, last month said the mining operation had concentrate bagged and ready for shipment as production continued to ramp up. Progress had been made to resolve outstanding issues with the government and to secure project financing to continue developing Oyu Tolgoi, he said at the time.

When fully operational in 2020, Oyu Tolgoi is set to produce an average of 450,000 tonnes of copper and 330,000 ounces of gold a year as well as silver and molybdenum. The mine currently is an open-pit operation, but plans call for an underground section to be developed that would begin production in 2016.

The launch of shipments of copper from Oyu Tolgoi comes at time when global supply of the metal has been dented by a landslide at Rio Tinto’s Bingham Canyon mine in Utah in April and a fatal accident that shut Freeport-McMoran Copper & Gold’s Grasberg mine in Indonesia in May. Rio Tinto has estimated planned output in Utah will be reduced by about 50 per cent this year after the business produced roughly 163,000 tonnes of refined copper last year.

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