HONG KONG (Reuters Breakingviews) – Rio Tinto has sounded a copper warning from the Mongolian steppe. The $104 billion mining giant says its flagship Oyu Tolgoi expansion in the country’s south will be up to 30 months late, and could cost as much as a third more than planned.
That’s a fresh blow to a project that has been battered by local politics and other troubles for years. It’s also a reminder of just how hard it has become to dig up the coveted red metal.
Oyu Tolgoi is critical for Rio’s growth, but also to its shift towards the ingredients for a greener economy. Currently, iron ore constitutes almost three-quarters of group earnings. When this mine’s underground operation is added to the existing pit, it will be one of the world’s largest sources of copper, and account for a gargantuan proportion of Mongolia’s GDP.
That’s already made it a political flashpoint. Indeed, finding a solution with Ulaanbaatar in a spat over costs and taxes forged the credentials of then-copper boss Jean-Sébastien Jacques, now chief executive. His ties to the project make the delay, a cost blow-out that could add $1.9 billion and a potential impairment, all the more embarrassing.
But there’s a bigger issue at stake. Historic copper mines – relatively easy, high-grade projects in appealing spots – are ageing; rich-but-tough jurisdictions, like Zambia and the Democratic Republic of Congo, are getting tougher.
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