RIO Tinto will not take up a Mongolian government offer to boost the company’s stake in the $US11 billion ($14bn) Oyu Tolgoi copper and gold mine but says it would not be averse to the country selling its mine stake.
Rio finance director Chris Lynch says he feels no closer to resolving a stand-off with Mongolia over the stalled $US5bn second stage of Oyu Tolgoi, in which Mongolia has a 34 per cent stake, despite proposed mining law changes from Mongolia and an earlier offer to forgo royalty payments by Rio.
The comments by Mr Lynch come after he and chief executive Sam Walsh handed down expectation-beating full-year profit and a $US2bn shared buyback that sent shares on their biggest one-day surge in nearly six years.
As revealed in The Australian last week, Mongolia’s Prime Minister Chimediin Saikhanbileg wants to help his country’s struggling finances by amending mining laws so mine operations can buy some of Mongolia’s equity in projects in exchange for royalty payments, meaning Mongolia would reap the benefits earlier.
“We’re quite happy with our current stake,” Mr Lynch told The Weekend Australianyesterday. “If the government wanted to sell to someone else, so long as there was a good partner,” Rio would not object, he said. Rio operates Oyu Tolgoi, which is 66 per cent-owned by Rio’s Canadian-listed subsidiary, Turquoise Hill Resources.
The second stage of the project, an underground expansion that would create most of its value, has been stalled for 18 months as various Mongolian governments have tried to get more of the project and extract compensation for cost blowouts on the first stage.
“I can’t get any more confident on the underground expansion than I was six months ago,” Mr Lynch said.
In August, after Rio’s half-year results, Mr Lynch told analysts that if the delay continued, Rio needed to question whether the mine expansion would get done.
“The key really is what can you put in place that binds the future investment framework,” Mr Lynch said yesterday.
“You want to have a setting where there’s more external eyes on the country to make sure you get maximum common sense.”
In an attempt to break the impasse, Rio in November offered to drop a 2 per cent royalty Turquoise Hill would receive from Oyu Tolgoi, expected to about $US1.5bn over the mine’s life.
Yesterday, Rio shares had their biggest one-day jump since May 2009 after Rio’s Thursday night profit report, leading most mining stocks higher. Rio rose 6.5 per cent, BHP 4.8 per cent and FMG 5.7 per cent.
Strong earnings and cashflow led to a bigger-than-expected paydown in Rio’s debt.
Rio reduced its 2015 capital spending budget by $US1bn to $US7bn and has guided it will stay at these levels until 2017.