Rio Tinto has given long-awaited approval for the expansion of one of the world’s most ambitious mining projects in Mongolia.
The FTSE 100 mining group and its partners will spend $5.3bn developing an underground mine at Oyu Tolgoi, a huge copper and gold deposit in the southern Gobi desert, 50 miles from the border with China.
The open-pit mine at Oyu Tolgoi has been in operation since 2013 and produces around 200,000 tonnes of copper a year. This could rise to 500,000 tonnes annually by 2027, as most of the mine’s reserves lie deeper underground. The site also produces gold as a by-product.
Oyu Tolgoi is 66pc owned by Turquoise Hills, which is 51pc owned by Rio Tinto, the mine's operator. The remaining 34pc of the mine is owned by the Government of Mongolia.
Jean-Sibastien Jacques, Rio’s head of copper who will shortly replace Sam Walsh as chief executive, described Oyu Tolgoi as a “world-class” operation. “Today's investment takes it to another level and will transform Oyu Tolgoi into one of the most significant copper mines globally, unlocking 80pc of its value,” he said.
"Long-term copper fundamentals remain strong and production from the Oyu Tolgoi underground will commence at a time when copper markets are expected to face a structural deficit.”
Miners have been keen to move into copper because its use in electrical wiring means that it will remain in long-term demand. However, copper prices remain subdued, down 25pc year on year, amid concerns of oversupply and falling demand in China. A 5pc fall in copper this week alone, to $4,785 a tonne, has knocked mining stocks around the globe.
Oyu Tolgoi is the biggest industrial project ever undertaken in Mongolia and, when completed, could account for around 30pc of the country’s GDP. It is a flagship policy of the Mongolian government, which has sought to bring foreign investment to the sparsely populated, landlocked country.
The mine has faced criticism from environmental groups because of its high water needs in what is one of the driest regions in the world. Rio Tinto maintains Oyu Tolgoi is “one of the most water-efficient mines of its kind in the world”, recycling up to 85pc of its water.
Rio Tinto’s shares in London were down 1.3pc by mid-morning.
Separately, BHP Billiton reported its deal with the Brazilian government to settle compensation for a fatal accident at a mine in November has been ratified by the courts. Under the agreement, BHP’s joint venture with Vale, Samarco, will pay at least £1.6bn over six years to compensate victims and restore the environment after a burst dam at an iron ore mine flooded a river valley and killed 19 people. BHP and its partners are facing a separate, £33bn civil suit from federal prosecutors that was announced earlier this week.