Development costs at Rio Tinto’s Oyu Tolgoi underground mine in Mongolia have reportedly blown out by more than a third on its previous estimate.

TAMJuly18 img06Although the project continues to progress in 2019 towards becoming one of the largest copper mines in the world, preliminary estimates for development capital spend for the project is now $6.5 billion to $7.2 billion, an increase of $1.2 billion to $1.9 billion from the $5.3 billion previously disclosed1.

Since February, key below ground infrastructure such as the control room facility and the jaw crusher system have been completed and construction of shafts 3 and 4 is progressing well. The commissioning of shaft 2 remains on track for October 2019.

As previously advised, enhanced geotechnical information and data modelling suggests that there may be some stability risks identified with the approved mine design and so a number of other mine design options are also under consideration to complete the project. Studies to date indicate that these options may result in some of the critical underground infrastructure, such as the mid-access drive and the ore handling system, being relocated or removed. Options relating to the sequence of crossing the panel boundaries during mining operations are also being analysed.

These options are being evaluated to determine the final design of the first panel of mining, “Panel 0”, and this work is anticipated to continue until early 2020. Given the further technical work which is needed, the Definitive Estimate, which will include the final estimate of cost and schedule for the remaining underground project, is now expected to be delivered in the second half of 2020, reflecting the preferred mine design approach.

“Preliminary information now suggests that, depending on which mine design options are adopted, first sustainable production could be achieved between May 2022 and June 2023, a delay of 16 to 30 months compared to the original feasibility study guidance in 2016,” said Rio Tinto in a statement.

“This range includes contingency of up to eight months reflecting the unexpected and challenging geotechnical issues, complexities in the construction of shaft 2 and the detailed work still required to reach a more precise estimate.”

The company reports that it will continue to focus on minimising the impact to project schedule and cost, as it works through the detailed analysis and testing of each mine design option. Although further work is necessary to reach definitive conclusions, Rio Tinto is reviewing the carrying value of its investment in the project and will announce if any changes are required in the half year results on 1 August 2019.

“We have made significant progress on a number of key elements in the construction of the underground project during 2019,” said Stephen McIntosh, Group executive, Growth & Innovation.

“However, the ground conditions are more challenging than expected and we are having to review our mine plan and consider a number of options. Delays are not unusual for such a large and complex project, but we are very focused as a team on finding the right pathway to deliver this high value project.”