MELBOURNE/LONDON, July 29 (Reuters) - Rio Tinto has put on hold a more than $5 billion underground expansion of its giant Oyu Tolgoi copper mine in Mongolia, after the government said parliament would need to approve financing for the project.
The delay marks the latest bump in the road for the global miner at one of its biggest projects, which started exporting copper from an open pit mine at the site this month, after two last-minute hiccups in securing government approval.
Rio already needed Mongolian government approval for the financing for Oyu Tolgoi’s second phase. It did not give a reason on Monday for the request for a green light also from the country’s parliament.
Mongolia has raised concerns about the costs of the Oyu Tolgoi expansion and the potential that rising costs will delay when it starts receiving its share of profits.
Mongolia’s parliament will sit again from October.
“The Mongolian Parliament is currently in summer recess and the parliamentary approval process may take some time to work through,” Rio Tinto said in a statement.
It said given the current uncertainty, including continued discussions with the government on a range of other issues, all funding and work on the underground development would be delayed until these matters were concluded and a new timetable agreed.
“The decision to stall underground development appears to be a clear signal from Rio that it is not going to invest more risked capital until the country’s issues are sorted,” Investec analysts said in a note.
Rio had already lined up more than $4 billion of financing for the expansion - over $2 billion of that from commercial banks in one of the largest resource financing deals in Asia this year. That agreement expires in the coming weeks, but is expected to be extended.
Oyu Tolgoi is 66 percent owned by Rio Tinto’s Turquoise Hill unit and 34 percent owned by the Mongolian government.
The expansion is designed to take production at the mine to 425,000 tonnes of copper and 460,000 ounces of gold a year.
Production at Oyu Tolgoi’s open pit mine and export of copper concentrate is continuing.