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Rio Tinto’s Mongolian project stalls

Rio Tinto’s (ASX: RIO) huge Oyu Tolgoi mine in Mongolia has suffered another setback as the government says financing for the project will need to be approved by the Mongolian Parliament.

According to a media release yesterday, the country’s parliament is currently in summer recess and the approval process will take some time to work through. However Rio has said it remains committed to working with the government, which has already raised concerns over the pricing and management of the mine.

After tensions arose with the government earlier this year, the company made its first shipment in early July but has delayed the opening ceremony twice despite sending out invitations to notable guests, including the Mongolian Prime Minister.

The US $6.2 billion copper mine was planned to be the world’s third biggest but is now looking to be more modest since the company downscaled its second phase of development. However, due to the uncertainty and possible length of the approval process Rio has said it will delay underground development until the matters are concluded and a new timetable is agreed upon.

Rio continues cost-cutting

Rio’s CEO, Sam Walsh, has embarked on an up high battle against high debt and growing concerns over much weaker commodity prices including iron ore, the company’s most lucrative product. Yesterday it was announced the company’s Northparkes copper and gold mine in New South Wales was sold to China’s Molybdenum for US $820 million.

This follows on from earlier assets sales including the company’s US $325 million sale of its eagle project in the US state of Michigan to Toronto-based Lundin Corporation.

Mr Walsh has put many of Rio’s projects on the chopping block, including the company’s diamond business, Australian aluminium and coal assets and its Canadian iron ore company. The removal of non-core projects will help the company return over US $5 billion by the end of next year and pay debts which, last year, nearly reached US $19 billion.

Foolish takeaway

Just like BHP (ASX: BHP) and Fortescue (ASX: FMG), Rio needs to continue to sell non-core and loss making assets. Focusing on Iron ore and copper will help the company keep costs low and return to shareholders. As with any mining company, if spot prices of copper remain low and iron ore weakens, Rio needs to continue to increase production to maintain its bottom line.

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

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