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2000 jobs lost at Rio Tinto’s Mongolian project

Job losses from the mining sector continue to flow with a major Rio Tinto (ASX: RIO) contractor axing some 2,000 employees at the mining giant’s Oyu Tolgoi gold and copper project in Mongolia.

According to Bloomberg, Redpath Mongolia employees working on the underground portion of the mine were given termination notices that cited a decision by Oyu Tolgoi’s board of directors. Ongoing discussions between the two owners of the mine including the Mongolian government, which owns a 34% stake in project and Rio Tinto’s Turquoise Hill Resources, have centred on a disagreement over revenue derived from the mine.

It has prompted Rio to suspend underground work at the $6.6 billion facility until an agreement is reached. However Rio itself has also suggested that job losses are likely within its own ranks as well. “There will be up to 1,700 redundancies for our employees and contractors”, a Rio spokesperson said.

Meanwhile Rio is facing another battle to keep jobs alive in a New South Wales supreme court as it appeals against an environmental court decision to halt extension plans at its Warkworth coal mine. The company has said that regardless of the decision job cuts are likely.

Last year Rio secured a state government approval for the $600 million development of the mine to extend its life past 2033. However the environmental court overturned the ruling in April and said the adverse impact on the environment and community outweighed the economic benefit from the mine.

Foolish takeaway

Rio management has made many poor decisions in the past and its overreliance on iron ore is troubling to say the least. Oyu Tolgoi is vital for the company to become a more diversified miner like BHP (ASX: BHP) and will be vital for revenues and lower risk ratings.

Currently its two key growth prospects are the giant Simandou project in Guinea and its Pilbara expansion, which will make it more like giant pure play iron ore company than a diversified miner. Despite the company’s reassuring words about remaining committed to the project, I’m not willing to take the risk on it and the future price of iron ore.

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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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