Key points
- Rio Tinto has announced work at its Oyu Tolgoi project will restart after a deal was forged between stakeholders
- The agreement followed the waiving of a $3.3 billion debt owed by the Government of Mongolia
- Despite the news, the Rio Tinto share price is struggling amid a major market selloff event
While the Rio Tinto Limited (ASX: RIO) share price suffers through a rough day on the ASX, the company has announced it has agreed to restart its Oyu Tolgoi project after a multi-billion-dollar debt was waived.
Oyu Tolgoi is a Mongolian copper mine. It's set to be the fourth largest copper mine in the world by 2030, producing around 500,000 tonnes of copper each year from 2028 to 2036.
At the time of writing, the Rio Tinto share price is $107.11, 0.78% lower than its previous close.
For context, the S&P/ASX 200 Index (ASX: XJO) is currently down 2.54%.
Let's take a closer look at today's news from the ASX-listed resources giant.
Work to restart at Rio Tinto's major copper project
Owners of Rio Tinto shares rejoice! An agreement has finally been forged with stakeholders, including the Government of Mongolia, to restart work at the Oyu Tolgoi project.
The decision to move forward comes weeks after Turquoise Hill (NYSE: TRQ) – of which Rio Tinto has a 50.8% holding – announced it would forgive the Mongolian government's approximate US$2.4 billion (around A$3.3 billion) debt after it failed to pay for its share of the project's construction costs.
Turquoise Hill owns 66% of the Oyu Tolgoi project and the Mongolian government holds the other 34%. Rio Tinto manages the project on behalf of its owners.
Together, the entities have agreed to move the project forward. They have given the green tick to start work on underground operations, unlocking the mine's most valuable area.
On top of that, the parties have agreed to an updated funding plan. Under the new plan, until sustainable underground production is achieved, the project will be funded by cash on hand and the rescheduling of existing debt repayments, alongside a pre-paid copper concentrate sales agreement.
The first sustainable production from Oyu Tolgoi is now expected to occur in the first half of next year.
Rio Tinto and Turquoise Hill have also updated their capital forecast for the project to US$6.925 billion – up from US$6.75 billion. That includes US$175 million of known COVID-19 impacts, up until the end of 2021.
The pair forecast around US$1.8 billion remains to be spent underground. However, they plan to revise their expectations during the first half of this year. The revisions will reflect any extra COVID-19 impacts, time-based impacts, or risks.
Finally, it has been decided the mine will be powered by the Mongolian grid. As a result, Rio Tinto has agreed to work with the nation's government to support the grid with long-term renewable energy generation.
What did management say?
Rio Tinto CEO Jakob Stausholm commented on the agreements announced today, saying:
This agreement represents a reset of our relationship and resolves historical issues between the Oyu Tolgoi project partners. We strongly believe in the future of [Mongolia] and I am personally committed to ensuring that the people of Mongolia benefit strongly from Oyu Tolgoi along with our shareholders…
The Oyu Tolgoi underground development will consolidate Rio Tinto's position as a leading global supplier of copper at a time when demand is increasing, driven by its role in enabling decarbonisation and electrification in the race to net zero.
Rio Tinto share price snapshot
2022 has been good to the Rio Tinto share price so far.
Right now, the company's stock is has risen almost 7% year to date. Though, it is 12% lower than it was this time last year.
