Rio Tinto to press ahead with $5.3bn Mongolian mine expansion

Rio Tinto said it was pressing on with the $5.3bn expansion of its Oyu Tolgoi copper and gold mine in Mongolia.

The development of the underground mine will start in mid-2016, Rio said in a statement. First production from the operation, which has an average copper grade of 1.66%, more than three times higher than the open pit, is expected in 2020.

When the underground operation is fully ramped up in 2027, Oyu Tolgoi is expected to produce more than 500,000 tonnes of copper a year, compared with current annual production of 175,000-200,000 tonnes. The mine also benefits from significant gold by-products, with an average gold grade of 0.35 grams per tonne, Rio added.

The investment decision follows the December 2015 signing of a $4.4bn project financing agreement with international financial institutions and export credit agencies representing the US, Canada and Australia, along with 15 commercial banks, for the development of the underground mine. The parties have agreed a senior debt cap of $6bn, providing the option for $1.6bn of supplemental senior debt.

Oyu Tolgoi is jointly owned by the Mongolian government, which holds 34%, and Turquoise Hill Resources, with 66%, of which Rio Tinto owns 51%. Rio Tinto has managed the Oyu Tolgoi project since 2010.