Rio Tinto Group said Mongolia won’t receive any dividend from the giant Oyu Tolgoi mine for 10 years as the world’s second-biggest mining company prioritises completing a $5.3bn underground expansion.
Oyu Tolgoi, which at its peak will be one of the top five copper mines in the world, is partly owned by the government and Turquoise Hill Resources Ltd, which is majority controlled by Rio. In the past, Rio has said the project, the biggest in the country’s mining history, could account for about one-third of Mongolia’s gross domestic product.
“We shouldn’t forget that Oyu Tolgoi is a long-term project,” Jean-Sebastien Jacques, Rio’s chief executive officer, said in an interview with Bloomberg Television Mongolia in Ulaanbaatar on Thursday. “It will take us five years to build the infrastructure and seven to nine years to ramp it up.”
“Until we get to a steady state, which is clearly 10 years down the road, we will not pay a dividend to anybody,” he said.
Rio reported net earnings of $53mn from Oyu Tolgoi in the first half of this year. Mongolia owes Turquoise Hill about $1bn, Jacques said.
Rio and Mongolia have been embroiled in various disputes since the miner took control of the project in 2010. When Jacques was previously head of the copper unit, he was able to diffuse much of the tension after inviting former Prime Minister Chimediin Saikhanbileg to his west London home. The gesture helped pave the way for a crucial $4.4bn financing accord last year to fund the underground expansion. Rio’s board has been in the country this week visiting the mine located about 340 miles (547km) south of Ulaanbaatar and 50 miles north of the border with China. Jacques said he had met with new Prime Minister Erdenebat Jargaltulga in the city earlier this week.
“We had a very open conversation on where we are in relation to our joint project,” he said. Construction of the underground expansion is “well underway” and about 1,600 people are working on the project, he added. Staffing is expected to reach 2,400 by year-end.
Frustrated voters swept the Democratic Party from power in June, giving the Mongolian People’s Party an overwhelming mandate to address the deterioration of the economy. This month, the country requested assistance from the International Monetary Fund to help it deal with an economic crisis stemming from a downturn in mining since 2011.
Following the change of power, the government recently ousted three board members at the state-owned mining company that helped steer Oyu Tolgoi out of the long-standing dispute between Rio and the government.
Last December, Rio said it paid a total of $1.3bn in taxes, fees and other payments to the government of Mongolia. In 2015, taxes to the country were $278mn. Rio has been shipping concentrates by road to customers, mostly in China, since 2013. The mine is expected to be in operation for more than 75 years.
Turquoise Hill Resources Ltd owns 66% of the Oyu Tolgoi deposit. Mongolia’s state-owned Erdenes Oyu Tolgoi holds the share of the mine not owned by Turquoise Hill. Rio owns 51% of Turquoise Hill.