Rio Tinto will be forced to endure an independent review of its failure to meet cost and schedule guidance on Mongolia’s Oyu Tolgoi copper mine expansion, after the mining giant’s less powerful partners united in an extraordinary show of defiance.
The government of Mongolia and representatives of Canadian company Turquoise Hill Resources worked together on Monday evening (30 Novermber) to ensure an independent review would be conducted into the blowouts, which will see Rio’s most important growth project delivered almost two years late and close to USD 1.5 billion over budget.
Multiple sources have suggested that Rio was opposed to the creation of the committee and the independent review. Rio declined to comment when asked if it supported the independent review.
Rio blamed an uncontrollable factor – weaker than expected geology in the underground section of the Oyu Tolgoiproject – when it disclosed the blowouts to investors in 2019.
But Rio has been less forthcoming about the degree to which controllable factors played a role in the blowouts; something the Mongolian government is particularly keen to investigate.
The commissioning of the review is a victory for Mongolia and the minority investors in Turquoise Hill, both of which have struggled over the past decade to contend with the powerful hand that Rio has held in the complicated ownership structure of OyuTolgoi.
The unlikely alliance also highlights the risks inherent in Rio’s 2012 strategy to acquire a majority, but not complete, control of Turquoise Hill.
The theatre for Monday‘s extraordinary show of defiance was a board meeting of the Mongolian company that directly owns 100 per cent of the mine; Oyu Tolgoi LLC.Thatcompany is 66 per cent owned by Turquoise Hill and 34 per cent owned by a Mongolian government company called EOT. Rio’s exposure to the mine comes through its 50.79 percent stake in Turquoise Hill; a stake that has given Rio firm control of the mine over the past eight years despite having no direct ownership of Oyu Tolgoi LLC.
Rio’s power has been enhanced by the fact it is the main financier and technical manager of the mine expansion project, which is set to cost close to $US6.8 billion and is partly funded by a loan from the Australian government’s export credit agency.
The traditional factional alliance within the project – where Rio and Turquoise Hill appointees to the board of Oyu Tolgoi LLC vote together on motions – was broken on Monday night, when directors representing Turquoise Hill and the Mongolian government voted together on a motion to create a ”special committee” that would oversee an independent review of the blowouts.
”The special committee has been charged with selecting and engaging an independent and reputable firm of experts in the field of project management, mine planning, cost management and other related fields,” the Mongolian government said in a statement.
”The expert(s) will be tasked with conducting an independent investigation aimed at identifying the causes of the cost overruns and schedule delays and producing a detailed report to be shared with the special committee as soon as possible, and in any event, within six months of commencing its investigation.” (source: Financial times)