The Mongolian government has approved the underground expansion of the Oyu Tolgoi Copper-Gold project in the country’s south. Prime Minister Chimediin Saikhanbileg announced on Sunday that his Cabinet had decided to proceed with the second phase, which will cost almost US$5 billion.

The decision follows two years of often bitter negotiations between the government and Turquoise Hill Resources, which is majority controlled by Rio Tinto. Construction was halted in October 2013 and resulted in more than 2,000 layoffs at the mine.

Saikhanbileg said in a televised address to the country that the project, which could contribute as much as a third of the economy when in full production, was in the national interest.

Oyo Tolgoi phase II is a massive project – an updated feasibility study shows recoverable copper of 24.9 billion pounds, 11.9 million ounces of gold and 78 million ounces of silver over a mine life of 41 years. At today’s metals prices, this is worth $92 billion.

In 2014 the Oyu Tolgoi open pit produced 148,400 tonnes of copper and 589,000 ounces of gold in concentrates in 2014 compared to 76,700 tonnes of copper and 157,000 ounces of gold in concentrates in the previous year, according to the annual report of Turquoise Hill Resources.

The company said that higher ore grades during the fourth quarter led to increased metal production over prior quarters, which was partially offset by reduced processing rates as a result of the December 2014 concentrator fire.

This year Oyu Tolgoi is expected to produce 175,000 to 195,000 tonnes of copper and 600,000 to 700,000 ounces of gold in concentrates with production distribution expected to be relatively similar to 2014.

Turquoise Hill said that Oyu Tolgoi achieved a good safety performance for 2014 with no fatalities and an All Injury Frequency Rate (AIFR) of 0.47 per 200,000 hours worked.

The operation recorded net revenue of approximately $1.6 billion in 2014 on sales of approximately 733,700 tonnes of concentrate. It recorded net revenue of $634.1 million in 4Q on sales of approximately 262,700 tonnes of concentrate - a 19.2% increase over the previous quarter.

During 2014, Turquoise Hill generated its first annual positive operating cash flow of $658.3 million. Cash operating costs at Oyu Tolgoi in 2014 were $905.6 million.

Turquoise Hill’s cash and cash equivalents at December 31, 2014 were $862.8 million as the result of positive cash flows from Oyu Tolgoi, and repayment received in full for Turquoise Hill’s $115 million Mongolian Treasury Bill, which matured on October 19, 2014.

Oyu Tolgoi is about 550km south of Ulaanbaatar and 80km north of the Mongolia-China border.

The Oyu Tolgoi mine has initially been developed as an open-pit operation. A copper concentrator plant, with related facilities and necessary infrastructure to support an initial daily throughput of 100,000 tonnes of ore, has been constructed to process ore mined from the Southern Oyu open pit. Long-term development plans for Oyu Tolgoi are based on a 95,000-tonne-per-day underground block-cave mine.

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