Turquoise Hill Resources Ltd.’s Oyu Tolgoi LLC in Mongolia has declared force majeure on some customer contracts for concentrate after shipments to China were suspended due to COVID-19 safety precautions at the Chinese-Mongolian border. It said it will continue to support the government of Mongolia’s efforts to work with Chinese officials to resume the shipments as soon as possible.
The miner also confirmed two cases of COVID-19 at the site which it said were managed in compliance with public health guidelines. It has also completed 9,726 PCR (polymerase chain reaction) tests at site that have all been confirmed negative.
The open-pit mine, concentrator plant and bagging plant continue to operate uninterrupted, however, underground work was halted while testing was under way to ensure the safety of employees on site.
There are ongoing travel restrictions for people coming from Ulaanbaatar to the site and Oyu Tolgoi said it is developing contingency plans to mitigate any associated risks.
The problems do not end there. A new claim was filed in the ongoing lawsuit against Rio Tinto and Turquoise Hill Resources and its management of the expansion project at Oyu Tolgoi, which is led by the largest and most-outspoken minority shareholder, Pentwater Capital Management. Rio Tinto has been accused of concealing the real cause of the delays and cost increase for the expansion project. Pentwater Capital Management claimed senior executives at Rio Tinto and Turquoise Hill Resources knew the $6.75 billion expansion of the copper mine was in trouble months before the problems were disclosed to investors. The 163-page complaint said the delays and cost overruns of the project were due to defective steel, deficient engineering, and poor procurement and construction that forced the majority of one of the mine’s shafts to be rebuilt, as opposed to the given reason of geotechnical problems.
Despite setbacks, the claim alleged that Rio Tinto and Turquoise continued to tell investors that the project was on track. It was not until July 2019 that Rio Tinto announced a 30-month delay in the timeline for the project and increased the cost estimate to $6.75 billion from $5.3 billion. In December 2020, it announced an updated timeline with the underground project reaching sustainable production by October 2022.
Investors are not the only one with concerns. Turquoise Hill is scheduled to meet with the government of Mongolia over a new financing agreement for the project. The government has threatened to pull the plug on the project. It was concerned the development costs of the Oyu Tolgoi project have “eroded the economic benefits it anticipated to receive.”
At peak production, the project will be one of the world’s biggest copper mines, producing almost 500,000 metric tons per year. Rio Tinto owns a 51% stake in Turquoise Hill Resources, which in turn owns 66% of Oyu Tolgoi and the rest is owned by the government of Mongolia.