What does Rio Tinto's $5.4 billion expansion at Oyu Tolgoi mean for copper price recovery?
But will the momentous deal opens the door to quicker recovery of copper prices?
According to Rio Tinto,.global copper prices will recover faster than expected with demand outstripping supply within two year rather than the previously estimated three to four years.
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Rio Tinto’s head of copper and chairman of the International Copper Association said decisions by the industry to slow copper production in response to weak prices meant the market could become balanced this year.
Jean-Sebastien Jacquest told the Financial Times in an interview: “It was expected to be oversupplied but because of disruption in the marketplace and because of decisions made by the industry to slow down some projects we could face a situation where the market is balanced this year.”
“If you had asked me the question in December last year I would have said the inflection point would be three or four years down the road and today it is likely to be 18-24 months down the road,” he added.
The agreement with the Mongolian government will allow construction of an underground mine at the site of an existing open-pit operation, marking a major step forward for the Oyu Tolgoi project. Rio Tinto settled disagreements on taxes and royalty payments with Mongolia last year. Expansion efforts have stalled since 2013 when the first convoy of trucks carrying copper to China departed from the existing open-pit mine.
“Mongolia is back to business,” said Prime Minister Chimediin Saikhanbileg on Tuesday. “Unlocking Oyu Tolgoi’s underground mine will have a significant impact on the Mongolian economy, which will benefit Mongolian citizens for generations to come.”
The Oyu Tolgoi project is significant for Rio Tinto has the miner looks to take advantage of new minerals in developing countries as it desperately tries to reduce its dependence on iron ore, which has crash and burned in recent months.
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Rio Tinto said in a statement: “With a new pathway to development of the underground mine agreed, the focus now shifts to completing the project finance, the feasibility study and securing all necessary permits so that the underground mine development can proceed.”
According to sources, the expansion of an underground mine at Oyu Tolgoi would take roughly five to seven years to get started once all finances and approvals in place.