Cash is flowing steadily at Rio Tinto (RIO) thanks to iron ore price strength, but the major’s June quarter trading update was dominated by the news Oyu Tolgoi underground would be delayed.
Production at the copper mine’s underground section will now arrive 16-30 months later than expected, between May 2022 and June 2023, because of “stability risks” forcing the relocation of various pieces of underground infrastructure. This will also add between $1.2bn (£959m) and $1.9bn to the project’s cost, taking it to a minimum of $6.5bn. “Significantly more work” is needed to complete a final assessment on the design, Rio Tinto said.
The company has 51 per cent of the Oyu Tolgoi holding company Turquoise Hill and is operator of the mine. Growth and innovation chief Stephen McIntosh said the ground conditions were “more challenging than expected” but highlighted the fact delays with major projects were normal.
Bank of Montreal analyst Edward Sterck said the delay could cause funding issues at Turquoise Hill, where Rio already has a strained relationship with 10.9 per cent shareholder Sailingstone Capital. “[The delay and higher capex requirement] appears to push funding requirements beyond [Turquoise Hill’s] estimated available liquidity of $5.2bn,” he said, forecasting more borrowing as a result or a new rights issue involving Rio Tinto.
Mr Sterck increased his adjusted cash profit forecast for the six months to 30 June by 10 per cent because of the high iron ore price, bringing it to $10.2bn, $1bn higher than the adjusted figure from the six months of 2018.
