Turquoise Hill Resources's board of directors has approved a transitional budget of US $75 million, allowing parties involved in Mongolia's huge Oyu Tolgoi copper and gold mine to press ahead with the underground expansion of the business.
Rio Tinto, which has a 50.8 per cent stake, said the board's decision reflected progress in ongoing negotiations between the Mongolian government, Rio Tinto and the company.
Turquoise noted that while it considered budget approval to be a "necessary and positive step", there was no guarantee that Oyu Tolgoi LLC's board of directors would approve any critical additional investment in the future to continue to advance the underground portion of the mine.
The company's shares climbed on the news, rising 2.5% to $15.2 at the start of trading in New York.
Jakob Stausholm, Rio Tinto's chief executive, met with Mongolian Prime Minister Luvsannamsrain Oyun-Erdene, last week to address issues that still threaten the future of the giant copper mine.
The continued expansion of the project in the Gobi Desert has been plagued by delays and cost overruns, which has sparked outrage from the Mongolian government and even threatened to rescind the 2009 investment agreement, which underpinned the mine's development.
Relations between Rio and the Central Asian country hit rock bottom in August, when an independent review rejected the mining giant's explanation for project delays and rising costs.
Mongolia's position is that Rio should bear cost overruns and that debt arising from Ulaanbaatar's share of the project (34 per cent) should be completely eliminated.
According to reports, the prime minister wants Rio Tinto and Turquoise Mountain to re-examine the economic benefits that the expansion project will bring to the national finance.
Sources familiar with the matter said earlier this year that Rio was prepared to make concessions to the Mongolian government to complete the troublesome project, including a reduction in lending rates to the state to finance its construction costs.
Rio Tinto may also consider "restructuring" the ownership order of Oyu Tolgoi, the source said.
The first production of the underground part of Oyu Tolgoi was originally expected at the end of 2020 and has been rescheduled several times since Rio Tinto approved the expansion project in 2015.
In the latest estimates released in October, commercial production of underground mines will begin no earlier than January 2023.
Oyu Tolgoi is Rio's main copper growth project. Once completed, the underground part of the mine will increase production from 125000-150000 tons in 2019 to a peak of 560000 tons, which is now expected to be completed as early as 2025.
According to Rio Tinto, by 2030, the business will become the fourth largest copper mine in the world.
The mine is the country's largest source of foreign direct investment, creating thousands of jobs over the past decade and generating nearly $3 billion in tax and fee income.
