Rio contests the findings of an independent report on the Oyu Tolgoi cost overrun.
Rio Tinto has challenged the findings of an independent report into problems at its $6.75bn copper mine in Mongolia, sticking to its explanation that difficult geology, not mismanagement, was to blame.
The Independent Consulting Group’s report, commissioned by Rio’s partners on the Oyu Tolgoi project, concluded last month that poor management was the principal reason the mine’s underground expansion was running almost two years late and $1.45bn over budget.
But in a letter to Mongolia’s justice minister Khishgee Nyambaatar, seen by the Financial Times, Rio said while it understood the government’s frustrations at the delays the ICG did not sufficiently recognise the full impact of weaker than expected rock conditions, which had meant the mine had to be redesigned.
The company’s response could stoke tensions with the Mongolian government, which has called for more transparency from the Anglo-Australian miner on the problems at Oyu Tolgoi. It comes as financial regulators in the UK and US examine Rio’s disclosures about the delays and cost overruns.
“We are concerned that the report takes a narrow view of what constitutes geotechnical impacts on the project,” said the letter signed by Rio’s head of projects Mark Davies.
The letter last week also claimed the ICG report’s authors lacked access to critical software to allow a “thorough understanding” of the project schedule, and questioned their independence.
“While we have been concerned by some aspects of the review process, and in particular the lack of independence of some reviewers given their previous involvement with the project, we have constructively engaged with the process throughout,” it said.
In an emailed statement the ICG said: “[We] have not seen any response from Rio to our report so cannot comment but we stand by the content of the report.”
Davies said other issues that had affected the project included problems fitting out a key access shaft, which were “transparently reported” to its partners, and the fact that 96 per cent of Oyu Tolgoi’s workforce was Mongolian – far higher than it had initially planned.
“The investment in the national workforce did have an impact on project costs and schedule; more than the ICG recognises,” the letter said.
Once the underground expansion is complete, Oyu Tolgoi will be one of the biggest copper mines in the world, capable of producing almost 500,000 tonnes of the metal a year.
However, Rio and Ulan Bator are in a stand-off over when to take the next step in the development schedule so they can hit a revised production target of October 2022. First production from the mine had initially been expected in late 2020.
During a visit to London this month Mongolia’s deputy cabinet secretary Solongoo Bayarsaikhan called for “more transparency” and “more visibility” from Rio.
“We need to have very honest conversations with Rio Tinto about why there are delays, why there are certain issues, and why there are certain claims made about why there are delays,” she said.
Rio revealed in July 2019 the full extent of the delays and cost blowout at Oyu Tolgoi. However, Richard Bowley, who worked for Rio’s copper business in Mongolia between 2017 and 2019 as head of strategic projects, has alleged the company was aware of problems months before they were disclosed to investors.
In 2020, Bowley, who was pursuing an unfair dismissal case at the time, wrote to Rio’s chair Simon Thompson, saying that “project management” and not ground conditions were the main reasons for the overrun.
“I believe my last report to Rio Tinto in January 2019 stated the project was exposed to a 15-18 month delay, and a large escalation in capital required to complete the project,” Bowley said in his letter.
Rio has previously said that it had “consistently complied” with its disclosure obligations in relation to the underground development at Oyu Tolgoi.
In a statement Rio said: “We have provided a response to the Government of Mongolia in relation to the Independent Consulting Group report which outlines areas of the report that we accept, other parts that we fundamentally disagree with, as well as proposed next steps.”