As mining companies around the world react to the low commodity prices and over supply of many commodities by shuttering operations, Rio Tinto is moving in the opposite direction as it announced plans to invest $4.4 billion in the expansion of projects around the world, including the Oyu Tolgoi deposit in Mongolia.
Rio Tinto has teamed up with 20 lenders to build a network of underground tunnels at its Oyu Tolgoi deposit as well as its bauxite and iron ore operations.
Dow Jones Newswire reported that Oyu Tolgoi has been beset by delays and complicated negotiations between those involved in the venture, namely Rio, Turquoise Hill Resources Ltd. and the Mongolian government.
Rio Tinto-controlled Turquoise Hill, a Canadian-listed miner, owns 66 percent of the Oyu Tolgoi project. The Mongolian government owns the rest.
The mine produced its first ore in 2013 and plans to expand underground operations were approved earlier this year.
On Tuesday, the partnership the $4.4 billion project finance package with 15 commercial banks and five credit agencies, including the U.S. Export-Import Bank, for the underground development, which could cost as much as $6 billion to build. Rio Tinto has estimated that up to 80 percent of the value of the deposit — located in the southern Gobi Desert, about 80 km (50 miles) north of the border with China — is tied to the proposed underground operations.
The financing "is a conclusion of more than four years of discussions with the lenders," said Jean-Sé bastien Jacques, Rio Tinto’s copper and coal chief. "We have all been on a very steep learning curve," he said, adding that "despite a very volatile market environment, they understand the long term value of Oyu Tolgoi."
The news comes as other copper producers have cut output amid a sharp slump in metal prices. Copper, which is trading at a six-year low, has fallen by more than half since its 2011 peak of more than $10,000 a ton, to about $4,670.
And Oyu Tolgoi isn't the only big project that Rio is pressing ahead with. In November, it approved a $1.9 billion bauxite project called Amrun in northeastern Australia. Bauxite is a raw material that is used to make alumina, a key ingredient in the manufacturing of aluminum.
Executives said they were eager to grow that business as well, citing expectations of strong future demand from China, the world's No. 1 aluminum producer.