Despite Rio Tinto (ASX: RIO) originally saying the class action lawsuit brought against them over their Mongolian copper-gold project had no merit, the mining giant has agreed to settle the suit acknowledging that they hadn’t disclosed massive costs and delays for the project
Rio Tinto operates the Oyu Tolgoi mine in Mongolia via its Canadian subsidiary Turquoise Hill, who owns 66% of the project, while the remaining 44% was owned by the Mongolian Government since the project’s inception in 2009.
The class action filed in March 2021 alleged that the senior executives of Rio Tinto and Turquoise stated that “Progress and development was on plan and on budget”. When in reality, the project was many months behind schedule and hundreds of millions of dollars over budget.
The lawsuit was seeking compensation for the losses incurred by investors and the Mongolian Government in this underground expansion project.
“Ultimately, Turquoise Hill investors incurred massive losses as Turquoise Hill shares lost well over 70% of their value when the true extent of the delays and cost overruns at Oyu Tolgoi came to light,” the lawsuit added in its 160-page filing.
Nearly a year later, Rio announced that with the mounting evidence from internal documents and individuals, that in fact the project was over budget by nearly $1.9 billion of the expected $6.5B – $7.2B capital expenditure.
Today, the Mongolian government and Rio Tinto have reached an agreement to end this long-running dispute. Part of the new agreement states that Turquoise Hill will waive $2.4 billion in debt owed to the Mongolian Government, Mongolia now owns 34% of Oyu Tolgoi, and a 51% stake portioned to Rio Tinto. Additionally, construction on the underground project will start soon with the first production expected in the first half of 2023.
This deal marks a positive turn for Rio Tinto, which is recovering from Serbia’s rejection last week of its proposed lithium mine, as well as proposed projects being rejected in Ghana, the US and elsewhere.
The rest of the expansion will now be paid for with cash, with rescheduling of existing debt payments, and prepaid sales of copper to Turquoise Hill. The project has also pledged to only buy electricity from the Mongolian electricity grid, with the goal of eventually reaching a completely sustainable mine that uses only renewable energy.
Oyun-Erdene Luvsannamsrai, Mongolia’s Prime Minister, said the deal “demonstrates to the world that Mongolia can work together with investors in a sustainable manner and become a trusted partner.”
Trading Desk Assistant at Emerald Financial
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