A report in The Australian suggests Rio Tinto is set to take a $2.5-billion writedown on the troubled Oyu Tolgoi project, where delays have contributed to a $2.5-billion reduction in the project’s value. This has shrunk from $9.9 billion to $7.4 billion during the past year, with $1.1 billion of the fall in value due to the delays and slower production ramp-up. First production from the underground element of the project, which holds about 80 per cent of the value, was supposed to arrive in 2017 but is not now expected until 2019, with one analyst who visited the site recently saying that 2020 is a more likely start date.
Daniel Greenspan, a Macquarie analyst who visited the site, wrote to clients: “We got the distinct impression that even if the green light was given tomorrow, it could take at least ten months before workers and contractors are mobilised and construction recommences. Therefore, the 2019 production start date targeted in the new (technical report) is likely one year off at least.”
The project would be one of the world’s largest copper mines at full capacity, helping Rio Tinto to break its dependence on Australian iron ore for the vast majority of its profit. Macquarie is forecasting that the project will suck in about 40 per cent of Rio’s growth investment from next year. Sam Walsh, Rio’s chief executive, said: “It’s a 50-year project ... I need to make sure with these sorts of projects that you don’t put lead in the saddle that you have to carry for 50 years.”