Russian fuel supply latest headache for Rio Tinto’s giant Mongolia copper expansion

“While Rio has begun looking for alternative fuel sources for Oyu Tolgoi, the company does not believe it can stop buying from Russia altogether,” Bold Baatar, head of Rio Tinto’s copper business, said on the sidelines of an energy conference happening this week in Houston.

“The reality is, Mongolia has two very big powerful neighbours, so it’s quite important for us to maintain healthy, peaceful, balanced relationships,” said Baatar.

Rio is developing a $6.93 billion underground expansion of the Gobi Desert-based mine, which has been plagued by delays and costs overruns. The issues triggered the Mongolian government’s ire to the point of threatening to revoke the 2009 investment agreement that underpins the mine development.

Relations between Rio Tinto and the Central Asian nation hit a  low in August, when an independent review rejected the mining giant’s explanation for the project’s delays and climbing costs.  

After several talks and the personal intervention of the company’s chief executive Jakob Stausholm, Rio and Mongolia inked an agreement ending the long-running dispute in January.

Landlocked
Mongolia, which owns 34% of Oyu Tolgoi, is bordered on the north by Russia and on the south and east by China. This leaves Rio limited options to secure supplies for the project, 66%-owned by Canada’s Turquoise Hill Resources (TSX, NYSE: TRQ), in which Rio has a 50.8% stake.

Amid Russia’s invasion of Ukraine, some of the world’s best-known brands — from Apple to Disney and Ikea — have abruptly left the country, with many other companies and governments stopping the acquisition of Russian products.

Rio knows it must deal with the issue in a way that both lets it comply with Western sanctions against Moscow and doesn’t tarnish its reputation further.

The company is still licking the wounds caused by its destruction of two 46,000-year-old Aboriginal rock shelters in Australia in 2020.

It is also dealing with an external report, published last month, which exposed a culture of “systemic” bullying, sexual harassment and racism within the ranks of the world’s second largest miner.