The Asia Miner

SEP-OCT 2014

The ASIA Miner - Reporting Important Issues to Mining Companies in the Asia Pacific Region

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Page 12 of 91

September/October 2014 | ASIA Miner | 11 OYU Tolgoi recently signed a Power Sector Cooperation Agreement (PSCA) with the Government of Mongolia for investigation into estab- lishment of a Tavan Tolgoi-based independent power producer, accord- ing to Turquoise Hill Resources. The agreement provides a pathway to strengthening the power supply network in Mongolia and providing the Oyu Tolgoi gold and copper mine with domestic power rather than power from China. The agreement lays out a framework for long-term strategic cooper- ation between the Mongolian Government and Oyu Tolgoi to deliver a comprehensive energy plan for the South Gobi region. Participation in the agreement meets Oyu Tolgoi's obligation in the Investment Agree- ment to establish a long-term power supply within Mongolia four years from the commencement of commercial production. Turquoise Hill chief executive offcer Kay Priestly says, "The coopera- tion agreement is an important opportunity for Oyu Tolgoi to work with the government toward developing sustainable solutions to secure a long-term, economic power supply from Mongolia." The agreement provides a framework for a broad range of power-re- lated issues, including establishment of a power generation source, transmission lines and power imports. The centrepiece of the PSCA is an open, international tender process to identify and select an independent power provider to privately fund, construct, own, and operate a power plant to supply electricity, with Oyu Tolgoi as the primary consumer. Full evaluation of the independent power producer option is ex- pected to take nine to 12 months. The Minister of Energy M Sonompil, on behalf of the Government of Mongolia, and Oyu Tolgoi LLC signed the agreement. He said: "Successful implementation of the PSCA will add signifcant domes- tic power capacity, strengthening Mongolia's energy supply network. It will also encourage investment and jobs – both during construction and in operation." Meanwhile, Kay Priestly says Turquoise Hill is working to resolve a tax dispute with the Mongolian government before an extension runs out on funding commitments for the underground expansion of Oyu Tolgoi. "We are all aware of the September 30 date and are all working to- ward that deadline," she said during a conference call with investors. She was referring to the expiration of a six-month extension on bank commitments to fund the underground project. "The underground is a signifcant part of the value of this mine, and right now, we're focused on progressing the underground." The company says all parties remain committed to the underground development and are working through the outstanding shareholder is- sues. Underground development is subject to resolution of shareholder issues, the fnalization and approval of the feasibility study by all share- holders, and the agreement of a comprehensive funding plan including project fnance and receipt of all relevant permits. CONCENTRATE production for the second quarter at Turquoise Hill Resources' Oyu Tolgoi Copper-Gold Project (OT) returned to normal rates after recovering from thickener rake repairs. Copper concentrate increased from 1.029 million tonnes to 1.4 million tonnes and the aver- age grade was 25.8% copper, up from 24.6%. Metal production, however, was impacted by lower-grade ore due to delayed open pit mine advancement. Small amounts of higher-grade ore were processed in quarter two but the grade will increase through the second half of 2014 as the mine deepens into a high-grade zone. Turquoise Hill continues to expect OT to produce between 135,000 and 160,000 tonnes of copper and 600,000 to 700,000 ounces of gold in concentrates for 2014. OT is about 550km south of Ulaanbaatar and 80km north of the Mongolia-China border. Mineralization on the property consists of por- phyry-style copper, gold, silver and molybdenum contained in a linear structural trend (the Oyu Tolgoi Trend) that has a strike length extending over 26km. Concentrate sales during the second quarter increased signifcant- ly due to ongoing improvements in customer logistics and marketing. As a result of the increase, sales exceeded production resulting in an inventory drawdown for the quarter. Strong concentrate sales are ex- pected to continue throughout the second half of 2014 and sales are expected to exceed production through the end of 2014. OT's goal is to reach four to eight weeks of concentrate production in inventory by the end of 2014. Sales contracts have been signed for 100% of OT's expected 2014 concentrate production and long- term contracts account for 92% of 2015 planned production. Addi- tionally, 84% of concentrate production has been contracted for up to eight years. There was 16.861 million tonnes mined from the open pit in the quar- ter, compared to 21.621 million tonnes in the previous quarter. There were 7.778 million tonnes of ore treated compared to 5.56 million in the previous quarter. The copper grade was 0.53% compared to 0.52%, the gold grade was 0.60 grams/tonne, up from 0.49 grams/tonne and the silver grade was 1.57 grams/tonne, up from 1.52 grams/tonne. The OT mine has initially been developed as an open-pit operation. A copper concentrator plant, with related facilities and necessary infra- structure to support an initial daily throughput of 100,000 tonnes of ore, has been constructed to process ore mined from the Southern Oyu open pit. Development plans are based on a 95,000-tonne-per-day underground block-cave mine. In August 2013, development of the underground mine was delayed to allow matters with the Government of Mongolia to be resolved. OT signs power agreement Mining operations in the open pit at Oyu Tolgoi Copper-Gold Project in southern Mongolia (Copyright © 2014 Oyu Tolgoi). Production at OT returns to normal

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