Canadian miner fuels fears on Rio project
FEARS that Rio Tinto's flagship growth project will be dogged by delays and cost blowouts have been stoked by a report published by a Rio-controlled company.
Canada's Ivanhoe Mines appears to have angered Rio, its majority stakeholder, after making the claims about the $US6.2 billion Oyu Tolgoi copper and gold project in Mongolia.
Ivanhoe recently published a 513-page technical report into Oyu Tolgoi, which warned that ore grades would be less impressive than earlier thought, while the costs of mining and processing would be higher.
The report also flagged that the development of underground mining at the site could be delayed.
It was unclear last night how the report related to a media statement issued by Ivanhoe last month, which flagged construction cost increases from $US5.9 billion to $US6.2 billion and foreshadowed delays, should problems persist in finding a short-term power solution for the project.
The report prompted BMO Capital Markets to downgrade the stock from ''buy'' to ''hold'', prompting a savaging for Ivanhoe shares on the Canadian market.
Rio Tinto refused to comment on the report and the accuracy of its claims last night, prompting suspicions that the release of the report might be yet another chapter in the long, strained relationship between Rio and Ivanhoe executives.
Rio has had a particularly fraught relationship with Ivanhoe's founder, Robert Friedland, who has long sought to prevent Rio from moving to its current 51 per cent stake in the company.
BusinessDay believes the report was compiled without assistance from the Rio-controlled Mongolian company building the mine - Oyu Tolgoi LLC - and that the board of that company is uncomfortable with some of the report's methodology and assumptions.
An updated feasibility study for the next phase of construction at Oyu Tolgoi is under way and is expected to give a more up-to-date account of costs and schedules for the project than the report that sparked this week's controversy.
Rio increased its stake in Ivanhoe to 51 per cent earlier this year and has made it clear Oyu Tolgoi is the only Ivanhoe asset it is interested in.
That stance means that a large number of Ivanhoe's assets, including some in Australia, are likely to be divested.
Rio was one of several miners to suffer punishment on the Australian market yesterday, losing 40¢ to close at $66.39
BHP Billiton lost 44¢ to finish the day at $34.74.
Both companies are looking to divest their diamond mines, and neither was prepared to comment yesterday on speculation by Nomura that they should combine their diamond businesses into a single entity.