Rio eases Oyu Tolgoi worries with power deal

LONDON Mon Nov 5, 2012 11:58am GMT

Rio Tinto Chief Executive Tom Albanese pauses during a news conference after their company's Australian annual general meeting in Brisbane May 10, 2012. REUTERS/Patrick Hamilton

Rio Tinto Chief Executive Tom Albanese pauses during a news conference after their company's Australian annual general meeting in Brisbane May 10, 2012.

Credit: Reuters/Patrick Hamilton

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LONDON (Reuters) - Rio Tinto's $6 billion Oyu Tolgoi copper-gold mine has agreed a long-awaited power supply deal with China, putting it on track to begin commercial production in the first half of next year.

Analysts and investors had speculated about potential delays at the mine, which will be one of the world's largest copper producers, as talks with China over power provision dragged on. But Rio had said last month there was "real momentum" behind the project.

Oyu Tolgoi owner Turquoise Hill - formerly Ivanhoe Mines and now owned by Rio - said on Monday it had signed a power purchase agreement with state-owned Inner Mongolia Power Corp, and also agreed to meet the project's power requirements from within Mongolia four years after production begins.

"This is a key positive for the project, with the power contract the only major ... item outstanding before the ramp-up can commence, laying to rest market concerns that failure to conclude negotiations quickly could delay the project," JP Morgan analysts said in a note.

Rio said the binding agreement with the Chinese company meant the commissioning of ore-processing equipment could start in the next few weeks.

Rio expects group copper production to increase from 2013 thanks to improving grades at existing mines and the start of production at Oyu Tolgoi, forecasting a cumulative annual growth rate of 13 percent from 2011 through 2015.

"Turquoise Hill continues to evaluate the development of a dedicated power plant," the company said in a statement.

(Reporting by Clara Ferreira-Marques and Sarah Young; Editing by David Holmes)

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