February 23, 2018 / 9:55 AM / 3 months ago

Mongolia's Oyu Tolgoi weighs power supply options amid plant delays

ULAANBAATAR, Feb 23 (Reuters) - Mongolia’s giant Oyu Tolgoi copper-gold mine in the Gobi desert will weigh alternative options in order to guarantee electricity supply over the coming years, it said on Friday, after casting doubt on state plans to build a new power plant in the region.

Oyu Tolgoi, which is run by Anglo-Australian mining giant Rio Tinto, is under pressure to procure power from domestic rather than Chinese sources within the next four years, as stipulated in a 2009 investment agreement.

Mongolia’s energy minister said this week that a power plant due to be constructed at the Tavan Tolgoi coal mine near the Chinese border could help meet the supply gap, if Rio Tinto could guarantee financing for the project.

But the Oyu Tolgoi LLC mining unit said in a statement on Friday that the proposed power plant was unlikely to be completed in time.

According to the original plan, Oyu Tolgoi would be an off-taker rather than owner of the independent power plant located at the Tavan Tolgoi coalfields, but the agreement was cancelled last week, and Rio Tinto said it would work with its partners to find an alternative solution.

However, “extensive negotiations and lender due diligence” would add to the development time, Oyu Tolgoi said, noting that the plant currently lacks a lead investor.

The power station’s “development has been slow due to limited investors and lenders appetite” and it would therefore not be completed within the required period of four years.

Rio Tinto controls 66 percent of Oyu Tolgoi indirectly through its majority ownership of the Toronto-listed Turquoise Hill Resources. The Mongolian government owns the remaining 34 percent.

Oyu Tolgoi said it was now weighing its options, including the possible construction of its own power plant located at the Oyu Tolgoi mine.

“In this context, Oyu Tolgoi will be engaging with the Minister of Energy to ensure the necessary permits and approvals are in place,” it said.

However, the construction costs of a power station would not be included in the $5.3 billion investment for the underground expansion of Oyu Tolgoi, which was approved in 2016, it added. (Reporting by Terrence Edwards; Editing by David Stanway and Jacqueline Wong)

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