The Rio Tinto mine in Mongolia needs China and Russia

The miner positions itself as a responsible, transparent operator. For example, Oyu’s material sourcing program buys personal protective equipment made by local cooperatives. Still, after construction began in 2019, the underground mine has been plagued by a series of long delays and cost explosions, exacerbated by a long-running dispute with the Mongolian government that only ended last year when Rio hit $2.4 billion ($3.6 billion). Billions of US dollars) waived ) government debt.

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“It wasn’t a smooth ride. Let’s be honest. We had our challenges, we had our setbacks,” says Jakob Stausholm, CEO of Rio Tinto.

And tensions remain — most notably a battle over the company’s tax liability. Rio has a 66 percent stake in Oyu, and the government has a 34 percent stake. “It always takes two. It was impossible for us to solve everything at once,” says Stausholm.

However, Bulgantuya Khurelbaatar, Mongolia’s border port minister and former mine employee, is not backing down. Locals won’t be happy if the government treats big Western investors differently than they do, she says.

“We will of course try to be consensual. But at the same time, we also need to make sure that this is the first big project and many other big mining projects are checking how we will solve this problem; it will likely set a precedent.

“It was the first big project in a country that is nomadic and heavily dependent on agriculture,” she says. “We have a much more shamanistic type of culture where we pay homage to Mother Earth. It’s quite difficult to support mining.”

But it’s the authoritarian and assertive neighbors of Mongolia, China and Russia who really hold the key to the success of Rio’s $7 billion bet on the mine’s new underground operation. Along with its host country, the company is caught between two unstable geopolitical fault lines.

Rio quickly stopped buying Russian goods and services when the West imposed tough economic sanctions after Moscow marched on Kiev, sparking the ongoing deadly Ukraine conflict that turned Europe on its head and sparked a global energy crisis.

“We were the first mining company to say we would cut our trade ties with Russia, and we did, and it wasn’t easy,” says Stausholm. “It’s really not our job to tell countries what you’re doing.”

But the mine’s giant Komatsu trucks — the size of a large two-story house — hauling 290 tons of ore in each load as they emerge from the 650-meter-deep open pit are thirsty consumers of diesel. And the hundreds of four-wheel drive vehicles, heavy machinery, semi-trailers, and buses that transport people and goods through the mine and open pit, which will eventually stretch nearly two miles, also suck up massive amounts of fuel.

The mine’s enormous energy requirements – equivalent to about a quarter of Mongolia’s production capacity – depend on electricity from China and fuel from Russia.

According to Khurelbaatar, the mining sector, in which Rio is by far the largest player, accounts for half of the country’s total oil consumption.

Diesel and fuel are all imported from Russia. There is no other possibility. “What are the options?” says Khurelbaatar. Realizing its vulnerability and lack of energy security, Mongolia is building its first refinery, she adds.

Rio’s copper boss Bold Baatar is more outspoken. “It’s still a work in progress. Russia does not supply us directly. We buy our goods from Mongolian suppliers and look for alternative suppliers from many parts of the world. We’re working on that,” he says.

The mine’s relationship with China is similar.

Copper ore mined in the Gobi desert is processed in a huge crushing, concentrating and packing complex. Oyu’s concentrator is so large that it claims the title of the largest industrial facility ever built in Mongolia. When the one-ton sacks of concentrate come out of the plant’s bagging facility, it’s only 100 kilometers by road to the nearest border point with China.

And almost everything is shipped there.

Of the 25 million tons of copper consumed worldwide, China devours about 13.6 million tons. North America processes about 2.4 million and Europe 3.7 million. Oyu is currently producing 130,000 tonnes of copper concentrates per year, a figure that is expected to increase to 500,000 when the mine’s new underground shafts reach full capacity in 2028-2036. If it hits that pitch, it will meet 2 percent of global demand and be the fourth largest copper mine in the world.

“[We live] in the world where everything we do – drive a Tesla or use an iPhone – requires copper and most of it, like it or not, is made in China,” says Baatar.

A dependency that neither he nor Stausholm shy away from.

“There is a lot of trade with China. We buy electricity [from them]we sell [them] Copper concentrate,” Stausholm said. “We have a very big business in China. From our point of view, I’m not particularly concerned as you’re seeing China opening up. Mongolia is geographically very close to China and that’s where we sell the copper concentrates,” he said.

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Rio’s dependence on Chinese energy could be offset in the future by an agreement to purchase electricity from the Mongolian grid. Stausholm said Rio also intends to expand renewable energy generation for the mine.

Oyu’s expansion is one of the mining giant’s key growth projects — a key element in its bid to diversify from iron ore and dig deeper into minerals that are increasingly needed in a low-carbon economy.

“There’s a lot of talk about battery materials, but if you do the math, you’ll see that the big numbers are copper and aluminum. From an ecological point of view, these super-scale copper mines are the most efficient [way to extract that]and not many smaller, older mines,” says Stausholm.

The reporter traveled to Mongolia as a guest of Rio Tinto.

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