Rio Tinto (NYSE: RIO; LSE: RIO; ASX: RIO) flagged on Friday a cost increase of $300 million for the ongoing expansion of its massive Oyu Tolgoi copper-gold mine in Mongolia.
The world's second largest miner said the cost and schedule reforecast, completed in June, now pegs the total project cost estimate at US$7.1 billion, almost US$1.8 billion higher than its original estimate in 2015.
The company blamed the rise on skilled labour supply constraints caused by Covid-19 and noted the new estimate, under review by Oyu Tolgoi's board, assumes there are no further disruptions.
Rio Tinto currently controls and operates the mine, located 550 km south of Mongolia's capital Ulaanbaatar, thanks to a 66% stake in Canada's Turquoise Hill Resources (TSX: TRQ; NYSE: TRQ). The government of Mongolia owns 34%.
The mining giant is currently trying to buy all the shares it doesn't already own in Turquoise Hill.
Rio's chief executive Jakob Stausholm has said he believe the acquisition would simplify the ownership structure, and further strengthen the company's copper portfolio.
The offer followed an agreement between the miner and the government of Mongolia to complete the long-delayed underground expansion.
That deal saw Rio agree to write off US$2.4 billion of loans and interest used by Ulan Bator to fund its share of the development costs.
There was no update on the proposed $34-per-share buyout.
Turquoise Hill said in a separate statement it expected its portion of total operating cash costs at Oyu Tolgoi to increase by US$50 million for this year. It means they are now expected to be in the range of between US$850 million and US$925 million, higher than previous guidance of US$800 million to US$875 million.
This was due to higher royalties and price inflation for key raw materials, especially fuel and the lower deferred stripping, the firm said.
The ongoing expansion of Oyu Tolgoi has been plagued by delays and costs overruns, which have triggered the Mongolian government's ire to the point of threatening to revoke the 2009 investment agreement, which underpins the mine development.
First production, initially expected in late 2020, was rescheduled for October 2022 and later to the first half of 2023.
Rio Tinto said on Friday that technical progress has been hindered, with shafts 3 and 4 now expected to be commissioned in the first half of 2024, 15 months later than what the company estimated in 2020.
Oyu Tolgoi is Rio's main copper growth project. Once completed, the underground section will lift production from 125,000-150,000 tonnes in 2019 to 560,000 tonnes at peak output, which is now expected by 2025 at the earliest.
This would make it the biggest new copper mine to come on stream in several years and, by 2030, the operation would be the world's fourth largest copper mine, according to Rio Tinto.