Oyu Tolgoi feasibility study (Update 1): Feasibility study report submission was rejected.

Last fall, Oyu Tolgoi project IA was signed by the Mongolian Government and Oyu Tolgoi investors (IMMI and Rio Tinto International Holdings Limited). Singing parties were talking about unlocking the biggest ever Mongolian mining opportunity.

But, Oyu Tolgoi feasibility study was rejected by the Technical Meeting of the Mineral Wealth Professional Committee. The Committee concludes that the feasibility study as “not satisfactory” and gives notice to Oyu Tolgoi developers to revise it. Committee members think that responsible side of the project was over-confident and bragging, because of signing IA, and explains that it also breached some provisions of the investment agreement.

For example, the first reason of rejection: Funding amount. Total funding was agreed on $4 billion. But this number was $3 billion three years ago, but during the negotiation period it increased up to $5 billion. Due to intensive negotiation procedure, the number decreased down to $4 billion.

But the Committee received funding of $5.1 billion; therefore, it should be clarified. The main issue is that who has an authority to increase the approved amount of funding.

The second reason of rejection: Water. Water research hasn’t conducted completely for solving the project development. Experts said that water reserve is enough for processing 100,000 tons of ore. But it needs to be clarified and studied if water supply is enough for processing 150,000 tons of ore. Therefore, it was rejected not because of the Government support, but experts’ calculation.

The third reason of rejection: Uncertainty. According to the effective IA, OT project will be used for 79 years. 25 million tons of ore can be processed within this period (based on the current technology). The faith of remaining 19 million tons of ore will be solved in accordance with the commodity price in the market. Once it will be mined, thefeasibility study is subject to change.

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