Shares in Canada鈥檚 Turquoise Hill Resources (TSX, NYSE: TRQ) cratered on Friday after the company shocked the market by announcing the ongoing expansion of the massive Oyu Tolgoi copper mine in Mongolia required $1.2 billion in additional funding than previously expected.
The Vancouver-based miner, in which Rio Tinto (ASX, LON, NYSE: RIO) has a 50.8% stake, lost almost 22% of its value on Friday in both New York and Toronto, with the stock dropping to $12.09 and C$14.88 respectively in early trading.
Delays in underground mining as well as some deferred open-pit metal production have caused an increase in estimated incremental funding requirement to $3.6 billion 鈥� up from the $2.4 billion expected in July.
Total costs for the move underground is now approaching the approved total budget of $6.75 billion, which already is significantly higher than the original $5.3 billion set in 2016.
Some metal production from open-pit mining is expected to be delayed to beyond 2024, the company said, partly due to under way impacts of on-site covid-19 curbs and geo-technical events that have resulted in delayed waste movement.
BMO analyst Jackie Przybylowski said it was unclear how such a material change to sequencing and cost emerged over the past three months. The project is quickly approaching its authorized spending, she said, and all work could be halted if further investment is not approved by the Oyu Tolgoi board, she wrote.
鈥淚n our view, successful execution in terms of timing, budget, and securing the required financing is increasingly risky,鈥� Przybylowski said.
Turquoise Hill noted further delays would increase the incremental funding requirement further yet, and would also likely in turn adversely affect the ability of both the company and Oyu Tolgoi to obtain additional funding, or re-profile existing debt as set out in an agreement with Rio Tinto inked last April.
The miner鈥檚 disclosure could stoke tensions with the Mongolian government, which has called for more transparency from Rio Tinto and its development vehicle on the problems at Oyu Tolgoi. It comes as financial regulators in the UK and US聽examine Rio鈥檚 disclosures聽about issues previously announced.
Rio Tinto last month challenged聽the findings of an聽independent review聽into聽$1.4 billion in cost overruns聽and delays聽at Oyu Tolgoi,聽saying the聽project鈥檚 troubles were caused by聽unpredictable聽geology issues.聽
The Independent Consulting Group鈥檚聽(IGG)聽report聽concluded last month聽that poor management was the聽main聽reason the聽mine鈥檚聽underground expansion聽has run into problems affecting its cost and聽timeline.聽
The company said its copper production rose 16% to 41,935 tonnes in the third quarter from a year ago, while gold output more than tripled to 130,799 ounces.
It also said copper and gold production guidance for 2021 remains within the ranges of 150,000 to 180,000 tonnes and 400,000 to 480,000 ounces respectively.
Once completed, Oyu Tolgoi鈥檚 underground section will lift production from 125,000鈥�150,000 tonnes in 2019 to 480,000 tonnes of copper per year on average, from 2028 to 2036, from the open pit and underground. This would make it the biggest new copper mine to come on stream in several years.
By 2030, Oyu Tolgoi will be the fourth largest copper mine in the world, .
The mine is the country鈥檚 biggest source of foreign direct investment, having created thousands of jobs and generated almost $3bn of taxes and fee revenue over the past decade.
The Mongolian government holds a 34% stake in the Oyu Tolgoi project, with Turquoise Hill holding the remainder.