Shares in Rio Tinto (RIO) fell 0.9% to £44.95 on Monday despite the mining giant reaching an important power supply agreement for one of its biggest projects.

In what has been described as a politically smart decision from Rio Tinto, the company has reached an agreement with the government of Mongolia on a new source of domestic power for its Oyu Tolgoi copper and gold mine in the country, with the mine currently using imported power.

‘BENEFIT FOR ALL SHAREHOLDERS’

Arnaud Soirat, Rio Tinto’s copper and diamonds chief executive, said ‘This agreement provides a potential pathway to securing a domestic power supply for the Oyu Tolgoi mine and underground project for the benefit of all shareholders and the wider community.  We look forward to working with the Government of Mongolia to progress the solution.’

Oyu Tolgoi is one of the largest known copper and gold deposits in the world. The government of Mongolia has a 34% stake in the mine, which Rio Tinto has managed since 2010.

Rio has run into several operational problems at the mine, and in July last year it said first production would be delayed for 16-30 months after ‘stability risks’ were identified in the original approved mining plan.

In its 2019 results Rio recorded a $1.7 billion impairment charge, related primarily to problems at Oyu Tolgoi.

RIO FEELS HEAT OVER ESG

The miner said the power agreement paves the way for the government to fund and construct a state-owned power plant at Tavan Tolgoi, and added that the two sides would work towards finalising a power purchase agreement by the end of March next year.

Construction will begin no later than 1 July 2021, but investors may not be pleased with the fact the power plant will be coal-fired, which doesn’t fit well in terms of environmental, social and governance (ESG) criteria.

The miner has already been feeling the heat from investors after it accidentally blew up two ancient rock caves last month to make way for a new mine, with some demanding the company show more accountability and make changes to ensure such mistakes don’t happen in future.

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Issue Date: 29 Jun 2020