Wednesday, September 5, 2012

Rio Tinto (RIO) Challenged by Oyu Tolgoi's Lack of Power

Rio Tinto (NYSE: RIO) isn't in an enviable place concerning its Oyu Tolgoi mine in Mongolia, as it's sitting on an amazing property only to be challenged and frustrated over not having the electric power resources on hand to run the operations there.

Oyu Tolgoi has enormous amounts of copper and gold in it, along with a number of smaller amounts of metals.

At this time Rio Tinto is struggling to find enough electricity to operate the mine, as it closes in on completing project, with only 6 percent of the project remaining.

According to Turquoise Hill Resources (formerly Ivanhoe Mines), the mine should be operating commercially by as early as 2013.

At this time China is the major provider of electricity, and it's not a guarantee that once the increased demand for power comes about from an operating mine that China will be willing to sell it to Rio Tinto, as there have been poor relations between China and Mongolia for some time.

To make it work, Rio Tinto will probably have to enter into negotiations with China itself to ensure it has enough power for the giant mining project.

So at this time Oyu Tolgoi must be considered a property with extraordinary potential, but always seeming to be one step away from significantly adding to the bottom line of Rio Tinto.

In the second quarter alone Rio had a net loss of $285.9 million at the mine, and to recoup and go into the black, they must secure electricity in a timely manner in order to be sure this amazing resource doesn't become a huge weight around the fiscal neck of the company.

And even if electricity is secured, for Rio Tinto investors, it must be taken with a long-term view as to how it will have an impact on the bottom line of the company.

Once it's going full throttle, which could take several years, it will be a huge feather in the cap of Rio Tinto, but it will take patience on the part of shareholders to wait until that time arrives.

No comments: