OBG talks to Tom Albanese, CEO, Rio Tinto

Interview: Tom Albanese

Production at Oyu Tolgoi is now expected to commence in August 2012. What is your assessment of the progress in completion of phase one?

TOM ALBANESE: Oyu Tolgoi is being developed in phases. Phase one, which includes the development of an open-pit mine and a 100,000-tonne-per-day concentrator is progressing well. We passed the halfway point in September 2011, which is an important milestone.

With phase one quickly ramping up to full capacity in 2013, development will transition to phase two. The feasibility study for this phase is ongoing with an expected completion of mid-2012. Phase Two will include the development of the underground mine and expansion of the concentrator to 160,000 tonnes per day.

Underground operations are expected to commence in 2015. The underground mine reserve grades are nearly four times that of the open-pit reserve grades.

As part of the development of Oyu Tolgoi, we are also undertaking a large-scale training programme for the Mongolian workforce. More than 14,000 people currently work on site, and the project is committed to ensure 90% of the workforce is from Mongolia once production begins. As a result, we are investing heavily in vocational schools, training, education and scholarship programmes. In fact, we are investing $85m in training and education programmes through 2015.

High-grade copper and gold output has declined globally over the past 12 months. How have these developments affected your long-term strategy?

ALBANESE: Long-term copper demand is expected to be strong, mainly driven by the urbanisation and industrialisation of China. India is also likely to take an increasing role in copper demand. While it is at an earlier stage of development compared to China, India is expected to go through a metals-intensive phase of urbanisation and industrialisation.

Copper mines that have seen output grow and have been among the top copper producers over the last two decades are now maturing, resulting in declining copper grades. Increasingly, new projects and discoveries are located in emerging markets, which can present development and production challenges.

What international role models are available for Mongolia to follow in developing its mining sector?

ALBANESE: Every country is different and Mongolia must find the right mix of policies to suit its unique needs. The US and Canada have long and successful histories of mining development. Mongolia can look to these for examples of secure mining tenure, health and safety, and environmental standards for mining.

More recently, Chile has successfully managed the rapid growth of its mining sector. Chile is the world’s largest copper-producing country and this metal accounts for 45% of exports and nearly one-third of government revenue. By creating a copper stabilisation fund, it has avoided the volatility of copper revenues and smoothed the impact of boom-and-bust cycles, while accumulating more than $20bn over a decade of mining development. Chile has diversified its economy and fuelled economic growth in other sectors.

What further concerns remain for foreign operators as far as regulatory process is concerned?

ALBANESE: Mongolia has solid legislative and regulatory foundations providing a sound basis for foreign investment. In the case of Oyu Tolgoi, our investment is underpinned by the Investment Agreement established in 2009. Companies like ours that are making multi-billion dollar investments in long-term projects need confidence that the investment climate in the country is stable and that agreements we make can be relied upon. Demonstrating good governance is also key to attracting and retaining foreign investment. Mongolia has developed a culture of transparency and accountability through initiatives such as the Extractive Industries Transparency Initiative (EITI). In October 2010, Mongolia became the fourth country worldwide to be designated EITI compliant — a significant achievement.