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Jan. 11 (Reuters) – Turquoise Hill Resources, controlled by Rio Tinto, said on Monday that the Mongolian government is considering halting the underground expansion of companies at their Oyu Tolgoi copper mine project due to rising costs of development.

Turquoise Hill shares fell as much as 20% early in the trading day following the news.

Oyu Tolgoi is one of the most famous copper and gold deposits in the world.

Rio Tinto announced in 2019 a 30-month delay for an underground mine extension project and a cost overrun due to difficult geology. Last month, the company confirmed that the mine expansion would cost $ 6.75 billion, about $ 1.4 billion more than its 2016 estimate.

The government told Rio Tinto it was not happy with the miner’s plans and feared that the significant increase in development costs for the Oyu Tolgoi project had eroded the economic benefits the country hoped to achieve, Turquoise said. Hill.

“The government of Mongolia has indicated that if the Oyu Tolgoi project is not economically advantageous for the country, it would be necessary to examine and assess whether it can continue,” Turquoise Hill said in a statement.

The government’s position is not surprising given that it is not expected to receive cash flow beyond taxes and mining royalties from its stake in the project for the foreseeable future due to the $ 7 billion in loans. to partners accumulated during construction, Bank of Nova Scotia analyst Orest Wowkodaw mentioned.

The Mongolian government owns a 34% stake in the mine and Turquoise Hill owns 66%.

Swapping the government’s stake for “a significantly higher royalty (immediate cash flow) would be in the best interests of all stakeholders,” Wowkodaw said.

Turquoise Hill said it is committed to immediately engaging with the government and Rio Tinto to address the development plan and review the sharing of economic benefits.

The companies have invested $ 11 billion in the mine since 2010, Rio said in a separate statement to Reuters, adding that it “remains open” to increased benefits for all shareholders.