Daniel Worrall: There are three immediate priorities for Rio to resolve with the Government of Mongolia
“Mongolian Economy” interviewed Daniel Worrall, Rio Tinto Country Director for Mongolia to talk about the latest developments at the company.
– Mr Daniel, You have lengthy experience of working in developing countries. Since you left a senior position with ExxonMobil and coming to Mongolia, what have been your priorities?
– Thank you. I was appointed in January as Rio Tinto Country Director for Mongolia, which also includes the duties of CEO of Rio Tinto Mongolia LLC, a local enterprise. While it has been a challenging year for everyone, my priorities have been management of Rio Tinto’s overall presence in Mongolia, most importantly keeping our staff safe and healthy, and representation of the company’s shareholder interest in Oyu Tolgoi (OT).
My other priorities include:
Supporting the continued operations of the OT open pit mine, which is a key source of revenue for Mongolia.
Successful completion of the OT Underground project which currently accounts for around70 percent of the foreign direct investment (FDI) into Mongolia, and could be about 25 percent of GDP if we commence operations. We’re currently focused on approval of OT’s resources and reserves report by the Minerals council of Mongolia, future funding approval and clarity on the long-term OT power supply. These three elements are key for us to make the decision to start production from the underground section of the mine.
Identify future growth prospects for our minerals exploration business
Expanding the role of the Mongolia Delivery Centre (MDC) – our Ulaanbaatar IT hub that employs over 70 Mongolians and provides knowledge economy services to our global operations
Partnering with the government and other stakeholders as we are one of the largest companies active in Mongolia.
– MDC has been operational for a while now. Can you please provide more details on how you see the future expansion of the centre?
– Thank you for the question. I’m very proud of how the MDC has grown and am excited about future growth prospects. We established the MDC in 2015 with 10 staff and it has steadily grown since to now have a team of 80. Due to the strong performance of the MDC, Rio Tinto is looking at options to expand it over time and add further services.
– New parliament and cabinet were formed as a result of the election in 2020. Incumbent ruling party was elected to run the country for another four years. As the representative of the largest foreign investor in Mongolia, would you agree that the political stability is preserved in Mongolia?
– While Rio Tinto works in many different political contexts across the world, policy/legal and fiscal stability are important for us anywhere we operate. We congratulate the members of the government on their reelection, and handling of the current COVID pandemic, and look forward to our continued positive dialogue.
Rio Tinto remains committed to Mongolia and our investments here. We would also like to expand our integrated business operations in Mongolia and look for new opportunities. As a long-term trusted partner of Mongolia, we work with the government of the time. We support policies that promote Mongolia’s economic development.
– We understand that the COVID-19 related restrictions are slowing underground mine operation. Mongolia is one of the few countries that has a considerably better situation than most of the countries . Does this give OT any advantage?
– The Government of Mongolia has done an outstanding job of managing the country level implications of what is a very difficult international situation. Rio Tinto Mongolia and OT have been fully collaborating with national and local authorities since early in the year. First of all, we have implemented and closely followed all government and international best practices for protecting our staff and the communities where we operate.
We also supported international repatriation flights for Mongolian citizens coming home from Australia. More importantly, we continued to run our businesses, and continue to invest in Mongolia, as we currently account for 70 percent of all FDI. And finally, we have also been working with the UNFPA Mongolia office to further strengthen national COVID response capacity via a USD 602,000 or MNT 1.7 billion voluntary commitment from Rio Tinto.
– What role would the new chief executive play in regard to improving an understanding with the Government of Mongolia [who wants to improve benefits from OT] and advance underground project?
– As a company, we remain committed to working with the government in the implementation of parliamentary resolution No.92 and discussions about how to improve OT’s value for all shareholders. There are three immediate priorities for us to resolve with the Government of Mongolia. They include OT long-term power supply, underground project funding and approval of Resources and Reserves report.
– OT is the backbone of our economy. It is understood that 80 percent of the project value lies in its underground mine. Do you expect any major changes to the project as a result of a definitive estimate. When will start the peak production from underground mine?
– The Definitive Estimate is expected by the end of this year. We announced in July 2019 that the first sustainable production is achievable between October 2022 to June 2023, and I’m pleased to say that we are trending towards the earlier part of this range.
Cost is between USD 6.6 bn to USD 7.1 bn. We have been working hard with the world’s leading experts to determine the optimal mine design.
Of course, the initial estimate did not account for any COVID’s related delays. We will have a clearer picture of the production profile once the Definitive Estimate has been completed.
– What are the Rio Tinto Group board and Board chairman’s position on selection of a new chief executive? There have been media rumours that Canberra wants to have someone who is Australian. However, based on your shareholder structure, the result might be different. There is also some expectation here in Mongolia that the new CEO might be Bold Baatar, chief executive of the Energy & Minerals product group of the company. What is the latest from the Board?
– It has been widely reported in the media that the Rio Tinto Board is in the process of selecting a new chief executive. I am unable to comment any further on this process.
– Mongolia currently exports 1.4mn tonnes of copper concentrate per annum. Majority of this comes from OT. What is Rio Tinto’s plan to expand the market once the underground mine becomes operational?
– Let me answer from two perspectives. First, OT currently exports to China-based customers. Peak production following completion of the underground project will be more than triple that of current levels.
We know the market well and have a dedicated commercial team who work closely with our international customers to understand their needs and how best we can meet them.
Secondly, Rio Tinto has an integrated business in Mongolia. We are open to do more exploration should the government lift the minerals exploration moratorium. We are already expanding MDC – 100 percent Mongolian run business that provides service to Rio Tinto’s global operations. This is about knowledge-based economy and how Mongolia can provide this to the rest of the world.
– It’s been 11 years since the signing of OTIA and there have always been criticisms that the agreement is not beneficial to Mongolia. How confident are you that the project would succeed when there is a wide-ranging divide among the society?
– Mongolia is a young democracy, and everyone enjoys the freedom of speech and expression of opinions. I would just like to note that OTIA, UDP and ARSHA are the foundation for all the benefits that OT continues to bring to Mongolia. The holistic benefits to the Mongolian economy and society are enormous, benefits such as; the USD 11 bn spent in-country since 2010, USD 2.7 bn paid in taxes, 12,000 direct and 45,000 indirect jobs created and significant injection of foreign investment. From a human development perspective, we have also built a workforce with world-class skills in open pit and underground mining.
I also encourage Mongolians to take a long term view that the project will continue to employ Mongolians, purchase goods and services from Mongolian suppliers, partner with local communities, and make substantial financial contributions to government revenue for decades to come.