The Mongolian government is considering terminating underground expansion work at the Oyu Tolgoi copper mine due to a jump in development costs, Turquoise Hill Resources, a mining company controlled by Rio Tinto, said on Monday.
Turquoise Mountain Resources shares fell 20% on the news.
The Oyu Tolgoi project is one of the world's largest known copper and gold deposits.
Rio Tinto had announced in 2019 a 30-month delay in the expansion of its underground project due to poor geological conditions, which had led to cost overruns.
Just last month, Rio confirmed that the expansion would cost $6.75 billion, about $1.4 billion more than estimated in 2016.
Turquoise Mountain Resources said the Mongolian government had told Rio it was unhappy with its expansion plans and worried that a sharp increase in the cost of developing Oyu Tolgoi would undermine the economic benefits it was seeking.
"The Mongolian government has indicated that if the Oyu Tolgoi project does not bring economic benefits to the country, then it is necessary to conduct a review and assessment to determine whether it is necessary to continue the project."
Turquoise Mountain Resources said in a statement.
"The government's stance is not surprising," said Orest Wowkodaw, an analyst at Bank of Nova Scotia. "Due to the $7bn in co-operative loans accumulated during the construction of the project, Mongolia will not receive any cash flow other than taxes and royalties for the foreseeable future."
The Mongolian government owns 34 per cent of the copper and gold mine, with Turquoise Mountain Resources holding the remaining 66 per cent.
Mr Wowkodaw said "trading the government's stake [in the project] for a significantly higher royalty would be in the best interests of all stakeholders".
Turquoise Mountain Resources is committed to immediately engaging with the government and Rio Tinto to resolve the development plan and to re-examine the distribution of benefits.
The two companies have invested $11 billion in the mine since 2010, Rio said in a separate statement.
Rio added that it was "open" to increasing benefits for all shareholders.
In 2010, PUDA sold a big copper concentrate packing machine to Rio.
