Interview
“When we invest we invest for a long term”
2016-11-15
The Mongolian Mining Journal /october 2016 -095/
Earlier this month, Jean Sebastien Jacques, who took over as CEO of Rio Tinto not so long ago brought the entire board of the mining giant to Mongolia for a trip to the Oyu Tolgoi site. He and the Rio Chairman also met with the Prime Minister to discuss various issues related to the OT project. S.Bold-Erdene of the MMJ was among the Mongolian journalists who spoke to him. This is a fair but not literal transcript of the conversation.
What brought you to Mongolia this time?
It is a very special trip from my perspective even though it is my 25th visit here in the last three years. I have brought the entire Rio Tinto board with me to Mongolia so that they can see for themselves why OT is truly a world class asset.
When I took the board members to the site, they were very impressed by the quality of not just the asset, but also by that of our colleagues here, over 90 per cent of whom are Mongolian nationals. More than 70 per cent of OT engineers are Mongolian nationals.
They saw how the underground mine is being developed. Work is making good progress. We already have more than 1,600 people on the job and by the end of this year the number will have crossed 2,400.
The board members also met some local herders in their traditional gers, where they shared some food and milk and had some very open conversation on what they see as the impact of Oyu Tolgoi. It was a truly Mongolian experience.
Earlier in the week, the chairman of Rio Tinto, Jan du Plessis, and I had the privilege of meeting your new Prime Minister. Parliament was in session and the Prime Minister was busy. Still, we could spend one hour with him. That was fantastic and a great privilege.
We had a very open conversation about where we are on the project and shared what I have already said about Mongolian people working underground. We also had a very open conversation about the need to develop local procurement and what activities are already under way to develop and build a strong and capable Mongolian workforce to take the project forward.
We were very clear that Oyu Tolgoi is a Mongolian company and a joint venture between the Government of Mongolia and Turquoise Hill Resources and we had a very open conversation on how we can share more information with the general public to make sure everyone understands the benefits of Oyu Tolgoi.
For example, you must be knowing, we already have a quarterly report scorecard on the website with lots of matrix. The Prime Minister gave some ideas on how we can improve it and take it to the next level. We will now work with the new member appointed to the OT board by the government -- and also directly with the team of the Prime Minister -- to see how we can improve even further the quarterly reports.
So to conclude, I have been in this country 25 times now in last three years and am in no doubt about the value of our work in terms of not only assets but of people and colleagues. There is a long way ahead of us. It will take five years to build the underground infrastructure and seven years to ramp it up. I am confident that once we are finished we shall have a really world class asset for the benefit of all Mongolians and Rio Tinto. It will not be easy.
Copper price now is around $4,800 per tonne. How do you see the market outlook, and if the market remains at the current level, what are your plans to keep the project profitable?
OT is a long term project with potential to be in use for 75 years, maybe up to 100 years. When we invest we invest for a long term. As we often say, we invest for our children and grandchildren. In the case of Oyu Tolgoi, the decision to invest in the underground is based on long term fundamentals, not on short term pricing. Taking a long term perspective, we are pretty bullish on copper.
Remember that just building the infrastructure of the underground is five years of work and to ramp it up will take another seven years. The decision to go ahead on such a project cannot be based on short-term expectations; we are sure of the long-term attractive fundamentals. Our take on copper is that in the long term there would be substitution between copper and aluminium. It’s not really a story of demand It is about supply and more supply. When you take the 10-year perspective there are simply not enough projects in the pipeline to meet the demand so we have no doubt in our mind that copper is an attractive industry in the long term. We also have no doubt, for all the reasons I just mentioned, that Oyu Tolgoi is a world class asset and is a good investment.
But there is much hard work to be done. For example, we need to dig 200 km of underground tunnels. It is a large project and we need to bring in a lot of technology. But we will get there.
The entire board visiting the site is clearly evidence that they are giving great attention to the project. Besides looking at the underground, what else do they plan to do?
They have been busy. We met with the Prime Minister and visited both the open pit and underground mines. We also met some of the local herders, local business people, and some other ministers.
It took almost two years to reach an agreement on the underground. What lessons did Rio Tinto learn from those negotiations? I believe you discussed with the Prime Minister increasing local procurement and workforce. We acknowledge that Mongolian companies often cannot meet your standards but what are you doing to make sure that they ultimately do so? And how would you make sure that more Mongolians are part of the management?
I shall start with the last one, on workforce capability. We have a comprehensive programme for two years in which we not only train people here in Mongolia, but also send them abroad – to the US, India, Australia and the UK -- to bring their best practices into Mongolia. When we went to the site with the board yesterday, there was a series of presentations by Mongolian colleagues showing a range of activities now performed by Mongolians. It was wonderful to know that the most senior person in our iron ore business is Boldbaatar. He is based in Singapore and looks after our iron ore and seaborne sales, which is the largest business of Rio Tinto.
I could give you lots of such examples. In my previous position, I had what can be called a mining executive. This is a person based in London who helped me run the daily business. And she was Amarjargal, a Mongolian national who had been working for Rio Tinto for seven years. We are really trying to develop the Mongolian workforce as much as we can. Currently, one third of the executive team of Oyu Tolgoi is made up of Mongolian nationals.
As for local procurement, we are doing a lot to build local capacity. I can give you a very simple example. Catering on site today is done by a joint venture between a French company and a local Mongolian company and this was not the case two years ago.
Let me give you another example. Very soon we shall start using a new shipping company to transport the copper concentrate from OT to China. This company has been formed with our help by local communities around Oyu Tolgoi. It took us 18 months to make sure we have the right trucks and right safety standards but after all that hard work you have a company to ship the product to China and I think that’s another very practical example of how we can develop local business to support and sustain Oyu Tolgoi in the short and long terms.
The best example I can give is of MCS in underground construction. Work will start in due course but first we have to train their people who have never worked underground where conditions are very different. MCS will soon start work on some pieces of equipment; this is another example of building local procurement.
The government is now busy tackling the economic crisis. Did you offer any help in this when you met the Prime Minister? Secondly, your company is one of the leaders in automation in the mining industry. Will you give us an update on this? And do you have any plans to bring such practices to OT? And what was the clinching factor leading to the joint understanding with the government after such prolonged negotiation?
I start with automation. We shall deploy the very best technologies to mine the underground, and some of it would be automated. Our job is to make sure that every piece of copper and gold is extracted. The life of the mine will be between 75 and 100 years, so fresh technology will be developed over the years. We shall always use the best methods, keeping in mind that safety is our priority number one.
Another question was about the economic crisis. It is absolutely clear that the Prime Minister and his cabinet want to attract more FDI. They see OT as a flagship in terms of FDI. A lot of people are looking at Oyu Tolgoi and Mongolia very carefully. If Mongolia is to succeed in attracting FDI it is absolutely essential that the partnership in Oyu Tolgoi works successfully, and we shall work to make it a success. But if Oyu Tolgoi does not work well, there is little chance of fresh FDI. The Underground Mine Development and Financing Plan (UDP) was how Rio Tinto showed its support to the government and that’s what we are doing. We are investing $4.5 billion on the underground and the entire Rio Tinto board is in Mongolia now – all this is to show our commitment and support.
The last question was about the UDP. I don’t know what we learnt but I’d say both parties spent a lot of time to understand and appreciate each other’s perspective. In the end it was very clear that there could be no win-lose situation; it would be either a win-win partnership or a lose-lose one. Once we believed this we found the way to reach a win-win agreement.