Rio Tinto's Oyu Tolgoi update & copper technical analysis in focus

We look at the highlights from the mining giant’s recent Oyu Tolgoi update as well as examine the potential outlook for the price of copper, from a technical perspective.

Oyu Tolgoi mine update

Last Friday, mining giant Rio Tinto (RIO), provided the market with details of an updated feasibility study for its Mongolian-based, Oyu Tolgoi mine.

Described as one of the largest gold and copper mines in the world, Rio Tinto is currently in the process of unlocking the full potential of Oyu Tolgoi.

Specifically, as part of the updated feasibility study, Rio Tinto confirmed that Oyu Tolgoi’s underground mine development costs and schedule remained within the previously guided ranges; while also providing an updated set of probable ore reserves estimates for the Hugo Dummett North sites.

Specifically, first production is expected to be delayed by between 21 to 29 months, while development capital is set to rise by between $1.3 billion and $1.8 billion – above the original $5.3 billion outlined.

'Detailed study, design, engineering and optimisation work is ongoing to support the definite estimate of Panel 0,’ the company said in a statement. That work is expected to be released during the second-half of CY20, though is subject to Covid-related delays.

Commenting on last Friday’s release, Rio Tinto's Chief Executive of Copper & Diamonds, Arnaud Soirat said:

‘This amended mine design is another positive step in the development of the underground mine which will unlock the most valuation part of Oyu Tolgoi. We remain focused on delivering the underground project safely and within the guidance ranges we have announced on both cost and schedule.'

Positive comments aside, as part of this latest release, Rio provided an updated set of Ore Reserve estimates for the Hugo Dummett North and Hugo Dummett North Extension sites.

A quick glance at these updated figures shows that the probable ore reserves for the Hugo Dummett North site have been downgraded from 447 million tonnes (end 2019), to 400 million tonnes (1 July). Estimated copper grades (Cu%), at Hugo Dummett North which previously stood at 1.64%, have been lowered to 1.51%.

Copper grades were also downgraded at the Hugo Dummett North Extension site, though the overall probable ore reserves were upgraded to 40 million tonnes.

Rio Tinto share price: Citi remains Neutral

Interestingly, analysts from Citibank noted that while Rio Tinto’s Oyu Tolgoi’s project garners a lot of media attention, its contribution to the mining giant’s overall value is relatively small, estimated at 'US$3.6bn out of a US$124bn of DCF for RIO operations.'

Citi has a Neutral rating on RIO and a price target of $96.00 per share.

Rio Tinto (RIO) closed out Wednesday’s session at $95.77 per share.

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Copper price: technical analysis

Copper has performed remarkably well in the last month, with the price of the commodity rising around 8.9% in that period – last trading above the US$6,000 mark.

Looking at the copper price from a technical perspective, IG Market Analyst, Shaun Murison recently said that the commodity is ‘trading above the 200-day simple moving average (blue line) for the first time since January this year. The move above this average suggests that the long-term trend for the commodity is no longer down. The short to medium term trend for copper is considered up.’

Mr Murison went on to say that:

‘The overbought signal finds prevalence as the price moves towards resistance at 5815. In turn traders might consider looking for long entry into a pullback towards horizontal (5460) or trend line support. In this scenario a move back towards 5815 would be targeted, a break of which would suggest 6080 as the next upside resistance target to consider.’

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