Could early warning signs of Rio Tinto’s troubled Mongolian mine project have been identified with media monitoring?
04 Nov 2014 3:19 am by Leela Bozonelis
Rife with disputes, delays and miscommunication, the project, which has the potential to transform Mongolia's economy, has been under constant scrutiny by investors due to its unstable standing with the host country's government. The second phase of the project, the development of an underground mine, has been suspended since July 2012 following the government's announcement that parliament would have to approve the financing of the project.
This latest twist in events, a write down of $2.4 billion, was pre-empted by a warning in Rio Tinto's half year results that project write downs may occur. This poses the question; is it possible to understand more about the wellbeing of a company's financial health or projects by monitoring it's news coverage?
Running a search using Nexis® on all articles in English on Rio Tinto in relation to the Oyu Tolgoi mine reveals a snapshot of media interest in a timeline. Spikes in media coverage identify times of increased news coverage which may coincide with indicators of company risk.
The timeline of news coverage helps to expose incidents that would have caught the attention of anybody looking out for signs of risk. A sharp increase of news articles in June 2013 reveals when the first copper exports were delayed awaiting the Mongolian government's approval. Two weeks later, the exports were once again delayed at the government's request with no explanation given. At the time Moody's, the rating agency, warned that the delay "lowers investor confidence and underscores institutional weaknesses" in Mongolia.
Article frequency around the project peaked throughout July 2013 as it was reported that Mongolia's government were disputing the cost of project (around $4.5 billion over budget). As a result, development of the Oyu Tolgoi underground mine was suspended following the government's announcement that parliament would have to approve the financing of the project. These key issues would go on to become a pivotal source of conflict between Rio Tinto and the Mongolian Government, and would eventually lead to the devaluation of the project announced last week.
While things settled down with regard to frequency of related articles in the months subsequent to July 2013, a number of peaks indicated some important developments in the status of the Oyu Tolgoi project.
- In August 2013 Rio Tinto announced 1,700 job cuts at the Oyu Tolgoi mine. Shortly after, the Mongolian government fired the head of the company managing the government's stake in the Oyu Tolgoi copper gold mine.
- In October 2013 despite a rise in Rio Tinto share prices after a very positive third quarter production report, the dispute remained unresolved and ever present in the background.
- By January 2014 two class-action lawsuits had been filed against Turquoise Hills (the owners of a 66% stake in Oyu Tolgoi) by investors, alleging that the Rio Tinto-controlled company misled shareholders.
- In its annual accounts released on March 26, Turquoise Hill said the project expansion was uncertain.
A telling indicator of things yet to come was in March 2014 when Rio Tinto reported its first write-down of $4.7bn due to the ongoing dispute with the Mongolia Government over starting underground mine expansion operations.
By August 2014 the project looked increasingly uncertain, with the ongoing tax dispute heading towards arbitration in addition to the numerous other issues that halted the project. This, teamed with the warning of possible write downs in their half year results, seemed to pave the way for last week's developments.
The Oyu Tolgoi project faced constant setbacks and constraints which were well documented in the media. Monitoring news content would have been an effective means by which to identify the risk of failure. Clearly, news monitoring is most effective where companies are generating a high volume of news stories – as is the case in this instance. Whilst news monitoring is not foolproof for every single supplier, it is an effective tool to add to the other methods by which risk is monitored with corporations.
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