Rio Tinto boss 'concerned' over Mongolia tensions

LONDON (SHARECAST) - Rio Tinto’s new boss on Thursday said he was concerned over the Mongolian government’s comments on the agreement that underpins its Oyu Tolgoi copper and gold mine.

Sam Walsh, who was appointed Chief Executive last month, voiced his dilemma in relation to tensions between the company and the government, which is under pressure to raise more money from mineral wealth in Mongolia ahead of the presidential election in May.

President Tsakhia Elbegdorj said Mongolia should have more control of the mine once it is in full production, while another official said the government doesn’t support the project.

The government is asking Rio Tinto to revise the current shareholders agreement and project finance in relation to the project.

It comes amid reports the government could push the mining giant for more funding outside its original 2009 investment agreement which includes a 5.0% royalty on all sales.

Rio has twice rejected Mongolia’s demands in the past 18 months for a greater share of profits from the mine.

“I am concerned by recent political signals in Mongolia calling into question some aspects of the investment agreement,” Walsh said in a webcast.

“This undermines the partnership we have built and the stability on which a project of this size and scale depends.

“It puts at risk future investment not only by Rio Tinto but by others considering investing in Mongolia.”

The company said first commercial production from Oyu Tolgoi is scheduled to commence by the end of June, subject to the resolution of the issues.

Rio and Mongolia plan to resume discussions this month.

Fears over the deal were addressed after the company reported its first ever annual loss of $2.9bn - a 151% drop from the $5.8bn net profits reported the year before.

The losses reflected writedowns on its Alcan takeover in 2007 and a coal acquisition in Mozambique, where transport challenges have slowed development and coal output estimates have been cut.

The group was also hit by iron ore prices, which during the last half of 2012 averaged 27% lower than a year earlier at about $116 a ton, according to data from The Steel Index.

Prices have since recovered, reaching a 15-month high of $158.50 a ton last month on signs of economic recovery in China, the largest consumer of industrial metals.

Shares fell 2.41% to 318.15p at 14:06 Thursday.

RD