Oyu Tolgoi shareholders unable to reach agreement

The two shareholders of Oyu Tolgoi LLC, the Mongolian government and Rio Tinto, met yesterday for the second time to discuss the issues that were raised by the Mongolian government at a parliamentary meeting on February 1, but the shareholders were unable to reach a definitive agreement. Yesterday’s meeting took place at Ikh Tenger.

The first shareholder meeting to discuss the issues was held on February 7.

The concerns raised by the Mongolian government in February include cost overruns, failure to update the feasibility study, the lack of Mongolian involvement in decision-making, and a lack of transparency and timely reporting.

The Mongolian government has said it needs an official explanation for the 2 billion USD over-spend by Rio Tinto, and for the increased cost of commencing the underground mine, which pre-feasibility studies estimated to be 14.6 billion USD, but which is now expected to cost as much as 24.4 billion USD.

Rio Tinto is planning to raise additional funds of around 7 billion USD from international banks and investors to begin work on the underground mine, where the majority of the Oyu Tolgoi wealth lies. The Mongolian government has not approved the additional funding, referring to the original investment agreement that said the company would use the initial investment to start the project, and use the revenues from that to manage additional costs, with additional investment as coverage.

According to Rio, if an agreement is not reached it will either suspend operations at the mine or will extend credit to the mine, as it needs additional funding.

The shareholders agreed at yesterday’s meeting to schedule a third meeting after the completion of the current enquiries of the working group investigating the issues raised by the Mongolian government last month.

The group representing the Mongolian government at Thursday’s meeting was headed by Minister of Mining D.Gankhuyag, and included Finance Minister Ch.Ulaan; Environment and Green Development Minister S.Oyun; Economic Development Minister N.Batbayar; and Ts.Sedvaanchig, the Director of Erdenes Oyu Tolgoi, a state-owned company that oversees Mongolia’s 34 percent stake in the Oyu Tolgoi project.

According to a report in the Financial Times, Sam Walsh, Rio’s new Chief Executive noted in a speech to an investor conference on Tuesday that he was concerned about ‘recent political signals’ from Mongolia, which had ‘called into question’ certain aspects of the investment agreement between Rio and the Mongolian government.

The Financial Times reported Walsh as saying that “This puts at risk future investment, not only by Rio Tinto, but also by others who are considering investing in Mongolia.”

The Oyu Tolgoi investment agreement was made in 2009 between the Mongolian Government, Rio Tinto and Turquoise Hill Resources, formerly known as Ivanhoe Mines.

Oyu Tolgoi is one of the largest undeveloped copper mines in the world, and is controlled by Rio Tinto, with the Mongolian government holding a 34 percent stake. The first stage of the project is set to begin commercial production in June.

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