Rio Tinto and Mongolia mine talks falter
The two sides failed to reach consensus during high-level meetings this week in Ulan Bator and remain locked in talks over issues including management fees, cost overruns and transparency.
If not resolved, the dispute could threaten the $6.6bn mine’s ability to begin commercial copper production by the end of June as scheduled, according to the mine’s majority owner Turquoise Hill, a Canada-based company controlled by Rio Tinto.
Oyu Tolgoi, one of the world’s largest undeveloped copper deposits, will account for as much as one-third of Mongolia’s economic activity once fully operational and is seen as a litmus test for foreign investment.
A Mongolian board member once likened the mine to “an elephant giving birth”, referring to the multiyear process of negotiating the investment agreement and constructing the giant mine in the middle of the Gobi Desert.
That process has become even more fraught in recent months, as a new parliament elected last year has ratcheted up pressure on Rio Tinto and Turquoise Hill. Turquoise Hill, which holds a 66 per cent stake in Oyu Tolgoi, said talks would continue in March. Funding for the mine would have run out on Friday but the temporary budget will enable operations to continue.
“Given Oyu Tolgoi’s significant economic and social benefits to Mongolia, it is in the interest of all stakeholders to swiftly resolve these important issues and keep the project on schedule,” said Kay Priestly, chief executive of Turquoise Hill. She added the company was open to discussions as long as the Investment Agreement and Shareholders Agreement, signed in 2009, were preserved.
Separately, Dow Jones reported on Friday that Rio Tinto had hired advisers for the possible sale of its stake in Iron Ore Company of Canada, which could be worth as much as $1.7bn.
Mongolia’s economic growth – GDP rose more than 10 per cent last year – has been fuelled by the exploitation of the country’s vast mineral resources. However, some miners have struggled because of a drop in foreign investment last year and a slowdown in neighbouring China, which is Mongolia’s biggest customer for coal and copper.
The issues under discussion at Oyu Tolgoi include the management fee paid to Turquoise Hill, and the mine’s cost to date of $6.6bn, which is 15 per cent greater than the forecast cost of $5.7bn.
Cameron McCrae, chief executive of Oyu Tolgoi, said on Friday that “real progress” was being made in the talks. “Some of the issues are complex, so it’s natural that resolution is taking some time.”
This week, the Mongolian government suspended the licenses for an adjacent property that contains two key deposits in the Oyu Tolgoi vein, with inferred resources representing a quarter of the vein’s total resources. Rio Tinto is the largest shareholder in the company that held the licenses.
Copyright The Financial Times Limited 2013.
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