Mongolia Reported to Seek Mining Changes
The Canadian owner of the massive Oyu Tolgoi mining project in Mongolia said an existing investment agreement "remains a fair and legally binding contract that deserves and requires the unqualified support of all parties" amid reports the Mongolian government is seeking changes.
Ivanhoe Mines Ltd. released a statement Monday addressing reports that the Mongolian government wants to accelerate its right to boost its stake in Oyu Tolgoi to 50% from 34%, and seeks talks with Ivanhoe and project operator Rio Tinto PLC to consider changes to the 2009 investment agreement.
In late New York trading Monday, Ivanhoe's stock was down more than 14%.
Ivanhoe said the agreement complies fully with all Mongolian laws and has been key in building Mongolia's reputation as stable destination for foreign investment, and also cited the benefits the project brings to the country.
"With many significant resources projects still to be financed and developed—including the proposed overseas listing of Erdenes Tavan Tolgoi—Ivanhoe Mines is confident that Mongolia's leadership understands the fundamental importance of Oyu Tolgoi's contractual commitments and stabilized investment agreement that were formalized less than two years ago," Ivanhoe said.
Rio Tinto said Tuesday it has tightened its grip on Ivanhoe Mines, spending almost 73.1 million Canadian dollars (US$71.3 million) to raise its stake by half a percentage point to the 49% limit allowed under a pact between the companies. It said Sunday that it would respond to any request from the Mongolian government but doesn't expect the deal to be altered.
The 2009 investment agreement stipulates the Mongolian government has an option to increase its stake in Oyu Tolgoi to 50% once the initial 30-year term on the agreement expires. The 30-year period was added to allow the project owners to recoup their investment costs.
"Changing the goalposts at this late stage...[is] not a good development," brokerage firm Numis Securites said in a note. It "will increase concerns over the regulatory framework for further investment in the country."
Ivanhoe Mines discovered the Oyu Tolgoi deposits and holds a 66% interest in the project, which it said is on track for production of first ore in 2012 and commercial production of copper, gold and silver concentrate in the first half of 2013. The project is forecast to produce 450,000 metric tons of copper and 330,000 troy ounces of gold annually on average.
Ivanhoe also gave assurances that it expects to be able to secure electricity from China on a timely basis to ensure that Oyu Tolgoi starts commercial production on schedule. Rio Tinto mentioned last week that there could be a possible delay to securing electricity.
Ivanhoe said China and Mongolia are in talks to finalize agreements to allow electricity to be supplied to Mongolia and a high voltage line from Oyu Tolgoi to the border is 82% complete. —Robb M. Stewart contributed to this article.
Write to Carolyn King at carolyn.m.king@dowjones.com and Alex MacDonald at alex.macdonald@dowjones.com
Ivanhoe Mines Ltd. released a statement Monday addressing reports that the Mongolian government wants to accelerate its right to boost its stake in Oyu Tolgoi to 50% from 34%, and seeks talks with Ivanhoe and project operator Rio Tinto PLC to consider changes to the 2009 investment agreement.
In late New York trading Monday, Ivanhoe's stock was down more than 14%.
Ivanhoe said the agreement complies fully with all Mongolian laws and has been key in building Mongolia's reputation as stable destination for foreign investment, and also cited the benefits the project brings to the country.
"With many significant resources projects still to be financed and developed—including the proposed overseas listing of Erdenes Tavan Tolgoi—Ivanhoe Mines is confident that Mongolia's leadership understands the fundamental importance of Oyu Tolgoi's contractual commitments and stabilized investment agreement that were formalized less than two years ago," Ivanhoe said.
Rio Tinto said Tuesday it has tightened its grip on Ivanhoe Mines, spending almost 73.1 million Canadian dollars (US$71.3 million) to raise its stake by half a percentage point to the 49% limit allowed under a pact between the companies. It said Sunday that it would respond to any request from the Mongolian government but doesn't expect the deal to be altered.
The 2009 investment agreement stipulates the Mongolian government has an option to increase its stake in Oyu Tolgoi to 50% once the initial 30-year term on the agreement expires. The 30-year period was added to allow the project owners to recoup their investment costs.
"Changing the goalposts at this late stage...[is] not a good development," brokerage firm Numis Securites said in a note. It "will increase concerns over the regulatory framework for further investment in the country."
Ivanhoe Mines discovered the Oyu Tolgoi deposits and holds a 66% interest in the project, which it said is on track for production of first ore in 2012 and commercial production of copper, gold and silver concentrate in the first half of 2013. The project is forecast to produce 450,000 metric tons of copper and 330,000 troy ounces of gold annually on average.
Ivanhoe also gave assurances that it expects to be able to secure electricity from China on a timely basis to ensure that Oyu Tolgoi starts commercial production on schedule. Rio Tinto mentioned last week that there could be a possible delay to securing electricity.
Ivanhoe said China and Mongolia are in talks to finalize agreements to allow electricity to be supplied to Mongolia and a high voltage line from Oyu Tolgoi to the border is 82% complete. —Robb M. Stewart contributed to this article.
Write to Carolyn King at carolyn.m.king@dowjones.com and Alex MacDonald at alex.macdonald@dowjones.com
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