Government opposition to Rio Tinto (Xetra: 855018 - news) 's copper mine should soon be resolved, as a government official admits "mistakes"
The deadlock between Rio Tinto and the Mongolian government over a giant copper mine should me resolved by September, with underground mining beginning within two years, according to a government official.
Construction of the underground mine at Oyu Tolgoi, one of the world's largest undeveloped copper deposits, was put on hold last year when the Mongolian government said financing had to be approved by parliament, because it was concerned that cost-over-runs would delay when the country would receive its share of profits.
But in a stark change of tone, Mongolia’s vice minister for economic development, Chuluunbat Ochirbat, said the government had learnt from its mistakes and financing would begin in September.
"We are under arrangements and negotiations with Rio Tinto now to complete the process by September this year," he said on the sidelines of a conference in London.
"Underground mining will be put into operation in a year and a half or two years time," he added.
Oyu Tolgoi already has open-pit mining, but the move to underground will boost production, with the copper mine potentially accounting for 20pc to 30pc of Mongolia’s economy.
Ochirbat said disagreements with Rio Tinto over the mine had damaged the country’s image.
"The ongoing negotiation process with Rio Tinto has really hurt the reputation of Mongolia as a reliable partner for businesses and investors.
"We have made the conclusion that we have made some mistakes in the legislation, we tightened regulations in the mining industry too much and that was the reason why we showed weaker performances”, Ochirbat said, referring to a slowdown in GDP growth for the country in 2013.
The Mongolian government owns 34 percent equity in the copper mine, while Rio Tinto owns 51 percent of Canadian company Turquoise Hill which has the remaining 66 percent stake in Oyu Tolgoi.
Ochirbat said that the feasibility study for the underground part of the mine was now finished, with financing set to start in September.
"We are not going to blame Rio Tinto for the situation that occurred between the government and Rio Tinto. There are also a lot of things the government has done in the wrong way," Ochirbat said.
Last month, Turquoise Hill Resources (Toronto: IVN.TO - news) said that all Oyu Tolgoi parties had agreed to ask the project finance lenders to extend commitment letters for financing the underground development to the end of September.