Mongolia’s Tax Authority claims a Rio Tinto Group unit operating in the country has unpaid taxes, penalties and disallowed entitlements associated with the $6.6 billion Oyu Tolgoi copper mine development.
Rio’s Turquoise Hill Resources Ltd. (TRQ) says it has paid all taxes and charges required under its accord with the government and has complied with the country’s laws, the Vancouver-based unit said yesterday in a statement. The disputed amount is about $130 million, Ganbold Davaadorj, a director of the mine’s operating unit Oyu Tolgoi LLC, said yesterday in an interview.
“We strongly disagree with the claims in the audit report and are currently reviewing all options to resolve this matter,” Kay Priestly, Turquoise Hill’s chief executive officer, said in the statement. The company may need to seek resolution through international arbitration, it said.
The fresh dispute is evidence of further strains on London-based Rio’s relationship with Mongolia. Recent discord has centered on funding for a second-stage expansion of the mine, delaying the $5.1 billion proposed development.
A feasibility study into the underground expansion is likely to be delayed if the tax dispute isn’t resolved by June 30, Turquoise said yesterday. Missing the study’s deadline would heap pressure on negotiations between Mongolia and Rio to finalize a $4 billion financing package. Commitments from the participating banks are set to expire on Sept. 30.
As of May, Rio, the world’s second-largest mining company, had paid Mongolia more than $1.2 billion in taxes, fees and other obligations, according to the Oyu Tolgoi website. The government’s audit covers 2010, 2011 and 2012, Ganbold said.
Rio last month fired about 300 workers from Oyu Tolgoi following a review aimed at reducing costs, according to two people familiar with the job cuts. Oyu Tolgoi, 80 kilometers (50 miles) north of the Chinese border, employed more than 7,000 Mongolian workers as of Dec. 31.
The mine is forecast to contribute about a third of Mongolia’s economy when in full operation and is the largest single investment in the Asian country’s history, according to the project’s website. After expansion it will be the world’s third-biggest copper mine, according to the website.
Rio controls the project through its 51 percent stake in Turquoise Hill Resources, which owns 66 percent of Oyu Tolgoi LLC. The Mongolian government holds the remaining 34 percent.
Turquoise Hill fell 4.2 percent to C$3.69 yesterday in Toronto. Rio rose 1.6 percent to 3,127 pence in London.
To contact the reporters on this story: Jesse Riseborough in London at firstname.lastname@example.org; Michael Kohn in Ulaanbaatar at email@example.com
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