Mongolia retreats on row over Rio mine
The government of Mongolia has backed down from its demand for a larger share of Oyu Tolgoi, one of the world’s biggest new copper mines, in an about-turn that boosted the share price of Rio Tinto, the mine developer. In a joint statement, the Mongolian government, Rio and Ivanhoe Mines – Rio’s joint venture partner – said the three parties had “reaffirmed their continued support” for the 2009 Oyu Tolgoi Investment Agreement, a contract that started a mining boom in copper and coal-rich Mongolia. The statement ended two tense weeks for investors, who are increasingly seeing resource-rich countries attempt to raise taxes on miners and claim larger stakes in top projects.D Zorigt, Mongolia’s mining minister, started the dispute last month by sending a letter to Rio and Ivanhoe in which he requested discussions about bringing forward the time frame for the government to raise its stake in the mine from 34 per cent to 50 per cent. The companies, which have spent $2.6bn developing the mine to date, said they would not renegotiate.
The move comes ahead of national elections next year. Oyu Tolgoi – expected to generate almost one-third of Mongolia’s national output after it is complete – has been politically charged because of its potential to change the fortunes of the impoverished country.
“The government of Mongolia has once again confirmed that the investment agreement was signed in full compliance with all laws and regulations of Mongolia,” the government said in unison with its largest foreign investors on Thursday. It added: “The people of Mongolia are reaping great benefits from the construction of Oyu Tolgoi.”
Rio’s London shares rose 7.6 per cent, outperforming a mining index that rose 6.5 per cent.
The Anglo-Australian miner bills Oyu Tolgoi as one of its largest and most important new mining projects around the world.
Rio, which operates the mine, now owns 49 per cent of Toronto-listed Ivanhoe, the largest shareholder in Oyu Tolgoi, after buying several tranches of Ivanhoe shares this year.
Rio’s firm stance against Mongolia’s request comes in a year marked by resource nationalism, a trend that Ernst & Young rated as the “biggest threat in 2011 and 2012”, in a report that polled mining companies.
In April, Rio paid the government of Guinea in west Africa $700m in cash and gave options to double the state’s stake in a key iron ore project in order to settle a contract dispute.
Rio expects Oyu Tolgoi to enter production in the third quarter of 2012, when it will start adding large amounts of copper to a supply-constrained copper market.
The move comes ahead of national elections next year. Oyu Tolgoi – expected to generate almost one-third of Mongolia’s national output after it is complete – has been politically charged because of its potential to change the fortunes of the impoverished country.
“The government of Mongolia has once again confirmed that the investment agreement was signed in full compliance with all laws and regulations of Mongolia,” the government said in unison with its largest foreign investors on Thursday. It added: “The people of Mongolia are reaping great benefits from the construction of Oyu Tolgoi.”
Rio’s London shares rose 7.6 per cent, outperforming a mining index that rose 6.5 per cent.
The Anglo-Australian miner bills Oyu Tolgoi as one of its largest and most important new mining projects around the world.
Rio, which operates the mine, now owns 49 per cent of Toronto-listed Ivanhoe, the largest shareholder in Oyu Tolgoi, after buying several tranches of Ivanhoe shares this year.
Rio’s firm stance against Mongolia’s request comes in a year marked by resource nationalism, a trend that Ernst & Young rated as the “biggest threat in 2011 and 2012”, in a report that polled mining companies.
In April, Rio paid the government of Guinea in west Africa $700m in cash and gave options to double the state’s stake in a key iron ore project in order to settle a contract dispute.
Rio expects Oyu Tolgoi to enter production in the third quarter of 2012, when it will start adding large amounts of copper to a supply-constrained copper market.
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