Mongolia Suspends Two Mining Licenses
Entree Gold Ltd., which has been prospecting on land surrounding the Oyu Tolgoi gold and copper mine, said late Wednesday two licenses were suspended, and a government order related to the conversion of an exploration permit into a mining license was canceled. Rio Tinto controls the Oyu Tolgoi mine, and owns about 24% of Entree, through its holdings in Toronto-listed Turquoise Hill Resources Ltd.
Rio Tinto had no immediate comment Thursday. The suspensions come as company executives are meeting with the Mongolian government in the capital, Ulaanbaatar, this week in a bid to resolve differences over Oyu Tolgoi. Mongolia is refusing to support Rio Tinto's efforts to raise as much as $6 billion in loans tied to the mine. Rio Tinto Chief Executive Sam Walsh said this month the dispute put investment by the mining giant and others in the emerging Asian nation at risk. Oyu Tolgoi is the country's biggest investment project.
Action at Mongolia's enormous Oyu Tolgoi mine last October; the Mongolian government Wednesday suspended two mining permits for a Canadian company partly owned by Rio Tinto.
Under a 2009 agreement, the government holds a 34% stake in Oyu Tolgoi. Government officials have complained that the Anglo-Australian miner hasn't been transparent about the operation and has structured the project's capital in a way that benefits the miner at the expense of the government.
It isn't the first time Mongolia has canceled mining permits. Last year, the government suspended licenses for another Rio Tinto-controlled company, coal miner South Gobi Resources Ltd., in an apparent attempt, according to analysts, to block a takeover of South Gobi by state-owned Aluminum Corp. of China Ltd. China's voracious appetite for commodities gives neighboring Mongolia a ready-made, nearby market for its exports. At the same time Mongolia is wary of letting its biggest customer directly control its resources. The mining licenses were restored after the proposed takeover deal was dropped.
Mongolia, a landlocked nation of 2.7 million people, has stirred interest among foreign investors and mining companies because of its vast, mostly undeveloped reserves of coal, iron ore, copper, gold and other minerals.
Despite the latest dispute, the Mongolian government has signaled it is wary of scaring off foreign investment. A controversial proposal to change the country's mining law, giving the state more control over private projects, was recently shelved until after a presidential election scheduled for June.
Entree said the temporary suspension of the mining licenses means they can't be transferred or sold. The company said it believes it has complied with Mongolian laws and regulations and is working to resolve the matter. Its shares fell 10% in Toronto on Tuesday to close at 45 Canadian cents.
Rio Tinto has said it hopes to close project financing for Oyu Tolgoi this quarter. A consortium including private banks, the European Bank for Reconstruction and Development and the World Bank's International Finance Corp. are involved.
The company plans to begin commercial production from the mine by the end of June. Over its life, Oyu Tolgoi is expected to produce an average of 425,000 tons of copper and 460,000 ounces of gold a year.
Commerzbank analysts said in a research note the government dispute could delay the mine, possibly leading to a lower-than-expected global copper supply surplus this year.
Write to Robb M. Stewart at robb.stewart@wsj.com and Alex Frangos atalex.frangos@wsj.com
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