Mongolia Becomes Unattractive to Miners

Mongolia says mining deal with Rio Tinto NYSE:RIO not beneficial

A large mining deal with Anglo-Australian mining group Rio Tinto is not good for Mongolia, a senior Mongolian official said Wednesday.

“Many facts prove that the Oyu Tolgoi investment agreement is not benefiting the Mongolian people,” Finance Minister Chultem Ulaan said at a press conference.

“As the agreement was implemented, investment has exceeded by US$2-B. Until today, we do not know how the money was spent,” the minister said.

The estimated cost of bringing the giant copper mine into production was around US$4.6-B, making it financially the largest project in Mongolian history.

The Mongolian government has set up a special working group to investigate the cost overruns of the joint venture.

Comprised of experts from the government as well as the state-owned Erdenes Oyu Tolgoi company, the group will review the financial documents of the project to determine the cause of the overrun and determine whether the money was spent appropriately. The group is expected to finish its work by the end of this month.

The dispute between the government and Rio Tinto over daily management of Oyu Tolgoi has escalated in recent months.

Ulan Bator said the initial investment of the project has exceeded by US$2-B, while Rio Tinto maintains spending is within the budget.

The government, which owns 34% of Oyu Tolgoi, has long hoped to increase its stake to gain more economic benefits. Oyu Tolgoi is expected to begin production by the end of June.