Another snag for Rio Tinto's Oyu Tolgoi Mine

June 24, 2014

Mongolia’s tax authority has leveled a charged that Turquoise Hill Resources owes about $130 million in unpaid taxes, penalties and disallowed entitlements associated with the $6.6 billion Oyu Tolgoi copper mine.

The Rio Tinto-owned mining company that owns the rights to the Oyu Tolgoi deposit has said it disputed the Mongolian Tax Authority's claims and that a failure to resolve the issue before the end of the month could jeopardize the mine's next phase of development, The Wall Street Journal reported.

"We strongly disagree with the claims in the audit report and are currently reviewing all options to resolve this matter," said Turquoise Hill Chief Executive Kay Priestley.

The deposit is one of the largest in the world and could eventually represent as much as a third of Mongolia’s economy, however, it has been hit with numerous delays and and complicated negotiations between Rio Tinto, Turquoise Hill and the government.

A feasibility study into the underground expansion is likely to be delayed if the tax dispute isn’t resolved by June 30, Turquoise said.

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, Bloomberg reported. 

Rio Tinto and Turquoise Hill said they would consider taking Mongolia to international arbitration if they decide that the new tax claim amounts to a breach of their investment agreement.

Earlier this year, Turquoise Hill was forced to renegotiate with 15 of the international banks financing the project as talks continued to drag.

Renewed agreements with foreign lenders were reached in May, though these are due to expire at the end of September.

Although Oyu Tolgoi's open pit mine has commenced production, an underground expansion has yet to go ahead amid continued wrangling between the government and the companies.

As a result, Turquoise Hill was forced to reduce its anticipated output for the year. It now expects Oyu Tolgui to produce between 135,000 metric tons and 160,000 tons of copper in concentrates for 2014, and 600,000 to 700,000 troy ounces of gold in concentrates, the company said in March.
 

Related article search: