Mongolia presses for mine deal changes at Oyu Tolgoi Mine

July 23, 2019

The underground expansion plan for the Oyu Tolgoi Mine in Mongolia has been delayed by more that year and the estimated costs for the mine have swelled to $6.5 to $7.2 billion, up from the original estimate of $5.3 billion.

Adding more trouble for mine owner Turquoise Hill, a subsidiary of Rio Tinto, Reuters reported that Mongolia’s parliament is set to approve measures that would terminate the 2015 agreement on the Oyu Tolgoi underground expansion, seeking to bring forward the time when it will receive dividend payments from the project, demand more transparency on copper prices and push for Rio Tinto to build a power plant.

Currently, Mongolia will only start to receive dividends around 2041, when its share of the debt for the project is repaid.

The country owns 34 percent of the mine, Mongolia’s biggest foreign investment project, but lawmakers claim delays and cost overruns have meant it has run up more debt from the project than income thus far. Ending the 2015 “Dubai agreement” that launched Oyu Tolgoi’s underground expansion would likely reduce Rio’s future profits in Mongolia’s favor.

If the recommendations are approved, the government will be obliged to carry them out and ask Rio Tinto to renegotiate the Oyu Tolgoi agreements.

“For now, the Oyu Tolgoi agreement is not benefiting Mongolian citizens,” said Battumur Baagaa, member of the parliamentary working group scrutinizing the project. “It is good to attract foreign investment but that doesn’t mean foreign investment should only benefit the foreign side.” 

The recommendations follow Rio Tinto’s announcing this week it had discovered “stability risks” in Oyu Tolgoi’s design, and full production was now expected to begin between May 2022 and June 2023, over a year behind schedule, with costs to soar by up to $1.9 billion.

Rio Tinto has rejected earlier renegotiation requests but said that it was prepared to look at ways to “increase the benefits” for Mongolia.

Oyu Tolgoi was launched in 2009 after an investment agreement granted Mongolia its share and the rest to Canada’s Ivanhoe Mines, now the Rio Tinto-controlled Turquoise Hill Resources. In a statement, a Rio Tinto spokesman said, “Revising the existing agreements would threaten the future of the project and we are already working with the Government through a joint working group to find ways to further increase the benefits to Mongolia.”

Sun setting over Gobi Desert D375A Digger used in the primary crusher open pit.
"Copyright © 2018 Rio Tinto."


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