Mon, Sep 26, 2011 - Page 10 News List

Mongolia wants bigger stake in copper project

‘RESOURCE NATIONALISM’:Rio Tinto said it negotiated with Mongolia for years before agreeing to develop the site, which is now halfway complete and could open in 2013


Mongolia wants to bring forward the raising of its stake in the Oyu Tolgoi copper project that is being developed by Rio Tinto Group and Ivanhoe Mines Ltd to 50 percent from 34 percent, according to the Mongolian minerals minister.

“We have sent the proposal to Ivanhoe to renegotiate the timeframe for us to increase the government stake,” Minister Dashdorj Zorigt said at Oyu Tolgoi yesterday.

Such an increase is permitted after only 30 years, according to a summary of the US$16 billion project agreement from London-based Rio Tinto.

Countries across Asia, Africa and Latin American are seeking greater control of the mineral and energy resources on their territories as rising commodities demand boosts prices. So-called resource nationalism is the biggest business risk to global mining companies, Ernst & Young LLP said last month.

“Alarm bells would ring that if they change the rules here, are they going to change it again, are they -going to take more than 50 percent?” Gavin Wendt, founder and director of Mine Life Pty in Sydney, said by telephone. “Rio and Ivanhoe obviously won’t be happy about it.”

The project, 66 percent owned by Ivanhoe Mines, is halfway through completion and will be one of the world’s five biggest copper mines, according to Rio, which controls Oyu Tolgoi’s management.

Ivanhoe, 48.5 percent owned by Rio, spent more than six years negotiating with Mongolia before reaching an agreement in October 2009 to develop the site, which could open in 2013.

“An unstable environment, where changes to agreements are forced, leads to investors being very apprehensive,” Rio Tinto’s Mongolia country director, Cameron McRae, said in Ulan Bator on Saturday. “What we are demonstrating is that the investment agreement is a contract. We’re going to honor it and we expect the government to honor it.”

A group of 20 Mongolian lawmakers wrote to Mongolian Prime Minister Sukhbaatar Batbold on Sept. 7 demanding that the Oyu Tolgoi accord be revised to give the country a 50 percent holding, China’s Xinhua news agency said on Sept. 20.

Mongolia will seek to revise the terms for Oyu Tolgoi, Mongolian Finance Minister Sangajav Bayartsogt told the portal in an interview published on Tuesday.

Mongolia has appointed Chief of the Cabinet Office Chimed Khurelbaatar to start talks with the miners, Xinhua reported on Thursday.

Mongolia might also seek to change the allotment of stakes in the Talvan Tolgoi coal deposit to investors including Peabody Energy Corp, the largest US coal producer.

The potential ownership changes at the country’s two biggest mineral developments come ahead of parliamentary elections next year.

Oyu Tolgoi may have average annual output of 450,000 tonnes of copper and 330,000 ounces of gold, Rio said.

World demand for copper will grow 40 percent to 27 million tonnes by 2020, according to a Sept. 8 presentation by the company.

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