Mongolia signs multibillion dollar mining deal in Ulan Bator ceremony

INVESTMENT: Ivanhoe Mines and Rio Tinto will develop Oyu Tolgoi’s copper and gold mines in a deal that will bring hundreds of jobs and millions of dollars to the area

AFP , ULAN BATOR

Wed, Oct 07, 2009 - Page 10

Mongolia sealed a long-awaited multibillion-dollar deal with Ivanhoe Mines of Canada and Anglo-Australian miner Rio Tinto yesterday to develop one of the world’s richest copper deposits.

The deal to exploit the Oyu Tolgoi mine was signed by the three parties in a ceremony in the capital Ulan Bator, marking one of the biggest investments in Mongolia since the former Soviet satellite went capitalist two decades ago.

No figure was immediately given for the size of the deal, which was six years in the making, but Mongolia’s minister for mineral resources and energy Dashdorj Zorigt said last month that it was worth US$4 billion.

“This is a significant milestone and we now look forward to working together to develop what I firmly believe is the best undeveloped copper deposit in the world,” Bret Clayton, chief executive of Rio’s Copper and Diamonds group, said in a statement released at the signing.

It said the Mongolian government would own a 34 percent stake in Ivanhoe Mines Mongolia LLC, the project license holder.

The mine in the south Gobi desert will employ as many as 3,000 workers, with thousands more finding jobs along the supply chain, providing a significant boost to the economy of the resource-rich country, one of the poorest in Asia.

Oyu Tolgoi, located about 80km north of the Chinese border, is expected to produce 450,000 tonnes of copper and 330,000 ounces of gold annually over 35 years, Rio Tinto’s statement said.

Mongolia’s GDP — US$5.26 billion last year, World Bank figures show — is expected to increase 34.3 percent over the life of the mine, a 2005 project plan said.

Ivanhoe said it would release an updated plan and financial details after the signing ceremony.

Zorigt, the mineral resource minister, had previously estimated the project could boost Mongolia’s per capita GDP, at about US$1,800 last year, to US$15,000 by 2015.

The deal’s signing comes more than nine years after Ivanhoe started exploration at the Oyu Tolgoi site and six years after it was awarded mining licenses.

Talks had dragged on as Mongolia and Ivanhoe haggled over how big a share the government should take.

Ivanhoe eventually agreed to give the government the 34 percent equity interest and the deal cleared the final hurdle in August when Ulan Bator agreed to scrap a 68 percent windfall tax on copper and gold sales.

Analysts said the deal would provide a “blueprint” for foreign investors wanting to access Mongolia’s rich deposits of copper, gold, uranium, silver and oil.

“This is a pathfinder transaction,” said James McGlew, a senior dealer at Argonaut Securities in Australia. “Hopefully this is the blueprint on how they will develop this part of the economy.”

Rio said it made an initial US$303 million investment for a 9.95 percent stake in Ivanhoe Mines Ltd and has “the obligation to invest 388 million dollars for a further 9.95 percent stake.”

Rio has the option to increase its stake in Ivanhoe Mines to 46.65 percent through fixed-price options and on-market purchases.

It said production was expected to start as early as 2013 with “a five-year ramp-up to full production.”

The Oyu Tolgoi deal is the first of several big contracts the government is hoping to sign.

Next in the pipeline is Tavan Tolgoi, which is said to be the largest untapped coal field in the world. Mining companies and consortiums from Russia, China, South Korea and the US have submitted bids for the project.