Mongolia urges Rio Tinto to speed up expansion of Oyu Tolgoi mine

By bne IntelliNews August 31, 2016

Mongolia's Prime Minister Jargaltulga Erdenebat has urged Anglo-Australian miner Rio Tinto to step up the pace of underground expansion of the Oyu Tolgoi copper and gold mine, the Mongolian government said in a statement on August 30.

The request is part of the Mongolian government’s efforts to revive the country's debt-ridden economy. Oyu Tolgoi is widely seen as a barometer for the country’s overall investment climate. Foreign direct investments (FDI) into the sector began recovering in the second half of 2015 after Mongolia’s government and Rio Tinto struck a long-awaited deal on the $5.3bn underground expansion of the country's flagship mine in May 2015, ending nearly a two-year-long stalemate.

However, latest figures by the central bank saw net FDI outflows of $4.511bn in the second quarter. That, in turn, led Mongolia’s economic growth to ease to 1.4% in the first half of 2016, from 3% a year earlier.

The launch of Oyu Tolgoi in 2009 helped start a mining-driven economic boom in the country. However, the Mongolian authorities quickly developed concerns that the country's resources were being sold off on the cheap, leading to repeated attempts by legislators to renegotiate the terms of the original agreement in a bid to raise Mongolia's stake. Thus, progress on Oyu Tolgoi’s underground extension, where about 80% of the deposit’s mineral wealth is located, stalled in mid-2013 amid disagreements over taxes and cost overruns that were resolved in May 2015.

Rio Tinto owns 51% of Turquoise Hill Resources, which controls a 66% stake in Oyu Tolgoi, with the remaining 34% in the hands of the Mongolian government. Reports earlier this year suggested Rio Tinto has hired Goldman Sachs to look for potential co-investors as it seeks to raise its stake in New York-listed Turquoise Hill Resources.

Erdenebat assured Rio Tinto's copper chief Arnaud Soirat that the country would honor its past agreements with the company, and called on Rio Tinto to do the same. 

“For Oyu Tolgoi, the Mongolian policy to work together with Rio Tinto is already set,” Erdenebat was quoted as saying in the statement. “You need to comply with contract obligations and speed up the momentum of work,” he told Soirat. The premier also said that Oyu Tolgoi should procure construction materials such as cement from Mongolian service providers only.

Earlier this month, Mongolia’s newly-elected government roiled markets announcing the country is in a state of deep “economic crisis” and moved quickly to announce a number of austerity measures seeking to support the slowing economy and fight the soaring budget deficit. The Mongolian People's Party (MPP), which won a landslide victory in parliamentary elections in June has pledged to restore the confidence of foreign investors.

 

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