By Rob Delaney
Sept. 26 (Bloomberg) — The government of Mongolia, where Rio Tinto Group is seeking to develop one of the world’s biggest copper mines, may seek to give domestic, private investors a stake in the project, a senior lawmaker said.
Mongolia should participate in the Oyu Tolgoi project through royalties and private investment, said Gavaa Batkhuu, deputy chairman of Mongolia’s parliament. Lawmakers also may seek changes to Mongolia’s mineral law guaranteeing that mining companies, Rio Tinto included, produce finished products such as cable or wire, Batkhuu said yesterday in an interview.
“The government should not be involved in equity investment, but when there is already production, there will be revenues that will be shared,” Batkhuu said yesterday after hosting a lunch in Washington, where he met with officials from Rio Tinto and other potential investors. “Once they have these revenues, it’s up to the government if they want to distribute equally to Mongolians or in the form of shares to private investors.”
A 2007 draft agreement entitling the government to a 34 percent equity stake of the project never received parliamentary approval as some lawmakers pressed for as much as a 51 percent share for the nation.
Rio and partner Ivanhoe Mines Ltd. have sought approval for Oyu Tolgoi for five years at a time when emerging-market governments are attempting to boost their share of profits from mining ventures amid years of commodity price gains. Mongolian lawmakers have been deadlocked, with some seeking the royalties as soon as possible to spend on infrastructure and alleviating poverty, while others want to hold out for better terms.
Kathleen Ambrose, Rio’s Washington-based principal adviser for government relations, said the company’s position hasn’t changed since a September 2007 statement that Rio expects ongoing investments in the project will be cut “significantly” in the absence of a satisfactory agreement.
The companies and the government aren’t likely to conclude an agreement in the next parliamentary session, which runs from October to February, because both sides are starting negotiations from scratch and will have to craft a new draft agreement for lawmakers to debate, Batkhuu said.
Rio Chief Executive Officer Tom Albanese said July 16 that he’s hopeful an agreement will be approved this year and production will start by 2011.
Rio called Oyu Tolgoi “the world’s largest undeveloped copper-gold resource” when it agreed to buy 10 percent of Vancouver-based Ivanhoe in October 2006. The deposit, about 80 kilometers (50 miles) north of Mongolia’s border with China, contains about 78 billion pounds (35.3 million metric tons) of copper and 45.2 million ounces of gold, Ivanhoe said in March.
That estimated metal content may be only “a tiny fraction of what is actually there,” Ivanhoe Chairman Robert Friedland said in June.
To contact the reporter on this story: Rob Delaney in Toronto at firstname.lastname@example.org.