Ivanhoe Mines Ltd. fell in Toronto trading after Mongolia said it wanted to boost its stake in one of the world’s largest undeveloped copper-gold mines two years after agreeing to cap its stake until 2039.
Ivanhoe, developing the Oyu Tolgoi deposit with Rio Tinto Group, fell C$1.51, or 9.1 percent, to C$15 yesterday at 4 p.m. in Toronto Stock Exchange trading, after earlier dropping as much as 21 percent. Rio declined 20.5 pence, or 0.7 percent, to 2,964.5 pence in London.
The government of Mongolia is seeking to boost its stake to 50 percent from 34 percent, Dashdorj Zorigt, Mongolia’s minerals minister, told reporters at Oyu Tolgoi on Sept. 25. Such an increase is permitted only after 30 years, according to a summary of the $10 billion project agreement from London-based Rio, which said the new proposal may alarm foreign investors.
Mongolia’s attempt to renegotiate the Oyu Tolgoi agreement follows pressure from lawmakers ahead of an election next year and highlights risks for overseas investors as countries seek greater control of raw materials. So-called resource nationalism is the biggest business risk for global mining companies, Ernst & Young LLP said last month.
“The future of Ivanhoe’s relationships with the Mongolian government has become darker,” Ray Goldie, a Toronto-based analyst at Salman Partners Inc., said yesterday in a note to clients.
In the “still unlikely event that” Mongolia were to unilaterally increase its stake in Oyu Tolgoi 16 percentage points by 2019, the project’s contribution to Ivanhoe’s net- asset value per share would drop to $19.85 from $23.93, Goldie said in the note.