Mongolia Envoy Sees Oyu Tolgoi Renegotiation Unlikely, Reveals Power Supply Pact

Nov 5 • Business, Mining, News • 615 Views • No Comments on Mongolia Envoy Sees Oyu Tolgoi Renegotiation Unlikely, Reveals Power Supply Pact

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A campaign in Mongolia to assert more national control over mining, including calls for renegotiation of a mine ownership deal with global mining giant Rio Tinto PLC (RIO), is unlikely succeed, Mongolia’s ambassador to Beijing, Tsedenjav Sukhbaatar, said Monday.

Also, the Oyu Tolgoi gold and copper mine project, one of the world’s largest such developments, which is majority-owned by Rio Tinto, has taken another step toward production, with an agreement on Friday for China to supply electricity to the venture, the ambassador said, without providing details.

Mongolia, which has huge but lightly exploited mineral reserves, has been a prime beneficiary of a mining boom in recent years, but resource nationalism has delayed some major foreign-backed projects and thrown others into uncertainty. Oyu Tolgoi, one of Mongolia’s flagship projects, has reserves estimated at 41 billion pounds of copper and 21 million ounces of gold.

During the run-up to national elections this June, some candidates called for a renegotiation of the Oyu Tolgoi terms, suggesting Rio Tinto’s stake be cut to 49% from 66%. Rio Tinto manages the development of the mine and owns a 51% stake in Canada-based Turquoise Hill Resources Ltd. (TRQ), which in turn holds a 66% stake in the project. The Mongolian government owns a 34% interest.

“I don’t think it will go that way. We will stick as far as possible to the current agreement,” the ambassador told Dow Jones Newswires. “This [renegotiation attempt] was raised by some politicians, not by the government…it is a political campaign tool. The majority of the government understands how to handle foreign investments.”

Mongolia’s soul-searching on its resources sector has coincided with a crackdown on corruption, which has snared Australian lawyer Sarah Armstrong, chief legal counsel for Mongolia coal miner SouthGobi Resources Ltd. (1878.HK) in a government graft probe. SouthGobi is controlled by Rio Tinto.

Mr. Sukhbaatar said Monday that Armstrong had been prevented from leaving the country, as her assistance was needed in the government’s probe of a former Mongolia mines ministry official suspected of illegally handling mining licenses.

Ms. Armstrong isn’t accused, and can move freely within Mongolia, said Mr. Sukhbaatar, who didn’t specify how long the probe or the departure restriction might last.

Mongolia is also facing problems stemming from an economic slowdown in China. Coal exports, Mongolia’s largest export category, are likely to reach just 11 million-12 million metric tons this year, down from 22 million last year, he said.

The envoy said the government wanted to move ahead fast on the stalled project to develop its enormous Tavan Tolgoi coking coal reserves. Efforts to raise money for this in an initial public offering for shares in a state mining company and by inviting international miners to carry out the extraction work have faced repeated delays.

“It’s high on the agenda of the government. It’s time to start the exploitation of Tavan Tolgoi,” the ambassador said.


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