Blame game with Rio Tinto

Jul 31 • Featured, Mining, News, Opinion, State Affairs • 16113 Views • 4 Comments on Blame game with Rio Tinto

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As Mongolia related stocks down from 5-20% percent in recent days, Rio Tinto still plays a blame game with the Mongolian government. Instead of being open and transparent, Rio Tinto chose to be an aggressive bully. All of the major international media blames the government for delaying the project financing, thus, underground development.

The media portrays Mongolia as a land of resource nationalists demanding a greater share in the project. However, in the reality, it is not so. It is not a secret among the government officials that OT LLC always rushes and pushes their agenda in a strict time-frame. We have heard what they promised Mongolia to get the Investment Agreement signed. In 2009 they insisted that while the copper price is high, the mine should be developed as soon as possible. OT LLC have presented a feasibility study and it was the basis of the economics to exploit the deposit. Then after quarter billion USD was an increase for pulling the next year’s work. The initial feasibility study became a joke after a number of similar increases. Mongolian government demanded the amended or updated feasibility study to be approved by the Minerals Council in late 2011. Still, mining giant Rio Tinto and its consultants couldn’t manage to provide the government and the shareholder Erdenes OT with the updated version.

Everyone hoped that Rio Tinto has the experience and resources to develop the mine without pledging the license and other related assets. To this day, for over two and a half year after, the project financing is still on the desk asking USD4 billion from just less than a dozen commercial and development banks. Rio Tinto wants to become a lender too. The funny thing is that the loan period is 15 years. Meaning that even if the mine starts to generate enough profit to pay off the debt, it will not be able to do it. Still, it will be charged on completion guarantee by Rio Tinto, and interest by the development banks.

Technical Reports of the project indicated that the Open pit and Underground development will be around USD14 billion, however, we are going to witness USD10 billion increase in the coming years. It will be one of the most expensive mines built on the ground.

With the current situation Mongolia will be lucky to receive dividend from the project after 30 years. And, of course the tax is stabilized, cancellation of Netherlands double tax treaty will be in tact, according to the OT LLC spokesperson – mentioned in the Bloomberg news.

For a giant as Rio Tinto – blaming the government for everything through their channels is easy. ,Where is the other side’s opinion and statements? I wonder.

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4 Responses to Blame game with Rio Tinto

  1. Wazz says:

    So what I hear you saying is that because the Mongolian government has delayed the project with this and that argument , Mongolia and missed their window of profitability. Now the Mongolian government (in need of other mining projects) decides to change the rules with each turnover of officials. No foreign investment will occur for new mining projects IF Mongolia doesn’t become more agreeable to the governments past investment agreements. RIO has financed the OT project with 6.5 billion from foreign banks and now the government is saying WE want to control the mine. The agreement took 3 years, and I can easily see this either lasting much longer or RIO simply letting the pit run out of ore, and wait for another group of government officials that understand how to be honorable. The message heard around the world from the OT mine problems is that if you do business with the Mongolian government they will come back at the last minute or later and publicly accuse your company of being corrupt or outside of the rules. Which is laughable coming from the world’s second most corrupt country.

  2. Amar says:

    Hopefully, tomorrow’s (Aug 2) cabinet meeting will discuss. Its too early since, unfortunately, the GoM stance is unclear.
    With the spring sessions over, one option is to wait for the fall session of Parliament in October. And since the list of discussion for fall session does not include recent GoM decision, it makes even blurry as to when parliament will start actually discussing the issue.
    Another way is to call an irregular session. Although it will be hard to fill the Parliament Hall, MPs out “Naadam”-ing and vacationing, it might be a better solution in regard to winning over time.
    Personally, I see GoM decision untimely, and Rio’s callback as “overreaction”.
    Wazz, on corruption issue, speak the facts, or let people know it’s your opinion.

  3. Dog says:

    Unfortunately, actions speak louder than words. Global investors know Rio. They’ve done business together so Rio’s word, for good or bad, is trusted. Most of what has been heard regarding Mongolia has been negative, such as
    1. What’s perceived as false promises at Investor conferences
    2. Corruption/fraud cases (MIAT, TT, Erdenet Copper, Enkbayar, etc, etc)
    3. Bank insolvency (most recently Savings Bank)
    4. Push to amend the IA that was agreed by GOM. Twice in the past two years GOM has pushed to amend the IA or declared parts of the IA illegal. The current Mining Minister even went as far as promising to resign if the IA wasn’t changed.
    5. Ongoing disputes around management issues

    When you factor all this negative news I’m not sure how anyone can be surprised by the lashing the country gets in the international press. If the country wants to change the dialogue then bold, visible action is needed from the government to demonstrate their intention towards investors. This needs to be coupled with clear and consistent messaging from all of the government.

    Unfortunately the decision for “callback” is not an overreaction at all, but a stark reminder of the mistrust that exists on all sides. Until tangible steps are made I don’t see the investor climate in Mongolia improving. Investors do not need to come to Mongolia, but the country definitely needs foreign investment.

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