Rio Tinto blames Mongolia for wanting bigger share

Nov 15 • Featured, Mining, News, Opinion • 29178 Views • 10 Comments on Rio Tinto blames Mongolia for wanting bigger share

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Today, we have seen two opposing news in local and international media. The local media stated that Rio Tinto has been approved of USD4 billion from IFC, US EXIM, EDC and others. However, international media is stating that TRQ is issuing rights-issue offerings to pay off the bridge financing debt to Rio Tinto after it failed to secure project financing due to reasons – being in dispute with the government.

International media – sourced by Rio Tinto, blames the Mongolian government – the whole debacle is about Mongolian demanding greater shares in the mine. Because of that, project financing could not be secured and also, because of that Mongolia is not approving it. However, the reality is different. The working groups that has been established to resolve the cost overrun and approving updated feasibility studies have worked to overcome the misunderstandings and proceed with the project. However, OT LLC, managed by Rio Tinto Alcan, couldn’t justify the cost overrun and could not or did not update the feasibility study within time required by the Mongolian laws and regulations written in black on white.

It is true that Mongolia wanted to re-negotiate the terms in Investment Agreement after realizing the monstrous costs it has to pay for their 34% share. Because of its inexperience it attempted to amend the agreement, however it has been facing rejection from Rio Tinto. Then, the government backed off, and demanded justifications which Rio Tinto failed to provide. Without justifying the current spending, it seemed irrational to add more debt to the project, after all Mongolia is a shareholder. However, now it will got all the blames, even though it didn’t manage the project, it couldn’t monitor the cost overrun, and it can’t access to certain information and data of OT LLC as a shareholder.

It has been long time since Mongolia stopped talking about their desire of having bigger slice of the project. However, the cost overrun has to be justified and all the necessary information has to been given and has to be explained. Don’t rock the boat we’re all on.


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10 Responses to Rio Tinto blames Mongolia for wanting bigger share

  1. Pandora Box says:

    “It has been long time since Mongolia stopped talking about their desire of having bigger slice of the project.”

    That does not preclude the Mongolian government from starting again once Phase II is already started and RIO totally committed so that’s a big question mark for the future.

    It is a big Pandora Box that has been opened and only an OT Law for Phase II can provide the certainty in the long run that a government signed IA did not!

    “Cost overrun”:
    What did Mongolian board members of OT did during all those years? Did not they check the OT numbers regularly? Why did not they voice publically their concerns, if any, then? Aren’t they accountable to Mongolian citizens?

  2. Valencia says:

    I guess it is a Pandora Box that has just been opened when you didn’t have access to certain information in the company management level. It is the Rio Tinto who impose cost overruns after everything occurred, and the job is done, then ask for approval in the last minute.

  3. Dog says:

    I’m tired of this drama. Both sides are to blame. They’ve both made a complete mess of this situation and destroyed investor sentiment in Mongolia, which is a real tragedy.
    Unfortunately, Mongolia had the most to lose and Rio has taken advantage of this with the help of their muppets within Turquoise Hill (and GOM?).
    This whole thing has been shambolic. Now the minority investors can look forward to being rear ended with the rights offering, while Tinto increases it’s ownership stake. Politicians have nothing on these snakes.

  4. chris says:

    The cost over run during the initial part of the project. Everyone knew about it. The cost versus the budget were disclosed every time TRQ posted earnings. Cost overruns are typical in big projects like OT. Don’t forget the initial projection was done right around the financial crisis. Cost of doing business has gone up since the financial crisis. Think about the massive inflation in Mongolia. It’s never easy to keep a project this big to not have any overrun. It’s not like TRQ or RIO wanted an overrun. They had to pay for this as well (67% of the project). This is all bullshit. They have been discussing this cost overrun for over a year and everyone keeps saying they are making progress. I’m also tired to the Mongolian government trying to keep changing their investment policies. Its a complete joke!!! The investment community is tired of their BS. The biggest loser of all this is long time TRQ shareholders. We have participated in two rights offering (at $13 and at $7) to pay of Phase 1 OT. TRQ stock is at $4.

  5. chris says:

    The Mongolian government can keep pointing fingers all day long. At the end of the day, they’ve already done tremendous damage to their reputation to the investment community. Some of these damage maybe permanent. It could still get worst. TRQ’s stock price pretty much reflect how the international investment community feels about Mongolia today. Look at the chart and you will see.

  6. WIM Mongolia says:

    Some of the comments don’t have any concerns to the people of this country. I believe everybody knows by now how our GOM is corrupted (it is measured internationally) where RT likes to take advantage of this saga and tell GOM what they want from this land. RT is also shooting themselves into their own foot by bad mouthing internationally. Only people who are disadvantaged is not only minority shareholders but also Mongolian pristine land & local Mongolian people. I hope anyone who invests in Mongolia please take a note that there are people who’s life have been changed because of all these destructive industry!!!! Please … who ever wants to invest in mining projects, they need to add local people’s concerns too!!!! Mongolians will end up with unpaid debt & worst is that it will be environmentally damaged!!!! if this is anyone’s concern of course…. I wonder who will pay for this? I’m sure RT will not (they have too much power internationally, how can you go after them?), even minority shareholders cause they are in different countries, it doesn’t concern them too …. We Mongolians will end up with our GOM corrupt problems & its debt and environmentally unlivable province …. Now … who is loosing the most?

  7. Dog says:

    WIM Mongolia,
    I understand and appreciate your concerns and agree that care needs to be given to insure that the environment and Mongolian people’s interests are protected. Although, we need to be careful about sweeping assumptions regarding investors. Not all are foreign and not everyone is investing for profit or malicious reasons. Personally, I’m not Mongolian, but live here (working in non-mining sector) and I’ve invested and lost considerable resources in Mongolia because I see potential in the country and have hope that projects like OT can have a positive, transformative impact on the lives and well being of Mongolians, long after I leave. Also, the benefits from a successful OT could help the country’s economy to become more and more diversified, eventually reducing the dependence and need for new mines. There are not many investments globally that offer similar potential. If it was only about money there are much easier places to earn it.
    Furthermore, It is not always a us vs. them situation and there are opportunities for both sides to find common ground and to come out ahead. I agree with your comments on RT. Unfortunately the dialogue to date hasn’t been this way and this has, in part, driven away people who have resources and experiences that could help and want to help in other sectors. Nobody wants to invest their hard earned money and time in a place where major partners continually disagree, air disputes in such an immature public fashion and when their contribution/ integrity is questioned and vilified.
    Also, yes mining can be destructive, but let’s be honest foreigners/ mining companies aren’t the only reason the “pristine” environment is being impacted. What about the contribution the livestock population has on water supply and desertification? Where is the comparable disgust for the refuse that litters the UB and the countryside.

  8. Pandora Box says:

    To Valencia:

    If Mongolians are unhappy about the IA being then they should investigate those that signed and approved it on behalf of Mongolia. Is Mongolia a democracy? Do the words “rule of law” have a meaning?

    Other than “we want a renegotiation of the IA” I never read anything constructive, any proposal from GOM.
    The same apply with the “costs overrun”.
    You wrote: “It is the Rio Tinto who impose cost overruns after everything occurred”
    Were the Mongolian OT board members blind? Didn’t they visit the premises? Their job was to be the eyes and the ears of Mongolia there.
    On a challenging project of this kind, it’s ONGOING oversight and if anything was out of line, GOM, Parliament and Mongolia should have been alerted at once.
    If there have been abusive practices then expose them, provide evidences!!

    I am a minority shareholder of TRQ and will be impacted by the rights issue so I want to know too …if there is anything relevant,
    but I have some knowledge of finance, project finance and project management and as Chris pointed out, costs overruns are typical of mega projects.

    If you disagree, please list 10 mega projects that were completed on time and within budget.

    In additional, RIO and TRQ are listed in international markets, with international auditors and regulators,
    so on the face of it, without any public evidence of the opposite, everything is fair and square as far as I am concerned.

    As an investor in TRQ, a company related to Mongolia and listed in an international market, I will think twice in the future before subscribing to any IPO of a Mongolian related company, state-owned-enterprises included.

    The consequence of this uncertainty is that TRQ cannot, on a stand alone basis, borrow from international markets. Without guarantees from supranationals and exim banks, which bank would lend for Phase II?

    Because of this uncertainty since May 2012, foreign investors got cold feet (btw, Chinggis Bond I was a one-off), have trimmed or simply cut their investments in Mongolia. Mongolians can see that by themselves every day.
    Less $ coming means those $ coming cost much more too as there is less choice.
    So Mongolia at large has to deal with scarce capital and expensive funding costs.
    That means less infrastructure projects of all kind (those providing $ return to Mongolia + infrastructure for Mongolians) or delayed projects.

    That is a big cost of opportunity impacting the middle and low Mongolian classes!

    In the end it will be fine and Mongolia will prosper,
    but many things are and will be seriously delayed and many severely impacted in the short-term/medium-term.
    So how long will that last??

    Now a question for you:
    Are you sure this government is really motivated to have Phase II starting asap? If Phase II was to start today, I have doubt GOM would collect any extra royalties before the 2016 elections while still enjoying anyway the royalties from phase I. What do you think?

  9. WIM Mongolia says:

    Hi Dog,
    Thank you very much for the reply. It is greatly appreciated. I’m Mongolian living in Canada and also minority shareholder of the TRQ. I’ve been loosing my money on this enterprise too since RT took over the management. I can blame our government officials how they’ve been dealing with this project since the beginning as well as RT for not protecting minority interests. The most concerns me that they are not doing enough to reduce the Environmental Impact in that region. (Water issues and dusty roads) This industry is not sustainable, you can’t grow gold and copper but what you can do is try to reduce the environmental impact and try to be part of the local community.

    Moreover, I had experience working for our state owned enterprise which I can say that it is very uncertain why certain decisions are made in certain ways. It concerns me a lot. Shamefully, our state owned enterprises don’t have enough capacity to do better job in terms of community consultation, engagement and crucially to reduce environmental impacts. They don’t hire people based on the experience but on the party affiliation.

    Thus, it is hard to believe both sides of this giant decision makers. Minority shareholder’s as well as Mongolian people are hurt the most. Regarding RT, I believe it is hard to trust a company that had bad reputation in GNP 20 years ago (they’ve had to close the mine and leave). The management of the RT should realize that it is time to change into STAKEHOLDER oriented company. (But it will not happen since the bylaws probably can’t be changed) If the same situation as in GNP will occur, everybody is in loose loose situation.

    Furthermore, being as a western consumer, I can see how it is devastating to the developing world to improve their lively hood. Cashmere trend caused that Mongolians started to raise more goats than sheep’s which we all knew from childhood that goats are bad for the environment when they outnumber sheeps. They destructive eating habit were taught to everyone from my childhood. (there is recent report on that) However, in the new era of industrialization, we all forget about those things. Only things that concerns us is making money, profiting in short term.

    In order to develop anything, it seems that we need know if those industries are sustainable and will it last longer. Thus, we as an investors as well as consumers should know better about what we are consuming, how it was done and etc. Corporations can’t exist without consumers and investors. This is our responsibility that’s why these comments are good for others to read and start a conversation.

    Many thanks,
    WIM Mongolia

  10. Pandora Box says:

    The OT cost overruns: A senior Mongolian shedding some lights
    (paragraphs 10-11-12 !!!)

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