Mongolia and Rio Tinto Group (RIO) made progress in resolving project financing and other disputes stalling the expansion of their $6.6 billion Oyu Tolgoi copper mine, a Mongolian board member of the venture said.
Negotiations will resume in Ulaanbaatar on Oct. 7, Ganzorig Temuulen, one of three Mongolian nationals on the Oyu Tolgoi LLC board, said at a press conference in the Mongolian capital today. His comments follow a meeting between the shareholders in London.
“We have agreed in principle on project financing” for the expansion, board member Chuluuntseren Otgochuluu said in an interview. Mongolia is “very confident” the terms of the agreement can be worked out by the end of the year, he said.
A point of contention is all of the funds raised should be invested in Mongolia, although the government is willing to concede that some Oyu Tolgoi assets can be used as collateral, he said. Mongolia is awaiting the completion of an updated feasibility study for phase two of the project, he said, indicating it would be completed early next year. The total cost for both phases may eventually reach $14 billion, he said.
Oyu Tolgoi stalled on disagreements that include the financing of the mine’s second-stage or underground expansion, which is expected to cost about $5.1 billion. Mongolia, which controls 34 percent of the project, claims cost overruns on the open-pit operation are delaying future dividends and wants the mine’s extension funded with revenue from copper sales until the dispute is resolved. That’s been a subject of debate with Rio, which has sought to raise debt to fund the mine’s second phase.
The board members said today agreements are almost concluded on issues involving Vancouver-based Entrée Gold Inc., which owns part of the Oyu Tolgoi area via a venture with Rio Tinto. The Mongolian government will take 34 percent of the Entree license, based on a law that says Mongolia should have 34 percent of a strategic deposit. That will happen in two or three weeks, Otgochuluu said.
Otgochuluu said Mongolia is also seeking guarantees that the mine expansion won’t be subject to cost overruns, and a reset of Rio’s management fees, to be based on revenues earned rather than money spent.
Bruce Tobin, a Melbourne-based spokesman for Rio Tinto, wasn’t immediately able to comment.
London-based Rio, the world’s second-biggest mining company by market value, manages the venture through its 51 percent stake in Turquoise Hill Resources Ltd. (TRQ), which owns 66 percent of the mine.
Rio in July decided to delay work on the expansion until wrangles with the government on funding and other issues are resolved. While open-pit work continues, the dispute has led to the suspension of underground construction and the layoff of about 1,700 workers.
The mine, located 80 kilometers (50 miles) north of the Chinese border, is forecast to account for about a third of Mongolia’s economy when in full operation.