Mongolia May Revise Biggest Coal, Copper Project Agreements

Mongolia may revise ownership accords with Rio Tinto Group and other foreign companies for the nation’s two biggest mineral projects ahead of parliamentary elections scheduled for next year.

The initial agreement with companies including Peabody Energy Corp. (BTU) for part of the Tavan Tolgoi coal deposit may change, Baasangombo Enebish, executive director of state-owned Erdenes MGL LLC, said by phone today. Mongolia will also seek to revise the investment terms for the Oyu Tolgoi copper project that’s part-owned by Rio, Finance Minister Sangajav Bayartsogt told News.mn portal in an interview published yesterday.

“The fact that they may be changing the goal posts near the end of the game is not ideal but they are not the first country in the world to be doing it,” Richard Knights, an analyst at Liberum Capital Ltd. in London, said today by phone, referring to recent mining tax changes in Australia and Chile. “It would definitely make companies more cautious when considering an investment decision.”

Mongolia is planning a potential initial public offering next year for Tavan Tolgoi, the nation’s biggest coal field, which may raise more than $3 billion. Revision talks may delay the 2013 proposed start-up of the $6 billion Oyu Tolgoi copper and gold project, on which Rio’s partner, Ivanhoe Mines Ltd., spent more than six years negotiating an investment accord.

Coming Election

“There are discussions going on,” Andrew Harding, chief executive officer of Rio’s copper division, said yesterday in London, referring to media reports about a review of Oyu Tolgoi accords. The reports should be assessed in the context of a Mongolian election next year, Harding said.

Rio declined 0.5 percent to 3,518.5 pence at 10:27 a.m. London time. It earlier rose 1 percent to A$69.59 in Sydney.

A group of 20 lawmakers submitted a letter to Prime Minister Sukhbaatar Batbold on Sept. 7 demanding that the Oyu Tolgoi agreement, in which Mongolia has a 34 percent stake, be revised to give the country half the equity, Xinhua reported yesterday. The lawmakers also demanded higher taxes, the news agency said.

“It’s a continuation of the theme of resource nationalization which is now firmly back on the radar following the Guinean government announcement a fortnight ago,” Knights said. “Clearly, from a government perspective, it is still a big issue.”

Guinean Mining Code

Guinean lawmakers adopted a new mining code on Sept. 9, giving the West African nation 35 percent of local minerals companies and raising customs duties to 8 percent. Rio is developing the Simandou iron ore mine in the country which it has said will cost more than $10 billion to build.

Ivanhoe Mines hasn’t had any discussions with the Mongolian government about potential changes to an investment agreement for Oyu Tolgoi, the company said today in an e-mailed statement. Oyu Tolgoi’s development will boost Mongolia’s economy by 30 percent by 2020, according to Rio.

Peabody, the largest U.S. coal producer, said yesterday that it’s continuing negotiations on Tavan Tolgoi, in western Mongolia.

In July, the government announced that China Shenhua Energy Co., Peabody and a Russian-Mongolian group would be allocated 40 percent, 24 percent and 36 percent stakes to develop the West Tsankhi part of Tavan Tolgoi.

That accord was preliminary and its terms may change, Erdenes MGL’s Enebish said. “This is an internal discussion process within Mongolia on how to continue this investment negotiation,” he said, adding that the process continues.

To contact the reporters on this story: Yuriy Humber in Tokyo at yhumber@bloomberg.net; Jesse Riseborough in London at jriseborough@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net

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