Rio Tinto Group will resume talks with Mongolia this month to resolve concerns that spending at their jointly owned Oyu Tolgoi mining project is overshooting and the country isn’t benefiting enough from the development.
Shareholders met in Ulan Bator yesterday to discuss outstanding issues surrounding the gold and copper venture. For the government, these include the cost, furthering Mongolian participation in its management and increasing the number of local companies that can benefit from the project, including the use of a Mongolian bank, it said in a statement.
President Tsakhia Elbegdorj said last week Mongolia should have more control of the mine that will be the biggest contributor to its economy once it’s in full production. The mine is 66 percent owned by Rio unit Turquoise Hill Resources Ltd. and 34 percent by Mongolia’s government.
“A squabble is a natural tension that exists between any joint venture, where the operator is more guarded about releasing information and it’s normal for equity holders to want more information,” Prasad Patkar, who helps manage about A$1.1 billion ($1.3 billion) at Sydney-based Platypus Asset Management Ltd., said by phone. “What is harder to resolve is what appears to be a changing in goalposts. It’s a reflection of an immature mining jurisdiction.”
Rio Tinto gained 0.8 percent to A$69.23 at 11:22 a.m. in Sydney trading. The S&P/ASX 200 Index rose 0.2 percent. Turquoise Hill was up 0.5 percent at the close of trading in Toronto.
The president’s comments heightened tension with London- based Rio over the ownership and development of the project, which is currently the world’s biggest copper mine under construction. Rio is considering a temporary halt to work to protest government demands for a greater share of profit, two people familiar with the plans said last week.
This is “the sort of pain that Rio would have to go through being the first mega project in a very immature economy,” said Patkar.
The cost of building the mine rose 16 percent to $6.6 billion, according to a statement this week from Oyu Tolgoi LLC, the mine’s operator. The estimate compares with the initial 2010 projection of $5.7 billion.
Rio Tinto hasn’t explained the reasons why the project has gone over budget, Mining Minister Davaajav Gankhuyag said at a press conference in Ulan Bator yesterday.
“Oyu Tolgoi has delivered construction ahead of schedule and in line with the budget submitted to the Oyu Tolgoi board and government shareholder representatives,” said Rio Tinto Copper Chief Executive Andrew Harding in a statement yesterday. “We produced our first copper concentrate last week, and remain on schedule for commercial production in the first half of 2013.”
According to the statement, construction remains on budget. Citing a figure that doesn’t include exploration and other pre- project costs, the mine is “coming in at $6.2 billion, which is in line with the project estimate submitted to the Oyu Tolgoi board and government shareholders in December 2010,” it said.
A London-based spokesman for Rio Tinto declined to comment further.
Finance Minister Chultem Ulaan said at the press conference that Oyu Tolgoi paid no taxes in 2012. According to a media release posted on its website Feb. 5, Oyu Tolgoi was Mongolia’s sixth-biggest taxpayer in 2011, before the mine was operational, and paid $280 million in 2012 in taxes and other government fees. The company also spent more than $1.1 billion during 2010-2012 with Mongolian suppliers.
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