Rio Tinto Group, the world’s second-biggest mining company, rejected a renewed request by Mongolia to renegotiate a 2009 deal over a $6.2 billion mine that Rio plans to start next year.
The Minister of Mining sent a letter requesting amendment of the investment agreement that became effective in March 2010, Vancouver-based Turquoise Hill Resources Ltd., Rio’s partner in the Oyu Tolgoi copper and gold mine, said yesterday in a statement. “Rio Tinto is fully aligned with Turquoise Hill’s position,” said Illtud Harri, a Rio spokesman. London-based Rio owns 51 percent of Turquoise Hill, formerly Ivanhoe Mines Ltd.
Mongolia’s government said last year it wanted to boost its stake in Oyu Tolgoi to 50 percent from 34 percent as well as make changes to royalty payments. Turquoise Hill owns 66 percent of the project in southern Mongolia, with first output expected in the first half of 2013.
“This is a pretty standard agreement for developing countries whereby governments get a free carry,” Glyn Lawcock, head of resources research for UBS AG in Sydney, said by phone. “Companies are entitled to earn their share of the capital back before the government then gets its take.”
Mongolia’s recent letter comes after a change of government in August following elections. Such a stake increase is permitted only after 30 years, according to the agreement.
The mine will have an average annual output of 425,000 metric tons of copper and 460,000 ounces of gold. Rio produced 520,000 tons of copper last year, according to its annual report.
“We have invested nearly $6 billion, created thousands of jobs for Mongolians and are on the verge of production based on the investment agreement, which provides a stable legal framework and is a legally binding document,” Turquoise Hill Chief Executive Officer Kay Priestly said in the statement.
Rio is the second-biggest mining company by sales, trailing BHP Billiton Ltd., while Brazil’s Vale SA is the third largest.