June 21 (Bloomberg) -- Mongolia is insisting that revenue from Rio Tinto Group’s $6.6 billion Oyu Tolgoi copper and gold mine be kept in the country before it will allow sales to start, according to a government official with knowledge of the matter.
Government officials want revenue from the mine to be held at a Mongolia-based bank, a decision that Rio rejects, said the person, who asked not to be identified as the talks are private. London-based Rio postponed an event scheduled for today that was to mark the first shipment of copper concentrate from the mine to China, citing a “request from the government of Mongolia.”
The standoff threatens Rio’s June deadline for shipments and revives a dispute over the mine that will account for 35 percent of Mongolia’s GDP when fully operational in 2020. The Manhattan-sized deposit will produce 450,000 metric tons of copper and 330,000 ounces of gold a year, as well as silver and molybdenum. With fees, royalties and the 34 percent stake held by the government, as much as 71 percent of the profits will go to the Mongolians, the International Monetary Fund estimates.
Rio wouldn’t comment on whether the banking issue caused the delay to the first shipment, or specify the reason for the postponement, with Melbourne-based spokesman Bruce Tobin saying the mine is ready to start shipments.
“Rio Tinto is keen to start shipping as soon as possible in order for the benefits from Oyu Tolgoi to start flowing to all parties, including the people of Mongolia,” Tobin said in an e-mailed statement. “Shipping will commence as soon as the government indicates its support for us to do so.”
In February, the Mongolian government blocked some of Rio’s bank accounts in the capital Ulaanbaatar over unpaid tax claims, said three people familiar with the situation. While the accounts were unfrozen, the two sides remained in protracted talks over how to solve a raft of issues, including management control. In April, Rio hired Mongolian national Bold Baatar as president of its copper group.
Oyu Tolgoi had invited reporters to a ceremony marking the first shipments of copper to China today. It was called off late yesterday, the second time this month it had been canceled. Mongolia holds presidential elections June 26 and there have been media reports that the event was canceled to avoid politicizing Oyu Tolgoi, a lightning rod for public debate.
The official who spoke to Bloomberg denied that the government called off the event because of the election.
To contact the reporter on this story: Michael Kohn in Ulaanbaatar at firstname.lastname@example.org
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