July 1 (Bloomberg) -- Oyu Tolgoi, the $6.6 billion mine jointly owned by Rio Tinto Group and Mongolia, is awaiting government support before it can start shipments that were due to begin by the end of June.
“All necessary permits have been received and the mine is ready to commence concentrate shipments,” Turquoise Hill Resources Ltd., a Vancouver-based unit of Rio Tinto that holds its Oyu Tolgoi stake, said in a statement June 28. “Shipping will begin as soon as the Mongolian government indicates its support for Oyu Tolgoi to do so.”
Shipments of copper concentrate from the mine to Chinese smelters were due to begin before the end of June and were twice postponed last month. The second delay, on June 21, was at the request of the Mongolian government, London-based Rio said. The mine is operated by Oyu Tolgoi LLC, which is 34 percent owned by Mongolia and the rest by Rio’s Turquoise Hill unit.
The two sides have yet to resolve the government’s request that sales from the mine are handled by Mongolian banks, Mining Minister Davaajav Gankhuyag said in Ulaanbaatar, the country’s capital, on June 28. He also said they have yet to reach agreement on the government’s contention that the mine overshot its budget, as well as financing for its second stage and management fees accrued by Rio.
Oyu Tolgoi is the biggest foreign investment in Mongolia, expected to account for 35 percent of the country’s economy when fully operational in 2020. Rio and the government clashed in February over the mine’s costs, tax payments, and the number of locals in management. The government temporarily froze Rio’s bank accounts in Mongolia in February over the tax disputes, two people familiar with the matter said at the time.
Oyu Tolgoi spokesman Tsend Ganzorig, and Rio Tinto spokesman David Luff in Melbourne, declined to comment on the delays to the shipments.
“The longer the delay continues the greater the cost to the people of Mongolia,” Michael Howard, deputy chairman of Vancouver-based Entrée Gold Inc., which owns part of the Oyu Tolgoi area via a joint venture with Rio Tinto, said in a phone interview from London on June 28. Howard is a former leader of the U.K. Conservative party.
Mongolia may lose $2 million in taxes every day that the mine’s shipments are delayed, independent Ulaanbaatar-based analyst Dale Choi said in a June 23 note to investors.
Rio hasn’t shown the Mongolian members of the Oyu Tolgoi board the sales contracts it has struck with Chinese buyers, mining minister Gankhuyag said.
“If the product sales agreements are not introduced to the Mongolian side, the sales revenue must be transferred via Mongolian banks,” Gankhuyag told reporters at a briefing. The value of the sales contracts is $8 billion and need to be ratified by Oyu Tolgoi’s board under Mongolian law, he said.
Rio has also agreed to lend $225 million to Turquoise Hill as a bridge facility to finance the mine’s operations, the Canadian unit said in its statement. Oyu Tolgoi has so far produced 40,000 tons of copper concentrate, according to the statement.
The government and Oyu Tolgoi are in talks to resolve the various issues between them, said Entree Gold’s Howard. “It is of the interest of everyone in Mongolia, including all those Mongolian citizens who can benefit from the unlocking of wealth that lies buried underneath the soil of Mongolia,” he said.
Sam Walsh, chief executive of officer of Rio, said in a May 9 briefing that the company planned to begin first shipments in the first half of 2013. “We’ve moved well down the path in terms of resolving the issues the government had tabled with us, enabling us really to move forward with the project,” Walsh said at the time.
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