June 27 (Bloomberg) -- Turquoise Hill Resources Ltd.’s tax dispute with Mongolia shouldn’t derail $4 billion of project financing to expand the Oyu Tolgoi copper mine part owned by Rio Tinto Group, a local director at the resource’s operator said.
“Don’t mix the political importance of the project with this tax audit issue,” Ganbold Davaadorj, a director for Oyu Tolgoi LLC, said yesterday by phone from Ulaanbaatar. The “tax authority report is one thing and importance of investment in the project is a completely different thing.”
Turquoise Hill, based in Vancouver, said it had filed a notice of dispute with the Mongolian government over an audit claiming unpaid taxes, penalties and disallowed entitlements. The dispute delays distribution of a feasibility study for the mine’s expansion needed for project financing, it said.
The filing is the first step in a resolution process including 60 days of negotiation, Turquoise Hill said. The dispute may move to international arbitration if a deal isn’t reached in that time, it said.
Investment in underground expansion depends on resolution of the tax claims and other shareholder issues, according to the statement from Turquoise Hill, 51 percent-held by Rio Tinto.
The Rio unit owns two-thirds of the mine operator. Ganbold said June 23 the tax claim seeks payment of about $130 million.
Tony Shaffer, a Turquoise Hill spokesman, declined to comment on the tax dispute.
The director, also chief executive officer of Erdenes Oyu Tolgoi LLC, the Mongolian state company with 34 percent of the project, said the feasibility study shouldn’t be delayed after the tax claims. “Investors should have provided the feasibility study two years ago but it was always delayed,” he said.
Mongolia will work to resolve the disagreement without resorting to international arbitration, Ganbold said.
Turquoise Hill said March 25 the study would be available in the first half. Oyu Tolgoi shareholders and the Mongolian Minerals Council need to approve the study for a project financing package with bank terms that are set to expire Sept. 30.
“If both sides have interest to move the project as quickly as possible, they could provide some general information earlier,” Ganbold said. “But we have zero information, that is the problem.”
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