Mongolia Says Rio’s Copper Mine Can Start China Shipments

Tensions between Mongolia’s government and Rio Tinto Group over the $6.6 billion Oyu Tolgoi mine have eased sufficiently to start shipping copper concentrate this week, the country’s mining minister wrote in a post on Twitter today.

“There is no significant problem with the Oyu Tolgoi mineral export contract,” Davaajav Gankhuyag said. “The first shipments will start on July 9.”

Scheduled shipments to Chinese smelters were postponed twice, first on June 14 at the request of Rio Tinto, then on June 21 at the request of the government. Rio runs the operation through its Turquoise Hill Resources Ltd. unit, which holds a 66 percent stake. Mongolia owns 34 percent.

“It all depends on Rio,” said Oscar Mendoza, managing partner at Mongolia Asset Management, an investment advisory group based in Ulaanbaatar. “Maybe the government just wants to say the ball is in Oyu Tolgoi’s court.”

Oyu Tolgoi has produced more than 40,000 tons of copper concentrate, according to a June 28 press release issued by Turquoise Hill. The stockpiled concentrate is to be delivered by truck 80 kilometers (50 miles) south to the border post at Gashuunsuukhait, and then on to China.

Delays in shipments scheduled to start by the end of June are costing Mongolia $2 million in lost tax revenue every day, said Dale Choi, an Ulaanbaatar-based independent analyst.

‘Losing Millions’

“Every day of delay they are losing millions in lost investments because they are very cautious and they don’t want to be perceived as repeating past mistakes,” Choi said by phone today in Ulaanbaatar.

Gankhuyag told reporters at a press conference on June 28 that the two sides were trying to resolve a request by the government that Mongolian banks handle sales revenue from the mine. Mongolia was also insisting that its representatives on Oyu Tolgoi’s board of directors see Rio Tinto’s sales contracts with Chinese buyers.

“Sales revenue will go through Mongolian and OT LLC registered accounts,” Gankhuyag said in another Twitter post today, appearing to suggest that the debate over bank accounts had been resolved.

A start to copper concentrate shipments would be welcome news as Oyu Tolgoi, the largest mining project ever in the country, is expected to account for a third of Mongolia’s economy by 2020.

“I think it’s going to happen,” Choi said. “I would be very happy if exports and commercial production would start because every day Mongolia is losing its credibility with investors.”

(Corrects third paragraph of story that moved on July 7 to note that Rio Tinto runs the operation through its holding in Turquoise Hill.)
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