Mongolia Studying IPO of Stake in $6.6 Billion Rio Mine

August 12 05:01 2013 Print This Article

Bloomberg.com  Aug 9, 2013

By Michael Kohn

Mongolia is studying converting its shares in the Oyu Tolgoi mine into a public company, giving citizens a stake in one of the world’s largest copper deposits.

A proposed new company would hold the state’s 34 percent interest, said Chuluuntseren Otgochuluu, director-general of Strategic Policy and Planning at the Mines Ministry. Ten percent of the company would be made available to the Mongolian public and 10 to 20 percent more may be sold on the domestic market.

The potential initial public offering may aid a planned expansion of the mine, which has been held up by disagreements over costs and revenues. By giving a stake to Mongolian citizens who have complained that the project only benefits foreign investors, the government will find it easier to negotiate with partner Rio Tinto Group, according to brokerage BDSec.

“Citizens would be able to think like shareholders,” Nick Cousyn, chief operating officer of BDSec, said today. “It would change the adversarial opinion of the OT project to one that is focused on the success of the project. It would align the interests of average Mongolians with the interests of all the shareholders.”

Rio, which controls the rest of Oyu Tolgoi through its majority stake in Turquoise Hill Resources Ltd. (TRQ), started shipments from the mine last month following delays as Mongolia sought to ensure revenue from the $6.6 billion project passed through domestic banks. The country earlier pushed for a bigger stake and new royalty rates, which the company rebuffed.

Project Delays

Rio’s planned extension of Oyu Tolgoi would include an underground mine. The company said July 29 it was delaying work on the expansion pending financing approval.

“We want to see the project move forward,” Chief Executive Officer Sam Walsh said yesterday in London. “We continue to discuss a range of matters with the government of Mongolia, but progress has been made on several fronts.”

A spokesman for London-based Rio declined to comment today.

Mongolia is also considering an IPO of its 51 percent stake in the Erdenet copper mine, Otgochuluu said in an interview in Ulaanbaatar. The sales of both project stakes would echo a similar government plan for state-owned coal company Erdenes Tavan Tolgoi LLC, in which more than 1,000 shares will be issued free of charge to every Mongolian citizen.

“Something like that can also happen at Erdenet and Erdenes Oyu Tolgoi,” Otgochuluu said. By setting up a public company, the government would be able to issue bonds and shares and accrue funds, he said.

The proposed new company may be called Mongol Copper. An international IPO may follow a domestic offering, according to the ministry official, who said the location and size of such a sale were yet to be determined. The government’s initial goal is to put state assets in the hands of the public, he said.

“If we gradually change from state ownership to public ownership we can improve the efficiency and governance,” Otgochuluu said. “State-owned enterprises can be controlled by government officials for their benefit.”

To contact the reporter on this story: Michael Kohn in Ulaanbaatar at mkohn5@bloomberg.net

To contact the editor responsible for this story: Amanda Jordan at ajordan11@bloomberg.net

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Saranchimeg Enkhee
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