MONGOLIA has flagged plans to sell some or all of its 34 per cent stake in Rio Tinto’s giant Oyu Tolgoi copper and gold mine in return for royalties, in a move that would increase Rio’s stake in and share of spending on a $US5 billion ($6.4bn) underground expansion over which the two partners are at loggerheads.
In a dramatic shift in position spurred by Mongolia’s financial woes, recently installed Prime Minister Saikhanbileg Chimed said he planned to draft an amendment to the nation’s laws that establishes the state’s ownership of minerals.
“In light of the current economic situation, there is growing demand to intensify project activities and receive benefits from strategic mineral deposits in order to overcome the financial difficulties impacting the state budget,” an unofficial translation of a Mongolian government press release said. “The most viable option to gather state income is to establish a legal framework to transfer state-owned shares to the special licence holder in order to collect special royalty payments.”
Rio would not comment on whether this spelled a potential breaking of an impasse between the government and the company over building the underground expansion, which is needed to unlock 80 per cent of the big deposit’s value.
Rio operates the mine, which is 66 per cent owned by Rio’s Canadian-listed subsidiary Turquoise Hill Resources. The mine has been stalled for 18 months because of a dispute over investment terms and Mongolian unhappiness at cost overruns on the $US6bn open-pit operation that started last year.
Last week, The Australian revealed Turquoise Hill and Rio had offered to forgo a 2 per cent royalty on Oyu Tolgoi to try to get a deal over the line. It is not clear whether Rio would be keen to take on the government’s 34 per cent stake in return for having to pay “special royalty payments”.
The draft amendment says resource licence holders will have an option to maintain current levels or to make “special royalty payments” to receive a transfer of state-owned shares. The press release specifically mentioned Rio’s stake in Oyu Tolgoi.
The announcement came with the results of an “SMS referendum” where Mongolians were invited to vote for either giving the go-ahead to large foreign-invested mining projects or to accept austerity measures.
About 10 per cent of the country responded in an unclear result in which only 56 per cent of people voted for mining.