By Soraya Permatasari and Nichola Saminather
(Adds comment from analyst in fourth paragraph.)
Sept. 25 (Bloomberg) -- Mongolia wants to bring
forward the raising of its stake in the Oyu Tolgoi copper project that’s
being developed by Rio Tinto Group and Ivanhoe Mines Ltd. to 50 percent
from 34 percent, according to the minerals minister.
“We have sent the proposal to Ivanhoe to
renegotiate the timeframe for us to increase the government stake,”
Dashdorj Zorigt told reporters at Oyu Tolgoi today. Such an increase is
permitted after only 30 years, according to a summary of the $16 billion
project agreement from London-based Rio Tinto.
Countries across Asia, Africa and Latin American
are seeking greater control of the mineral and energy resources on their
territories as rising commodities demand boosts prices. So-called
resource nationalism is the biggest business risk to global mining
companies, Ernst & Young LLP said last month.
“Alarm bells would ring, that if they change the
rules here, are they going to change it again, are they going to take
more than 50 percent,” Gavin Wendt, founder and director of Mine Life
Pty in Sydney, said by phone today. “Rio and Ivanhoe obviously won’t be
happy about it.”
The project, 66 percent owned by Ivanhoe Mines,
is half way through completion and will be one of the world’s
five-biggest copper mines, according to Rio, which controls Oyu Tolgoi’s
management. Ivanhoe, 48.5-percent owned by Rio, spent more than six
years negotiating with Mongolia before reaching an agreement in October
2009 to develop the site, which may open in 2013.
‘Unstable Environment’
“An unstable environment, where changes to
agreements are forced, leads to investors being very apprehensive,”
Cameron McRae, Rio Tinto’s Mongolia country director, said in the
capital, Ulan Bator, yesterday. “What we are demonstrating is the
investment agreement is a contract. We’re going to honor it and we
expect the government to honor it.”
A group of 20 Mongolian lawmakers wrote to Prime
Minister Sukhbaatar Batbold on Sept. 7 demanding the Oyu Tolgoi accord
be revised to give the country a 50 percent holding, China’s Xinhua News
Agency said Sept. 20. Mongolia will seek to revise the terms for Oyu
Tolgoi, Finance Minister Sangajav Bayartsogt told News.mn portal in an
interview published on Sept. 20. Mongolia has appointed chief of the
cabinet office Chimed Khurelbaatar to start talks with the miners,
Xinhua News reported on Sept. 22.
Coal Deposit
Mongolia may also seek to change the allotment of
stakes in the Talvan Tolgoi coal deposit to investors including Peabody
Energy Corp., the largest U.S. coal producer. The potential ownership
changes at the country’s two biggest mineral developments come ahead of
parliamentary elections next year.
Oyu Tolgoi may have average annual output of
450,000 tons of copper and 330,000 ounces of gold, Rio said. World
demand for copper will grow 40 percent to 27 million tons by 2020,
according to a Sept. 8 presentation from the company. Calls to Ivanhoe
outside office hours today were not immediately returned.
Rising demand led by China, the largest copper
user, coupled with a global supply deficit pushed the price to a record
$10,190 per ton on the London Metal Exchange in February. The
three-month contract for the metal used to make pipes and wires ended at
$7,360 per ton on Sept. 23.
“As a mining company, we are very aware of the
impact our operations have on our host countries and particularly in
Mongolia,” Rio Chairman Jan du Plessis said in a ceremony marking the 50
percent construction of the project in Oyu Tolgoi today. The company
“will continue to develop partnerships with the government of Mongolia,
communities and businesses.”
--Editors: Jake Lloyd-Smith, Rebecca KeenanTo contact the reporters on this story: Soraya Permatasari in Melbourne at soraya@bloomberg.net; Nichola Saminather in Sydney at nsaminather1@bloomberg.net
To contact the editor responsible for this story: Jake Lloyd-Smith at jlloydsmith@bloomberg.net
Source:Bloomberg news service
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