Rio Tinto says will talk to Mongolia on copper mine deal

By David Stanway

OYU TOLGOI, Mongolia, Sept 25 | Sat Sep 24, 2011 11:59pm EDT

(Reuters) - Global mining giant Rio Tinto will respond to any request from the Mongolian government to discuss its investment in the country's giant Oyu Tolgoi copper-gold deposit, but still expects the original 2009 agreement to be honoured.
Cameron McRae, Rio Tinto's Mongolia country manager and chief executive of Oyu Tolgoi LLC, the entity running the mine, said he had not yet received any formal notification that the government will seek to modify the investment agreement.
"We respect the Mongolian government and when they give us the notification to come and talk we will have those talks," he said ahead of a Sunday ceremony marking the half-way stage of construction on the project.
"I think what we are demonstrating is that the investment agreement is a contract, and we're going to honour our commitments and we expect the government to honour its commitments."
The landmark 2009 investment agreement on Oyu Tolgoi gave 66 percent of the project to Ivanhoe Mines , with the rest remaining in the hands of the Mongolian state. Rio Tinto owns 48.5 percent of Ivanhoe's shares and is also in charge of constructing the mine.
However, a group of 20 parliamentarians have submitted a petition to the government asking it to reopen negotiations to increase Mongolia's stake.
Rio Tinto's own forecasts suggest the Oyu Tolgoi project alone could account for about 5 percent of the country's GDP growth.
McRae said the project had already brought huge benefits to the Mongolian economy, helping to transform the capital Ulan Bator and driving construction and growth across the country.
Another benefit of the Oyu Tolgoi agreement was the confidence it gave other foreign firms to invest in the country, he said.
Phase one of the massive mine, started almost from scratch last year in the remote and sparsely populated South Gobi region, will be ready to begin producing copper in the second half of next year.
It is expected to produce an average of 450,000 tonnes of copper a year over its 50-60 year lifetime.
Nationalist politicians continue to bridle at the idea of "selling out" their strategic resources, and foreign investors in Mongolia remain concerned about the risk of more populist legislation directed at overseas mining firms, especially as next year's parliamentary elections loom.
Previous bills passed by parliament include an export tax on gold and a windfall tax on mining profits, both of which were heavily criticised by investors and subsequently revoked.
Experts also said that while a move to increase the government's stake might appease nationalist sentiment, it was unlikely to improve the potential of the mine itself.
"If a government takes more than 50 percent, projects will shut down -- mining is bringing tremendous growth to Mongolia but that could be killed very quickly," said Bernard Guarnera, president of mining consultants Behre Dolbear, speaking in Ulan Bator earlier this month. (Reporting by David Stanway; Editing by Sugita Katyal)

Source:Reuters news service