ULAN BATOR, Sept 30 |(Reuters) - Global miner Rio Tinto is fighting a legacy of bad publicity as it tries to persuade the Mongolian public a $10 billion copper deposit it took over from Ivanhoe Mines last year is in safe hands.
Some Mongolian politicians have bridled at the idea of giving away most of the Oyu Tolgoi mine -- the world's biggest untapped copper deposit -- to foreign firms, and Rio Tinto has been trying to win the PR war.
On Thursday, Rio Tinto held a briefing to deny claims made by legislators it had accused Mongolia of being "greedy", saying a report by The Australian newspaper had misrepresented its position and had since been corrected.
"Rio inherited a quite difficult situation over the Oyu Tolgoi mine," said Luvsandendev Sumati, a Mongolian pollster.
"I think they have a really difficult task to change public opinion in their favour."
A petition by 20 MPs last month called for Mongolia to boost its share in Oyu Tolgoi from the current 33 percent, and the government has agreed to re-open talks.
Rio Tinto, one of the world's leading producers of copper, iron ore, aluminium and gold, has built up a 49 percent stake in Ivanhoe Mines, which owns two thirds of the Oyu Tolgoi property after an investment agreement signed in 2009.
When Rio took full control of the project late last year, it brought along its own brand of public relations savvy, reversing a more combative approach taken by Ivanhoe and its chief executive, Robert Friedland.
The pollster Sumati said part of Rio's public relations problem concerned Friedland, who bought the exploration licence for Oyu Tolgoi from BHP Billiton more than a decade ago following a collapse in copper prices.
"I would say (the perception of Ivanhoe) is rather negative ... because of certain announcements by Friedland in international communities which reached Mongolia," he said.
Mongolians were particularly angered by Friedland's comment that "the nice thing about (Oyu Tolgoi) is that there are no people around, the land is flat, there's no tropical jungle, there's no NGOs," Sumati said.
The market expects Rio to bid for full control of Vancouver-based Ivanhoe once a standstill agreement expires next January.
Andrew Harding, chief of Rio's copper division, played down talk that rifts with Ivanhoe were hurting the project, adding that the takeover of Oyu Tolgoi's management was a natural move.
"Ivanhoe is a company with probably 60 people. Rio Tinto is a company with 77,000 people, and established systems for mine management," he told reporters in Ulan Bator earlier this week.
The Oyu Tolgoi project, expected to produce 400,000 tonnes of copper a year over its 50-year lifespan, has transformed the South Gobi region, covering its bleak landscape with roads, pylons, construction camps, residential buildings and warehouses.
Cameron McRae, Rio's Mongolia country manager and chief executive of Oyu Tolgoi LLC, the entity running the mine, said the project would contribute about five percentage points of annual GDP growth for at least a decade, but the company also sought to stress its social commitments.
It has set up a microfinance facility for local businesses, and is also setting up colleges and vocational training.
"If you want a workforce that is healthy and productive and mentally well adjusted to working in the mine industry, you are going to have to invest in it," McRae said.
Rio is studying the environmental impact of the project, but opponents remain concerned about local water supplies.
The company said just a third of a newly discovered aquifer around 70 km from the project would be used during the mine's lifespan, but Munkhbayar, an activist who has been campaigning against the mining sector disputed the figures.
"The Gobi's water resources will be used in full in 7-10 years, and that's why they are trying to divert water from central and northern regions," he said.
Rio is also trying to counter the perception that the project, just 80 kilometres from the country's border with China, will bring more benefits to Beijing than Ulan Bator.
While it makes economic sense to focus on China, currently Mongolia's only viable market, the government has to balance its financial interests with its geopolitical ones.
It has already sought out other options when it comes to its other major strategic resource, the nearby Tavan Tolgoi coal mine, and plans to build train routes that will provide access to Russia's rail network and its far eastern ports.
McRae said China remained Mongolia's only natural market, adding that "the real issue" was building the infrastructure that will deliver copper to the border and allow Mongolia to sell at international prices rather than at a discount.
But whatever the economics involved, the suspicion remains that Chinese interests are being prioritised, said Dugersuren Sukhgerel, executive director of a non-government organisation known as Oyu Tolgoi Watch, which campaigns against the project.
"If you look at the international and domestic discussions, it is clear that the only reason we are trying to attract investment is because we have a huge and hungry market in the south -- China," she said. (Editing by Will Waterman)
Source:Reuters news service