Rio Hopeful Mongolia PM Change Will Unblock Oyu Tolgoi

Rio Tinto Group (RIO) sees a change of leadership in Mongolia as potentially positive for the stalled $5.4 billion expansion of the Oyu Tolgoi project, while leaving open the prospect for another writedown at the mine.
The ouster of former Prime Minister Altankhuyag Norov last week comes as London-based Rio and Mongolia’s government continue negotiations on disputes around taxes and costs that have held up progress for more than 18 months on an underground extension to the copper and gold mine -- Mongolia’s single-biggest foreign investment.
“I’m hoping it will be a positive sign,” Chief Executive Officer Sam Walsh said today in Beijing, in an interview with Bloomberg Television, at the Asia-Pacific Economic Cooperation forum. “Certainly there are a lot of things that are indicating that people want the project to proceed.”
Commitments from lenders for $4.2 billion needed to help fund the development expired after a Sept. 30 deadline to reach an agreement was missed, Rio-controlled unit Turquoise Hill Resources Ltd. said last month in a statement. The company wrote down the value of the mine by $4.7 billion in March.
Oyu Tolgoi, located about 80 kilometers (50 miles) north of the Chinese border, will contribute about a third of Mongolia’s economy when in full operation and will be the world’s third-biggest copper mine, according to Turquoise Hill.
Rio may need to consider a writedown of the mine if delays to the expansion continue, according to CLSA Asia-Pacific Markets. The project had a book value of $4.96 billion at the end of June, Rio said in an August filing.
“Time will tell with that and standing here today, and not actually understanding how quickly we may move to getting the project approved, that’s not possible for me to say,” Walsh said on the prospects of an impairment.

Patiently Impatient

Mongolia’s ruling Democratic Party is seeking a permanent replacement for Altankhuyag. Rio Tinto is continuing negotiations with officials within the government, Walsh said.
“I’m willing to be patiently impatient as we wait for the approval,” he said. “I’d love to get things going, but I understand their need to get things right and we will wait.”
Walsh, a 64-year-old Australian appointed in January 2013, last month had his contract extended after accelerating a cost-cutting drive that’s targeting $1 billion in savings by the end of next year after stripping out $3.2 billion of expenses since 2012.
The savings measure “give us the opportunity to continue our growth, it will also give us the opportunity to materially increase our returns to shareholders,” Walsh said in the interview.
The producer will update shareholders on the company’s strategy at seminars in Sydney on Nov. 28 and London on Dec. 4, ahead of full-year results in February.
To contact Bloomberg News staff for this story: David Stringer in Melbourne atdstringer3@bloomberg.net; Stephen Engle in Beijing at sengle1@bloomberg.net
To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.netAndrew Hobbs, Indranil Ghosh

Source:Bloomberg
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