Mongolia seeks better Oyu Tolgoi deal from Rio Tinto

The pressure on Rio Tinto to give further ground on its troubled Oyu Tolgoi copper mine intensified after the Mongolian Parliament agreed to seek "comprehensive measures" to improve the terms of the Asian nation's involvement in the project.

Reports from Mongolia suggest Thursday's unanimous parliamentary resolution compels the government to take action to improve Mongolia's bargain under the investment agreements that underpin the mine.

Legal agreements struck in 2009 and 2015 underpin Rio Tinto's involvement in Oyu Tolgoi, which is currently the focus of an underground expansion that will cost more than $US6 billion ($8.8 billion).

It is believed the resolution will now be considered by Mongolian President Khaltmaagiin Battulga, who belongs to a political party that is currently a minority in the Mongolian parliament.

While Rio has long called for the 2009 and 2015 agreements to be honoured, Thursday's parliamentary resolution might not be totally unwelcome at Rio headquarters, given it presents as long-awaited progress on Mongolia's request for a better share of Oyu Tolgoi's wealth.

A working party of the Mongolian Parliament has been studying changes to the Oyu Tolgoi deal for almost two years and made multiple delays in publishing its findings. The protracted process has left Rio in the dark and prolonged investor concerns about sovereign risk in the developing nation.

Rio said in January 2018 that it was willing to explore ways to improve Mongolia's deal through "win-win solutions'', particularly around funding costs for the mine expansion.

A reduction of the interest rates on loans made by Rio controlled subsidiaries to the Mongolian government looms as one of the most likely aspects of any peace deal.

Under the terms of a 2015 agreement that enabled Rio to push ahead with the underground expansion, the government can decline to fund its 34 per cent share of construction costs, with Rio or its lenders having to pick up those contributions under a loan agreement where interest rates charged to Mongolia must not be more than 6.5 per cent above the London interbank rate.

Rio also charges its Oyu Tolgoi partners fees for certain services, including a "project finance guarantee charge" for handling the billions of capital for the mine expansion.

Rio responded cautiously to the parliamentary resolution.

“Rio Tinto notes that the Mongolian Parliament today voted to support a resolution related to Oyu Tolgoi and the findings of the parliamentary working group,'' the company said in a statement.

''We understand that the resolution, which has not yet been officially published, will be finalised according to Mongolian parliamentary process. Once the resolution is approved and published, we will provide a further update.”

The resolution comes just days after an administrative court in Mongolia upheld claims by a non-government organisation that due process was not followed in the striking of the 2015 underground agreement.

Source: www.afr.com