Mongolia throws a power station curveball at Rio Tinto

The cost of expanding Rio Tinto's Mongolian copper project could decline by almost $US1 billion ($1.5 billion) under a surprise Mongolian government plan that could increase the host nation's long-term influence over Rio and the project.

The Mongolian government has told the Rio subsidiaries building the $US6.8 billion Oyu Tolgoi copper expansion that it plans to build a state-owned coal-fired power station that would provide a long-awaited domestic power source for the mine.

The latest curveball from the Mongolian government comes barely a month before parliamentary elections in the developing nation, and a week before Mongolian courts hear charges against the government officials who signed the 2015 agreement that underpins the Oyu Tolgoi expansion.

The existing mine at Oyu Tolgoi is powered by coal-fired electricity that is imported from neighbouring China, but Mongolia has demanded that Rio find a domestic power source before June 30, 2023.

Rio flagged in February that a $US924 million coal-fired power station was the most likely domestic solution, although it indicated it would not be finished before June 2024.

The Mongolian government disagreed with Rio's $US924 million power station proposal, and has since told Rio and its subsidiaries that it plans to build a state-owned power station at the Tavan Tolgoi coalfields.

The surprise move has both short-term and long-term ramifications for Rio and the Rio subsidiary that owns 66 per cent of Oyu Tolgoi, Turquoise Hill Resources.

Leverage over the project

A government-funded power station would reduce Rio and Turquoise Hill's near-term spend on the project; a prospect that would appeal to minority investors in Turquoise Hill given the company needs to raise "at least $US4 billion" in further funds to cover cost and schedule blowouts on the Oyu Tolgoi expansion.

But a government-controlled power station would give the government a long-term source of leverage over the mine project, which could be important given the fractious nature of Mongolia's relationship with Rio.

The government is also understood to believe it can build such a power station cheaper than the $US924 million price tag suggested by Rio and its subsidiaries.

Turquoise Hill said it was broadly supportive of the government-owned proposal, subject to further agreement over the commercial terms for the supply of power and construction timelines.

Rio and its subsidiaries would likely need a guarantee they can continue importing power from China until the Mongolian government power station was built, suggesting the June 2023 deadline for Rio to find a domestic power source could be extended.

Signatories in court

The surprise proposal for a government-owned power station comes a week before scheduled court appearances by the two men who in 2015 were the Mongolian government signatories to an agreement that allowed the Oyu Tolgoi expansion to go ahead.

Bayanjargal Byambasaikhan was chief executive of Mongolia's sovereign wealth management company Erdenes Mongol in 2015 when he joined Rio Tinto's now chief executive Jean-Sebastien Jacques in signing the expansion agreement in a Dubai hotel.

Known in Mongolia as Byamba, he has since been accused of abusing his authority in signing the deal, which effectively kick-started the project without requiring approval from the Mongolian parliament.

Byamba is now chairman of the Business Council of Mongolia, a lobby group that counts Oyu Tolgoi as a member, alongside Australian companies such as Orica, Worley, Aspire Mining and the Australian embassy to Mongolia.

Similar charges, which relate to matters of process rather than any suggestion of corruption, have been filed against another signatory to the Dubai agreement and former Oyu Tolgoi director Ganbold Davaadorj.

The charges against both men are similar in nature to those filed against former Mongolian prime minister Chimediin Saikhanbileg,

Rio and Turquoise Hill warned in July 2019 that expansion of Oyu Tolgoi was running between 16 and 30 months later than the most recent guidance, and the cost of construction was likely to be between $US1.2 and $US1.9 billion higher than previous guidance.

Turquoise Hill refined that guidance last week, saying the delays would be between 21 and 29 months late, with the company's best guess at this stage being a delay of 25 months.

The cost blowout range was tightened to between $US1.3 billion and $US1.8 billion, with $US1.5 billion being the company's best guess at this stage.

If Turquoise Hill is correct on those estimates, the construction cost would amount to $US6.8 billion excluding the cost of the power station, and first sustainable production would occur about the middle of 2023.

In 2012, Rio was expecting to have the Oyu Tolgoi underground expansion complete and in production by 2015.

Source:www.afr.com

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Rio faces investor rebellion over Oyu Tolgoi

Rio Tinto (ASX, LON, NYSE: RIO) is facing a new setback at its giant copper project in Mongolia with a large investor demanding a shakeup at the Oyu Tolgoi operation over what it claims is “a massive devaluation” of the asset.

US hedge fund Pentwater Capital wants the designation of a new independent director to represent the interests of minority shareholders at Turquoise Hill Resources (TSX, NYSE:TRQ), the Rio-controlled company that operates the mine. 

Naples, Florida-based Pentwater also wants other shareholders to be able to nominate three more directors.

“Turquoise Hill’s board and management have failed to effectively oversee Rio Tinto, and intervene in the abuse of control and refusal to make complete and truthful disclosure by Rio Tinto of the Oyu Tolgoi Project,” Pentwater said in the statement.

The fund, which has a 9% interest in Vancouver-based Turquoise Hill, said it had become increasingly worried at the mismanagement of an underground expansion of the mine and the timing of market disclosures.

“The tangled web that has been woven between Rio Tinto and Turquoise Hill has resulted in a lack of corporate governance controls, systemic disregard for the interests of minority shareholders, a sustained period of false and misleading disclosures and irreparable harm to the interests of all Turquoise Hill stakeholders,” Pentwater said.

Mongolian muddles

Investor activism is just the latest in a series of recent headaches for Rio as it builds what would rank as one of the three largest copper mines in the world when operating at full tilt – now expected to be by 2025 at the earliest.

In January 2018, the country’s government served Oyu Tolgoi with a bill for $155 million in back taxes —  the mine’s second tax dispute since 2014. The company said at the time the charge related to an audit on taxes imposed and paid by the mine operator between 2013 and 2015.

Shortly after, the mine had to declare force majeure after protests by Chinese coal haulers disrupted deliveries near the border.

The situation prompted Rio’s chief executive Jean-Sebastien Jacques to visit Prime Minister Ukhnaagiin Khurelsuk to discuss how to build “win-win” partnerships. The trip was followed by the company’s announcement that it was opening a new office in the country, focused on exploration and building local relationships.

The issue resurfaced later, when a group of Mongolian legislators recommended a review of the 2009 deal that launched construction of the mine. It also advised revoking a 2015 agreement allowing for an underground expansion. 

In December, Mongolia’s parliament unanimously approved a resolution that reconfirms the validity of all the Oyu Tolgoi mine-related agreement, bringing the 18-month review to a close.

Behind schedule and over budget

Rio warned last year that the project located in the South Gobi desert near the border with China would take 16-30 months longer than expected and would cost as much as an additional $1.9 billion to the initial $5.3 billion earmarked.

Last week, Turquoise Hill poured more cold water on the plan, saying that it would need at least another $4.5 billion to finish the project.

Once completed, the expansion is expected to lift Oyu Tolgoi’s production from 125,000–150,000 tonnes in 2019 to 560,000 tonnes at peak output, targeted for 2025.

The giant deposit, discovered in 2001, is one-third owned by Mongolia’s government and two-thirds held by Turquoise Hill. Rio has a 51% stake in the Canadian miner.

Source:https://www.mining.com/

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PENTWATER FILES PROXY CIRCULAR FOR SHAREHOLDERS OF TURQUOISE HILL RESOURCES LTD. (TSX:TRQ) (NYSE:TRQ) Issues Letter and Proxy Critical of the Treatment of Minority Investors in Turquoise Hill by Company’s Current Board and Management and its Controlling Shareholder Rio Tinto plc.

PENTWATER FILES PROXY CIRCULAR FOR SHAREHOLDERS OF TURQUOISE HILL RESOURCES LTD. (TSX:TRQ) (NYSE:TRQ)

Issues Letter and Proxy Critical of the Treatment of Minority Investors in Turquoise Hill by Company’s Current Board and Management and its Controlling Shareholder Rio Tinto plc.

• Turquoise Hill shareholders have suffered massive value destruction at the hands of Rio Tinto, which operates the Oyu Tolgoi Project (allegedly under the watchful eye of Oyu Tolgoi's majority owner, Turquoise Hill) while also being the majority shareholder of Turquoise Hill.
• Turquoise Hill’s board and management have failed to effectively oversee Rio Tinto, and intervene in the abuse of control and refusal to make complete and truthful disclosure by Rio Tinto of the Oyu Tolgoi Project.
  
• Turquoise Hill’s officers are a revolving door of Rio Tinto executives, employees and board nominees, who are rotated into senior positions at Turquoise Hill and tasked with "negotiating" material agreements with Rio Tinto on behalf of Turquoise Hill.
  
• Rio Tinto exercises effective control over the selection and nomination of Turquoise Hill’s "independent directors", without any meaningful input from Turquoise Hill's minority shareholders.
  
• Turquoise Hill's directors lack sufficient independence from Rio Tinto, and their financial incentives are not aligned with the interests of Turquoise Hill or its minority shareholders.
  
• Shareholders are urged to vote using only the GOLD proxy now for Pentwater's meaningfully independent, experienced and motivated director nominee and its minority shareholder representation proposal to restore accountability at Turquoise Hill.
  
• Vote on the GOLD proxy or VIF and submit prior to 5:00 p.m. (Eastern time) on Thursday May 7, 2020 or earlier to permit it to be delivered to the Company in time to be counted.

NAPLES, Fla., April 02, 2020 (GLOBE NEWSWIRE) -- Pentwater Capital Management LP ("Pentwater"), a long-term supportive investor and the largest minority shareholder of Turquoise Hill Resources Ltd. ("Turquoise Hill" or the "Company") (TSX:TRQ) (NYSE:TRQ), owning, together with its affiliates and associates, approximately 9.09% of the Company's issued and outstanding common shares, today filed a proxy circular, GOLD proxy card, and issued a letter to shareholders of Turquoise Hill in connection with the Company's upcoming annual and special meeting of shareholders scheduled for 9:00 a.m. (Eastern Time) on May 12, 2020 (the "Meeting") in the Saint-Laurent 5 room of Hôtel Bonaventure Montreal, located at 900 Rue de la Gauchetière Ouest, Montreal, Quebec, Canada.

Since Rio Tinto plc. (NYSE:RIO:US)(LON:RIO:L)(ASX:RIO:AX) ("Rio Tinto") gained control of Turquoise Hill in 2012, Pentwater has grown increasingly alarmed at the significant value destruction and mismanagement of and failure to make material disclosures about the Company and its material asset – the Oyu Tolgoi Project – at the hands of Rio Tinto and its hand-picked Turquoise Hill officers and directors. The tangled web that has been woven between Rio Tinto and Turquoise Hill has resulted in a lack of corporate governance controls, systemic disregard for the interests of minority shareholders, a sustained period of false and misleading disclosures and irreparable harm to the interests of all Turquoise Hill stakeholders.

The Oyu Tolgoi Project is one of the largest known copper and gold deposits in the world, containing ore that is six times the average-industry grade. If managed and operated properly, the Oyu Tolgoi Project should reap exceptional benefits for all stakeholders – including the people and government of Mongolia and the majority and minority shareholders of Turquoise Hill.

It is time to take action against the current culture of entrenchment, value destruction and misconduct at Turquoise Hill. At the Meeting, Pentwater is seeking the support of Turquoise Hill shareholders to vote using the GOLD form of proxy or VIF FOR:

• the election of the highly qualified and meaningfully independent director nominee, Matthew Halbower, Chief Executive Officer and Chief Investment Officer of Pentwater, to the board of directors of the Company; and
• the adoption of a shareholder proposal, which would provide minority shareholders of Turquoise Hill with the exclusive right to nominate and elect three of seven directors to the board of directors of the Company.

Turquoise Hill shareholders have the opportunity to initiate much-needed change, to restore accountability and to safeguard minority shareholder interests in Turquoise Hill. By electing Matthew Halbower to the board of directors of the Company, minority shareholders will for the first time have a director representing them whose interests are fully aligned with theirs, rather than Rio Tinto's, which is exemplified by Pentwater's significant investment in Turquoise Hill.

To ensure your vote is counted, please vote using the GOLD form of proxy or GOLD VIF prior to 5:00 p.m. (Eastern Time) on Thursday, May 7, 2020. You should discard any management proxies or VIFs that you receive.

Shareholders are urged to read the full text of Pentwater's proxy circular and letter to shareholders, which are available under Turquoise Hill's issuer profile on SEDAR at www.sedar.com.

About Pentwater

Pentwater is a private investment firm focused on investing in event driven strategies with expertise across the capital structure. Founded in April of 2007, the firm’s experienced team uses a dynamic, disciplined approach to mitigate risk and optimize returns.

The head office of Pentwater is located at 1001 10th Ave South, Suite 216, Naples, FL 34102.

For further information contact:

MacKenzie Partners, Inc.
Daniel Burch – 1-212-929-5748
Jeanne Carr – 1-917-648-4478

Email: SaveTRQ@mackenziepartners.com

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'At least' $7.8b more needed to complete Rio's Mongolian copper mine

Rio Tinto's Mongolian copper project will require a bigger than expected fundraising, after the Rio subsidiary building the mine said it needed to raise ''at least'' six times its current market capitalisation.

The subsidiary, Turquoise Hill Resources, shed fresh light on its financial predicament over the weekend, saying it needed at least a further $US4.5 billion ($7.8 billion) to complete an underground expansion of Mongolia's Oyu Tolgoi mine.

Massive cost and schedule blowouts on the expansion were last year revealed to have delayed completion by between 16 and 30 months, while the cost of construction was said to be between $US1.2 billion and $US1.9 billion higher than the previous budget of $US5.3 billion.

But the higher construction bill was just the start of the extra costs facing Turquoise Hill, which has no other assets and is 50.79 per cent owned by Rio.

Turquoise Hill has $US1.59 billion of contractual obligations due for payment before December 31, 2022, and the delays mean it can no longer rely on cash flows from the expansion to help cover those obligations.

The contractual obligations range from electricity contracts to repayments on the $US4.4 billion debt package that was supposed to be sufficient to complete the project when raised from a syndicate of banks (including Australia's NAB and ANZ) in 2015.

Turquoise Hill also must find $US924 million to cover the cost of a power station for the mine, after the Mongolian government refused to allow Oyu Tolgoi to continue buying electricity from generators in neighbouring China.

The company's problems are rapidly being exacerbated by the global lockdowns forced by the coronavirus, which has prompted a 23 per cent slump in copper prices in the past two months.

That means the existing mine at Oyu Tolgoi will likely generate less cash flow this year than was expected just a few months ago, while travel restrictions for the virus are also slowing the pace of work on the expansion.

''Current estimates indicate an incremental funding requirement, over and above the $US2.2 billion in liquidity currently available, of at least $US4.5 billion,'' Turquoise Hill said in a market filing.

Turquoise Hill shares have lost 83 per cent of their value over the past 13 months since the cost and schedule blowouts raised fears the miner may need to conduct a massive and dilutive equity raising.

The company's market capitalisation stood at just $US724 million on Monday, meaning the $US4.5 billion shortfall nominated over the weekend is more than six times the company's value.

Canaccord Genuity analyst Dalton Baretto estimated in November that Turquoise Hill would need an extra $US4.1 billion to complete the expansion and cover its obligations.

He said those funds could be sourced from an equity raising, extra debt or possibly a metal streaming deal, where future metal production is traded for immediate cash.

Turquoise Hill has told Rio, but not investors, what its preferred method of raising the money is, but Rio has indicated those plans are unlikely to be clarified before the exact size of the cost and schedule blowouts are known in the latter months of 2020.

Sailingstone Capital was for many years the second-biggest shareholder in Turquoise Hill and was regularly vocal about what it believed was Rio's excessive influence over Turquoise Hill.

Sailingstone more than halved its stake in Turquoise Hill during 2019 as the financial predicament became clear, and ironically revealed in filings to regulators that it had added Rio Tinto securities to its portfolio.

Source:https://www.afr.com/

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Rio running late on Mongolia coal power

A new $US924 million coal-fired power station for Rio Tinto's Oyu Tolgoi mine will not be built within the deadline set by the Mongolian government, triggering another round of combustible negotiations between the developing nation and its biggest employer.

Rio has sourced power for Oyu Tolgoi from nearby China through the first six years of mining at the site, but in 2018 the Mongolian government demanded Rio build a domestic power solution ahead of a multibillion-dollar expansion of the copper mine.

Rio copper boss Arnaud Soirat warned in November 2018 that a new power station for Oyu Tolgoi would take six years to build if the Mongolian government insisted it be built at the Tavan Tolgoi coalfields, which are about 150 kilometres from the copper mine.

Within seven weeks of Mr Soirat's warning, Rio and its subsidiaries had given up hopes of building a power station at the mine site, and pledged to build one at Tavan Tolgoi by June 30, 2023; a construction period of four-and-half years.

But the Rio subsidiary that owns the mine, Turquoise Hill Resources, indicated on Tuesday that the power station would be delivered about a year late.

''The current schedule targets two units ... to be operational by June 2024,'' the company said in a market filing that appeared to vindicate Mr Soirat's 2018 warning.

Turquoise Hill said several project milestones articulated in the December 2018 power agreement with the Mongolian government had been missed.

The missed milestones and apparent delays come after Rio conceded last July that expansion of the mine would be delivered between 16 months and 30 months later than planned when the expansion was approved in 2015.

That delay added to existing delays on the project, with Rio saying in 2012 that it expected the underground expansion to be delivered in 2015.

The underground expansion, considered one of the world's best copper projects, is now expected to begin producing copper and gold some time between May 2022 and June 2023.

While challenges with geology and project delivery have contributed to the delays and multibillion-dollar cost blowouts, frequent flare-ups in the relationship between Rio and the Mongolian government have been by far the biggest source of delay to the Oyu Tolgoi expansion.

The power station delays create yet another source of tension for that fractious relationship, with Turquoise Hill saying it would now enter negotiations with the government in the hope of finding ''mutually acceptable'' alternative sources of power.

In the meantime, power for the mine is expected to be imported from China.

Rio said in 2015 that expansion of Oyu Tolgoi would cost $US5.3 billion, but in 2019 it said the cost would be between $US6.5 billion and $US7.2 billion, and those sums do not include the cost of the power station.

Rio hopes that renewable energy can provide some of Oyu Tolgoi's power, and the company announced this week it would spend $US98 million building solar power generation and battery storage at its Koodaideri mine in Western Australia.

The Oyu Tolgoi power station is expected to have a generating capacity of 300 megawat context, EnergyAustralia's Yallourn coal-fired power station in Victoria has a generating capacity of 1480 megawatts, with that capacity provided by four units which each boast between 350 megawatts and 375 megawatts of generation capacity.

Source:https://www.afr.com/

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Rio Tinto says Mongolian project submits feasibility study on locally sourced power

(Reuters) - Rio Tinto Ltd on Tuesday said its Mongolian copper mine project has submitted a feasibility study to the local government in its bid to secure domestically sourced power for the East Asian’s country’s biggest foreign investment project.

Oyu Tolgoi LLC submitted a feasibility study for the Tavan Tolgoi Power Plant (TTPP) Project, which involves building a 300 MW coal power plant at an estimated cost of about $924 million, the Anglo-Australian miner said in a statement.

The global miner said it is also working on alternative options to source domestic power, including a renewable power component.

Rio Tinto-owned Turquoise Hill Resources has a 66% stake in the multi-billion-dollar project and the Mongolian state owns 34%, with investment terms agreed in 2015 in a deal known as the Dubai Agreement.

Mongolia has been exerting pressure on Rio Tinto to revise the Oyu Tolgoi agreement terms to make it more beneficial to the country and its citizens.

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Rio Tinto says China virus slowing copper ore imports from Mongolia

BEIJING (Reuters) - Rio Tinto (RIO.L) (RIO.AX), operator of the giant Oyu Tolgoi copper-gold mine in Mongolia, said its copper concentrate shipments to China had slowed due to efforts by the authorities to contain the spread of the coronavirus.

“We have advised customers that we are engaging with authorities who are working on re-establishing regular and safe border crossings,” a spokesman for the miner said in an email on Wednesday.

The virus outbreak that began in China and prompted a lockdown that has weighed on the Chinese economy has sparked concerns about metals demand in the world’s top copper consumer.

Transport restrictions have been imposed to stop the spread of the virus.

Mongolia said on Monday it would suspend deliveries of coal across its border into China until March 2 and had already stopped foreign nationals entering via China.

Yunnan Copper (000878.SZ), part of state-owned Chinese metals group Chinalco, takes almost 10,000 tonnes a month of copper concentrate, or partially processed copper ore, from Oyu Tolgoi for its Chifeng smelter in China’s Inner Mongolia region, a source at the company said.Like other Chinese smelters, Yunnan Copper is struggling with high inventories of byproduct sulphuric acid amid the virus lockdown and has cut copper output at the 400,000 tonnes per year Chifeng plant by 30%, said the source, who declined to be named as he is not authorised to speak to media.

The source said Yunnan Copper was currently unable to take concentrate from the Mongolian border to the plant via truck but the situation is “getting better”.

Yunnan Copper did not immediately respond to a request for comment.

Source:Reuters

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Exxon man to lead Rio Tinto's Mongolia mission

Rio Tinto has hired a British oil executive with extensive experience in the developing world as part of efforts to smooth its fractious relationship with the Mongolian government.

Former ExxonMobil, Shell and Total executive Daniel Worrall has been appointed as the mining company's chief executive and country director for Mongolia, which hosts the company's most important growth asset, the Oyu Tolgoi copper, gold and silver mine.

Mr Worrall's appointment fills a vacuum that has existed for almost a year since Mongolian national Munkhtushig Dul stepped down as the company's top representative in the nation.

Mr Worrall has spent the past decade with Exxon, and between 2014 and 2017 was part of the oil giant's government relations team in Papua New Guinea overseeing the start of the massive PNG LNG gas project.

Prior to that he was responsible for government and stakeholder relations across Kazakhstan, Turkmenistan and Azerbaijan for Royal Dutch Shell and Total.

That experience in jurisdictions prone to "resource nationalism" will come in handy in Mongolia, where politicians regularly talk up their desire for taxpayers to have a greater share of wealth from Oyu Tolgoi.

Oyu Tolgoi is Mongolia's biggest employer, economic bellwether and a crucial test case for major foreign direct investment into the country.

Not surprisingly the mine is always politically contentious, and Mr Worrall joins Rio just months before parliamentary elections in mid-2020.

2019 was a testing year for Rio's relationship with the Mongolian government, meaning the lack of a dedicated country leader was far from ideal.

Rio announced massive cost and schedule blowouts on the underground expansion of Oyu Tolgoi in July, and those blowouts negatively affect the timing and size of dividends the Mongolian government will receive from the mine.

Rio also had to deal with a Mongolian administrative court making a non-binding ruling that a crucial 2015 investment agreement was not valid.

The Mongolian Parliament also spent much of 2019 working on suggested reforms to Rio's Oyu Tolgoi investment agreements, and by December the Mongolian government had signalled it may be willing to exchange its 34 per cent equity stake in the mine for higher royalty rates.

The Mongolian government has also placed a 12-month moratorium on the issuance of new mineral exploration licences, in a blow for those trying to discover the next generation of copper and gold deposits.

Rio's exposure to Oyu Tolgoi comes through its 50.79 per cent stake in Canadian company Turquoise Hill Resources.

Turquoise Hill owns 66 per cent of the Mongolian company that owns the mine.

Source:https://www.afr.com/

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Rio Tinto Notes Mongolian Parliament Resolution on Oyu Tolgoi

Rio Tinto notes the unanimous approval by the Mongolian Parliament of a Resolution that instructs the government to look for ways to improve the implementation of the Investment Agreement of 2009, the Amended & Restated Shareholder Agreement of 2011 and to improve the Underground Mine Development & Financing Plan of 2015.

The passing of this Resolution effectively re-confirms the validity of all the investment agreements between the Government of Mongolia, Rio Tinto and Turquoise Hill Resources. This brings to a close an over 18-month review by the Parliamentary Working Group of Oyu Tolgoi and the investment agreements governing the business.

Arnaud Soirat chief executive Copper & Diamonds said "Rio Tinto acknowledges the Mongolian Parliament’s Resolution and notes that this effectively confirms the validity of all Oyu Tolgoi investment agreements.

"Adherence to these agreements by all parties has underpinned a total in-country spend of around $10 billion since 2010, which has delivered significant benefits to the people of Mongolia and will continue to do so for decades to come.

"There is a lot of work to do to ensure Oyu Tolgoi reaches its full potential and we remain committed to exploring ways to deliver even greater benefits from Oyu Tolgoi to all shareholders."

The Resolution, includes other additional clauses in relation to: exploring options to look at the Mongolian Government’s equity share in Oyu Tolgoi; a re-definition of the reserve report and updated feasibility report; a renewal of the environmental and water assessments; and further capability development within the team which represents the Mongolian party.

The Resolution was officially published by the Government of Mongolia on 10 December 2019. A copy of the Resolution is available at https://www.legalinfo.mn/law/details/14771?lawid=14771.

View source version on businesswire.com: https://www.businesswire.com/news/home/20191211005321/en/

Contacts

media.enquiries@riotinto.com
riotinto.com

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Rio Tinto’s Mongolia mine will expand: minister

Mongolian mining minister says expanded copper mine in Gobi Desert ‘would not be stopped’ despite protests

Anglo-Australian firm Rio Tinto’s plan to expand a copper mine in Mongolia will go ahead, the country’s mining minister said, according to the Financial Times newspaper on Tuesday.

The project has been disrupted by protests from locals worried about environmental damage and foreign influence.

However, Dolgorsurengiin Sumyaabazar said the plan to expand the partially state-owned Oyu Tolgoi mine in the Gobi Desert would “not be stopped.”

The plan “would proceed directly forward,” he said at the Mines and Money conference in London, according to the FT.

The minister said the Mongolian national security council chaired by President Khaltmaa Battulga had accepted a parliamentary motion to do so, the FT reported.

Mongolia owns 34% of the mining project. Rio Tinto was not immediately available for comment.

Rio Tinto and Mongolia reached an agreement in May 2015 to exploit vast copper and gold deposits in the Gobi desert.

But the project has been hampered by protests in a country that is highly dependent on mineral resources.

– AFP

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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

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