REFILE-Mongolia lawmakers urge talks to rework Oyu Tolgoi deal

Thu Sep 6, 2012 6:43am EDT

By Terrence Edwards

ULAN BATOR, Sept 6 (Reuters) - An influential group of Mongolian backbench lawmakers has urged Prime Minister Norov Altanhuyag to seek talks to trim mining giant Rio Tinto's stake in the $13-billion Oyu Tolgoi copper-gold project in the country's South Gobi region.

Elections in June ushered in a coalition government under which the major risk for mining firms, the engines of economic growth, threatens to be the influence of lawmakers who want Mongolia to have greater control of its resources.

Oyu Tolgoi, located 80 km north of Mongolia's Chinese border, is expected to become one of the world's three largest copper and gold mines when it reaches full production in 2018.

The deposit contains an estimated 41 billion pounds of copper and 21 million ounces of gold. It is anticipated that revenue from the mine could boost Mongolia's GDP by one third.

The original 2009 investment agreement gave 66 percent of the project to Canada's Ivanhoe Mines, now known as Turquoise Hill Resources and 51 percent owned by Rio Tinto. The deal has long rankled a group of nationalist lawmakers that has lobbied to reduce foreign ownership of the country's mines.

In a petition to the prime minister on Wednesday, a group of 24 MPs called for the enforcement of a parliamentary resolution that the Mongolian government should own 51 percent of the project once foreign partners recoup their start-up investment.

The original deal allowed Mongolia to increase its stake in the project, but only 30 years after it had gone into operation.

Last October, nationalist backbenchers made their first attempt to change the Oyu Tolgoi agreement, but Ivanhoe Mines rejected a government request to reopen negotiations.

This time, the MPs could receive a more sympathetic hearing from the government, after new mining minister Davajav Ganhuyag told domestic media last month that he was in favour of increasing the country's stake in Oyu Tolgoi.

The project is due to begin initial production this month or early in October, with commercial production set to begin in the first half of 2013.

In a statement on Thursday, Rio Tinto said, "The reported comments of the petitioners do not reflect the reality of the agreement between investors and the government."

Mongolia needed to take "the long view", Cameron McRae, Oyu Tolgoi's chief executive and the country manager for Rio Tinto, told the Discover Mongolia mining forum in Ulan Bator last week.

"When international investors make big decisions to employ their scarce capital, cutting-edge technology, management expertise, and marketing prowess, they look for responsible partners," he said. "Partners like Rio Tinto prefer to invest in countries when the government takes the long view, as we do."

McRae said Mongolia was earning far more from the project than just 34 percent, and the 2009 agreement had also paved the way for other foreign investments, which had increased 13-fold since the Oyu Tolgoi deal was signed.

Investment in the Oyu Tolgoi project already accounts for more than a third of Mongolia's total economy, Rio Tinto says.

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