REFILE-Ex-Oyu Tolgoi chief sees Mongolia investment rules improving

Wed Feb 26, 2014 10:47pm EST

By Terrence Edwards

ULAN BATOR Feb 27 (Reuters) - Rio Tinto's former Mongolian chief and boss of the massive Oyu Tolgoi copper project says the country is taking the right steps to arrest a drop in foreign investment but needs to do more to ease uncertainty for explorers and developers.

Four months after parting ways with global miner Rio Tinto, Cameron McRae has joined the advisory board of Toronto-listed explorer Kincora Copper, as it tries to reclaim licenses revoked by the Mongolian government that spawned a C$7 million writedown ($6.3 million).

McRae has also been appointed executive chairman of Mongolia-based consulting firm SkyPath Partners LLC, which is aiming to help investors navigate Mongolian regulations and raise capital.

"There's a lot of money that needs to come into Mongolia and it's not just going to get there by itself. The intermediary role is important," McRae told Reuters.

Few would have more experience than McRae in dealing with Mongolian authorities, as he saw multiple disputes unfold while leading the $6.5 billion Oyu Tolgoi project, the biggest foreign investment in Mongolia.

Parliament members attempted to amend a 2009 investment agreement between the government and Rio's majority-owned Turquoise Hill, which owns 66 percent of the mine, in 2011 and again in 2012.

Disputes over Oyu Tolgoi and broader regulatory uncertainty have deterred other investors looking to build mines in Mongolia and led to a 54 percent drop in foreign direct investment to $2.05 billion in 2013 from a year earlier.

Now an outsider to dealings involving Oyu Tolgoi (OT), McRae said Mongolian lawmakers have shown they have learned from mistakes made over the past few years, when the mine investment agreement was regularly attacked in parliament and in the media.

"When I arrived in Mongolia, criticizing the OT investment agreement was almost like a political sport," McRae said.

"I think the government has certainly recognized the importance of resolving those sorts of issues behind closed doors. I think that's a big step forward."

The government owns 34 percent equity in the copper mine, where an open pit operation started exports last year, while construction of an underground mine that could account for 20-30 percent of the economy was put on hold while the owners try to settle disputes.

A major hurdle has been a $4 billion project financing package to pay for the underground mine.

The finance agreement is due to expire March 31, after having been extended last year by lenders such as the World Bank's International Finance Corporation and European Bank for Reconstruction and Development.

"The project finance is also a huge thing for investor confidence," McRae said, as it would be the world's largest project finance, backed by a large consortium of commercial banks and international financial institutions.

"And that will effectively put Mongolia on the map."

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