UPDATE 1-Mongolia to seek 34 pct of Oyu Tolgoi as prices drop

* Mongolia seeks 34 pct stake, rather than majority share

* Financial crisis, metal prices could affect construction (Adds background, analyst's comments. In U.S. dollars, unless noted)

By Lucy Hornby

BEIJING, Nov 19 (Reuters) - The government of Mongolia is likely to try to pin down a deal that will give it 34 percent ownership of the country's giant Oyu Tolgoi copper deposit as falling commodity prices push it to back away from seeking majority control.

A parliamentary working group studying revisions to the country's minerals law has proposed that agreements for Oyu Tolgoi -- which is being developed by Ivanhoe Mines (IVN.TO) and Rio Tinto (RIO.L) -- as well as for the big Tavan Tolgoi coal project be negotiated before the law is finalized.

An agreement to develop Oyu Tolgoi has been held up for well over a year, after high prices induced Mongolia to impose a windfall profits tax on copper and gold, and to seek to raise the state stake in strategic deposits to 50 percent or higher.

"We had expected that first there would be a minerals law and then an investment agreement. But the new proposal is to proceed on an investment agreement before the new law," said Sodontogos, an advisor to the Mongolian National Mining Association.

Parliament may consider that suggestion as early as Dec. 1, she said.

The proposal would include a recommendation for the state to hold 34 percent in Oyu Tolgoi and 51 percent in Tavan Tolgoi, Mongolian media said and sources close to the working group confirmed.

The working group had been scheduled to release its recommendations on revisions to the 2006 Minerals Law on Nov. 15, but has not, due to splits within the group over the proper role of the state and the best way for Mongolia to realize wealth from its mineral deposits.

Mongolia is now more eager to move forward and secure the Oyu Tolgoi project, since the government's ability to meet social spending commitments depends on continued revenue from mining.

Considered one of the world's richest undeveloped copper deposits, Oyu Tolgoi is expected to produce an average of at least 440,000 tonnes of copper and 320,000 ounces of gold a year over a 35-year mine life.

MARKET DOUBTS

Ray Goldie, a mining analyst at Salman Partners, said the decline of Ivanhoe's Toronto-listed share price suggests the market thinks the odds of the project being approved and financed are slim.

"I think the Mongolian government is recognizing that the market is saying that and it probably doesn't want to stop the project from happening," he said.

Ivanhoe's stock is down 78 percent this year, and was down 21 Canadian cents at C$2.31 on Wednesday.