BEIJING Nov 21 Mongolia hopes the $5 billion
expansion of a giant copper and gold mine can start next year as
it works to resolve a dispute with global mining giant Rio
Tinto, its partner on the project, a government source said.
But Rio Tinto may be reluctant to push on
too quickly due to bleak market conditions, the source said,
with copper prices down more than 10 percent in 2013 and
expected to drop further on a flood of new supplies from South
America and Africa. The company was not immediately available
Copper shipments from the first phase of the Oyu Tolgoi
project started in June, but Rio Tinto put plans to build an
underground mine on hold in late July amid complaints by
Mongolia that costs had spiraled out of control and that its
interests had not been fully served.
Mongolia, looking to find the revenues to fund ambitious
social and infrastructure plans, is keen to press ahead with a
project that is set to account for a third of its total economy
by 2020 once the underground mine is built. Foreign investors
also see the way the government develops Oyu Tolgoi as a key
indicator of the country's willingness to do business.
"Our side is committed to starting the second phase as soon
as possible and we can agree on certain issues in December or
January and plan development," said the source, who is involved
in Mongolia's discussions with Rio Tinto but did not want to
disclose his name.
"Both sides are working on the updated feasibility study.
After that, if both sides agree, there will be no challenges. I
hope we can agree early next year."
With Rio's new chief executive Sam Walsh focused on slashing
costs, cutting capital spending and paying down $22 billion in
debt, there is some question on how soon the company would want
to go ahead with the Oyu Tolgoi expansion.
"That is fine - we can understand that, but what we cannot
accept is that the Mongolian government is the only reason for
the delay ... I hope the market will understand that," the
Oyu Tolgoi is 66 percent-owned by Rio Tinto's Turquoise Hill
Resources unit. Rio Tinto is also building and
operating the mine, located around 80 kilometres from Mongolia's
southern border with China.
Craig Kinnell, Rio Tinto's new representative in Mongolia
and the chief executive of the Oyu Tolgoi project, said one of
his four priorities would be to prepare the project for future
growth, but he gave no timeframe for the expansion.
"I am as expectant as everyone for the day that the issues
under discussion will be resolved. But speed is not the measure
of success," Kinnell said in his first public speech in the job
at a conference in Hong Kong on Tuesday.
Mongolia has complained that costs on the first phase were
$2 billion higher than originally planned, and is looking for
assurances from Rio that such "investment inflation" will not
happen during the second phase, the source said.
He said the overruns meant the Mongolian government would
receive no dividends and no income tax from the project for 20
years. He said Mongolia also continues to object to Rio Tinto's
financing and management costs.
Erdenes Oyu Tolgoi, the government entity that holds
Mongolia's 34 percent stake in the project, said in a statement
on Tuesday that Mongolia remained fully committed to the project
and to the terms of the original 2009 agreement.
Some interpreted the statement as a sign that the government
is prepared to be flexible to resolve a deadlock that has forced
Rio Tinto to lay off 1,700 staff at the mine.
The 2009 Oyu Tolgoi investment deal was hailed as a symbol
of Mongolia's growing engagement with the global economy and its
openness to overseas investment, but it has been castigated by
nationalist politicians worried that the country was selling off
its mineral wealth on the cheap to foreign interests.
Mongolia's previous government submitted a request to
Turquoise Hill Resources to amend the agreement. The source said
there remained problems with the original deal but changing it
was not currently a priority.