ULAANBAATAR (Reuters) - Rio Tinto faces renegotiating the terms of an agreement underpinning its Mongolian copper mine project, after lawmakers on Thursday approved plans to revise the deal to make it more beneficial for Mongolia.
The Oyu Tolgoi mine, Mongolia’s biggest foreign investment project, has already been subject to delays and ballooning costs, leaving Mongolian lawmakers impatient for income, while Rio Tinto says it has invested billions.
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.
Rio Tinto said in an email that it understood that the Mongolian parliament’s vote on Thursday to revise the deal needed to be finalised and it would provide a further update once that happened.
Thursday’s vote was the culmination of a two-year process after a working group was set up to establish the benefits of the Dubai Agreement and submitted its report to parliament.
“For now, the Oyu Tolgoi agreement is not benefiting Mongolian citizens,” Battumur Baagaa, a member of the Mongolian parliamentary working group, said when he first presented the report in July.
“It is good to attract foreign investment but that doesn’t mean foreign investment should only benefit the foreign side.”
In July, Rio Tinto announced a cost overrun of up to $1.9 billion, saying total capital expenditure was expected to be in a range of $6.5 billion-$7.2 billion, and it expected a delay of up to 30 months at the Oyu Tolgoi underground extension.
The recommendations approved by parliament include replacing the 34% interest with a special royalty and bringing forward the date - currently set at 2041 - when Mongolia begins receiving dividends.
The working group argued the Dubai agreement was never ratified by parliament and was not legally binding.
On Monday, Mongolia’s Administrative Court ruled that former prime minister Chimed Saikhanbileg had violated the law when he signed the Dubai Agreement. A non-governmental organization named Darkhan Mongol Nogoo Negdel had asked the court to check the legality of Saikhanbileg’s approval of the agreement.
Turquoise Hill, which is 51%-owned by Rio Tinto, also said it would provide a further update once the parliamentary resolution was finalised.
Rio’s difficulties in Mongolia have held back its share price, analysts say. Rio shares fell 1.2% on Thursday. They have gained around 11% this year, but Turquoise Hill shares have shed around 74% this year.
Reporting by Anand Dairtan in Ulaanbaatar and Barbara Lewis in London; Additional reporting by Jeff Lewis in Toronto; Editing by Susan Fenton