May 22, 2018 / 10:35 AM / 3 months ago

Rio Tinto presses Mongolia to shore up copper investment

ULAANBAATAR/LONDON (Reuters) - Rio Tinto on Tuesday called on the Mongolian government to honor the contracts that underpin its Oyu Tolgoi copper project and said the mining world was watching, as anxiety mounts after a series of high-profile arrests.

FILE PHOTO: The Rio Tinto mining company's logo is photographed at their annual general meeting in Sydney, Australia, May 4, 2017. REUTERS/Jason Reed

Mongolia’s anti-corruption agency has arrested two former prime ministers and a former finance minister over an investigation into suspected misuse of power by officials during negotiations linked to Oyu Tolgoi contracts.

Investigators have not said Oyu Tolgoi operator Rio Tinto has done anything wrong and some analysts say the allegations are politically motivated.

In January, Rio Tinto opened an office in Ulaanbaatar and embarked on new exploration.

“We will consider growing our business beyond Oyu Tolgoi,” Arnaud Soirat, CEO of copper and diamonds at Rio Tinto, said at the Mongolia Economic Forum in Ulaanbaatar.

But he also called for a stable regulatory environment, saying the Oyu Tolgoi underground extension relied on “the sanctity of the key investment agreements” that underpin a potential $12 billion investment.

He drew a comparison with Chile, the world’s number one copper producing country whose economy was spurred by such investment, but said a stable rule of law was critical.

“Mongolia has all the ingredients to become a successful resource nation and to use her mineral revenue to fuel sustainable, long-term, diversified growth,” he said. “The world is watching how Oyu Tolgoi develops.”

Since the start of the year, Rio Tinto has grappled with a series of disagreements with the Mongolian government, including over tax and a power contract. Its CEO Jean-Sebastien Jacques last week cited rising resource nationalism as a reality the industry had to face.

Including Rio Tinto’s own investment and money from a consortium of 15 financial institutions, Soirat said that once the Oyu Tolgoi underground extension is completed, total investment could be $12 billion - or more than Mongolia’s annual gross domestic product.

Soirat said the Oyu Tolgoi agreements ensure Mongolia receives more than 50 percent of economic benefits over the life of a project.

Fifty percent is a threshold mining consultants say can protect against changes to the regulatory environment by host nations.

But there can still be arguments over calculations as companies look at a project’s life, including the many years of upfront investment when there is no production revenue, while governments focus on the profits once output begins.

“The Mongolian government stands for the stable operation of Oyu Tolgoi,” a government spokesman told Reuters.

Editing by Alexandra Hudson

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