The government of Mongolia is seeking a bigger stake in Oyu Tolgoi, the biggest undeveloped copper mine in the world, in a surprise move that underlines the challenges ahead for Rio Tinto and Ivanhoe Mines as they develop the country’s flagship mining project.
The government of Mongolia has asked to reopen discussions over the 2009 investment agreement for Oyu Tolgoi, a project widely considered to be a litmus test for future mining developments, following mounting pressure from parliamentarians and environmentalists.
Mongolia is considered one of the hottest mining plays in the world, but questions have lingered over how the young democracy will craft mining policy, and how the $7bn economy will deal with a huge influx of mining investment.
Mining minister Zorigt Dashdorj said on Sunday that the government was seeking to change the terms of the Oyu Tolgoi investment agreement to allow Mongolia to increase more quickly its stake in the mine. The news comes as Mongolia is seeking to develop the mammoth coal deposit Tavan Tolgoi through listing in London and Hong Kong next year.
Mr Zorigt said the government had sent Ivanhoe Mines a letter asking to discuss the investment agreement. “We are proposing to start the negotiations on changing the time frame within which the Mongolian side will increase its equity to 50 per cent from 34 per cent,” he said.
Members of parliament this month submitted a letter to the prime minister calling for the Oyu Tolgoi investment agreement to be re-examined, after several similar demands from parliament earlier this year. Meanwhile environmentalists have raised concerns about the mine’s water use and plans to tap into deep underground aquifers to draw the liquid needed for concentrating the copper.
Rio Tinto, the operator of the mine, said that it had not yet received formal notification for the talks, while Ivanhoe said it had not received a letter from the Mongolian government.
“We respect the government of Mongolia and when they give us the notification to come talk, we’ll have those talks,” said Cameron McRae, chief executive of Oyu Tolgoi. “But I think what we are demonstrating is that the investment agreement is like a contract, and we’re going to honour our end and at least we can expect the government to honour its commitments.”
Miners and investors point to the signing of the Oyu Tolgoi investment agreement in October 2009 as the beginning of the current mining boom. The negotiation of the agreement took years and as part of the process, parliament repealed a mining “super tax” on copper and gold.
“It would be very disappointing if they were to revisit the investment agreement,” said Andrew Driscoll, analyst at CLSA. “The signing of the OT agreement in 2009 was a linchpin that prompted a lot of the investment we see now ... to change the rules at this stage of the game is ludicrous.”