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Fresh dispute between Rio Tinto and Mongolia over unpaid taxes could trigger international arbitration.
Mongolia’s Tax Authority has accused Rio Tinto’s (ASX, LON, NYSE: RIO) unit in the country of evading taxes and penalties payments related to the $6.6 billion Oyu Tolgoi copper and gold mine.
Operator Turquoise Hill Resources (TSX, NYSE:TRQ), however, says it has paid all taxes and charges required under its agreement with the government, complying with the country’s laws.
“We strongly disagree with the claims in the audit report and are currently reviewing all options to resolve this matter,” Kay Priestly, Turquoise Hill’s chief executive officer, said in the company’s statement.
The Vancouver-based company, which owns 66% of Oyu Tolgoi, said that if the dispute is not resolved by June 30 the feasibility study for the underground expansion could be delayed.
It added that any breach of its investment agreement with Mongolia could trigger international arbitration.
The massive Oyu Tolgoi’s open pit mine began operating last year, but an underground expansion was put on hold shortly after, as the Mongolian government became concerned that cost overruns would cut into profits.
Talks between the world’s second largest mining company and the Central Asian country on the expansion and reworking of the initial 2009 deal that first triggered an investment boom in Mongolia, have dragged on for more than a year. Both sides provided fresh faces for the Oyu Tolgoi board in September to break the impasse and resumed talks in December.
In March, Rio Tinto said talks with the government on restarting development had been “constructive,” and that the feasibility study would be finished by the end of June.
Last month Rio Tinto fired about 300 workers from Oyu Tolgoi following a review aimed at reducing costs.
At full tilt Oyu Tolgoi will account for 30% of the economy of Mongolia, a nation of just over 3 million people.
Financing commitments needed to build the underground mine are set to expire Sept. 30.
For 2014, Oyu Tolgoi —located 80 kilometers north of the Chinese border— is targeting production of 150,000 to 175,000 tonnes of copper in concentrates and 700,000 to 750,000 ounces of gold in concentrates. But after phase 2 the mine in the southern Gobi desert could produce more than 1.2 billion pounds of copper, 650,000 ounces of gold and 3 million ounces of silver each year.
Oyu Tolgoi will account for 30% of the economy of the nation of just over 3 million people.
Top image: Traditional Mongol wrestling of Naadam festival. By hu:Burumbátor | Wikimedia Commons.
2 Comments
marp
This is an old claim and amounts to little more than the GOM looking for any leverage it can get in the current negotiations with Rio Tinto. The government is desperate as foreign currency reserves are very low and investors are staying away from Mongolia. The resourse minister is a big time unapologetic mining nationalist and raises eyebrows and does more to hurt Mongolia than anything else at mining conferences.JMO
Mike Failla
What else can we drum up to get more money out of this project? Seems like they should have negotiated and signed a better contract in the first place. Now this just slows things down for them. Bad government shows up once again. What a shock.