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Rio Tinto (LON:RIO) has told Mongolia it is willing to give up a $US1.6 billion royalty it would get from the Oyu Tolgoi copper and gold mine in an effort to end a long-dragged dispute with the landlocked nation’s government over a mine expansion.
The miner and its subsidiary Turquoise Hill Resources (TSE:TRQ) have been trying for two years to obtain the go ahead for the Oyu Tolgoi mine’s stalled US$5.4bn underground phase. They claim it is needed to unlock most of the deposit’s value.
However, lack of progress in the talks between the parties is beginning to weigh heavily on the Asian nation’s economy.
Mongolia’s foreign reserves stood at $1.35 billion at the end of November, down 42% from a year earlier, according to the country’s central bank. And investment is forecast to decline this year.
Meanwhile Rio, which is the country’s top investor, is facing write downs on delayed construction of the second stage of the Oyu Tolgoi, as the global miner and country authorities wrangle over costs and taxes of the expansion project.
According to documents obtained and verified by The Australian, Rio offered to forsake a “net smelter return” of 2% cent of the project’s revenue:
“Turquoise Hill (the Rio subsidiary that owns 66% of the project) and Rio Tinto agree that neither they nor any other party have any further entitlement to receive from Oyu Tolgoi net smelter royalty,” the draft MOU said. The smelter royalty has been estimated by Turquoise Hill to be worth US$1.59bn over the mine’s 41-year life.
The mine would contribute about a third of Mongolia’s economy when (and if) in full operation.
Read the full article at The Australian.
