Mongolia cancels key Oyu Tolgoi licences
FT.com reports Mongolia has revoked the licences for a key section of Rio Tinto’s Oyu Tolgoi giant copper-gold mine.
The London paper reports “Rio is meeting with the government on Wednesday and Thursday, as the two sides are under pressure to reach agreement before funding runs out for the $6.6bn mine.
“If an agreement is not reached either the mine will suspend operations or Rio will extend credit to the mine, according to a person with direct knowledge of the matter.”
The Anglo-Australian company has been at loggerheads with the government of the Asian nation over costs, revenues and taxes since a new government laden with resource nationalists took power last year.
Mongolia’s president Tsakhiagiin Elbegdorj, who is also the architect of draft legislation being considered by Mongolia’s parliament that would place severe restrictions on foreign miners in Mongolia, has accused Rio of working fast and loose with financing for the project.
The Mongolian government holds 34% of Oyu Tolgoi and Turquoise Hill Resources (TSX:TRQ), controlled by Rio, holds the rest.
The latest wrangles over the mine – set for commercial production by mid-year – had little effect on the shares of the two companies. Turquoise Hill was trading little changed in Toronto on Wednesday while Rio retreated slightly in London.
Today’s events follows news yesterday that authorities had revoked a licence for Vancouver’s Entrée Gold (TSX:ETG) to mine near Oyu Tolgoi. Rio Tinto holds a 23% stake in Entrée.
The massive mine near the Chinese border has been a decade in the making and to develop it to full capacity with an underground mine to compliment the open pit could cost close to $13 billion by some estimates.
At full tilt, the mine is set to produce more than 1.2 billion pounds of copper worth $4.6 billion at today’s prices, 650,000 ounces of gold ($1.1 billion) and 3 million ounces of silver (just under $100 million) each year.
Oyu Tolgoi will account for 30% of the economy of the nation of just over 3 million people.