Mongolia says Rio Tinto owes $130 million in Oyu Tolgoi unpaid taxes

Mongolia says Rio Tinto owns $130 million in Oyu Tolgoi unpaid taxes

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.

Mongolia says Rio Tinto owns $130 million in Oyu Tolgoi unpaid taxes

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.