The Strategist

FT: Mongolia seeks better deal on one of largest copper mines from Rio Tinto

02/09/2021 - 09:12

The Mongolian authorities want to get the Anglo-Australian mining corporation Rio Tinto to agree to jointly terminate the agreement to develop the Oyu Tolgoi gold-copper deposit. It was reported by the Financial Times (FT), citing sources.

The Mongolian authorities want to terminate the agreement, but do not want to do it unilaterally, fearing that it could harm future foreign investment in the country. Mongolia wants to conclude a new agreement on more favorable terms. 

According to the FT, citing documents in its possession, Rio Tinto has already told the Mongolian authorities that it is ready to consider reducing some of the fees and interest rates on loans.

Construction of Oyu Tolgoi began in 2010, the deposit is scheduled to open in October 2022 and should become the world's fourth-largest copper mine with annual production of 500,000 tons of copper by the end of the 2020s. 

The fact that the Mongolian authorities are not satisfied with the current agreement with Rio Tinto, concluded in 2015, has become public in mid-January: the Mongolian parliament demanded from the government to revise the terms of the contract.

Mongolia owns one-third of the Oyu Tolgoi project, with the rest owned by Turquoise Hill, a group of investors, of which Rio Tinto is the largest. 

Mongolia's decision to revise the agreement was due to higher costs for the development of the deposit. According to current estimates, it will cost $6.75 billion, $1.5 billion more than originally expected; the deposit opening has been delayed for two and a half years. 

In addition, Mongolia wants to start receiving dividends from the development of the field earlier.