Mongolia eyes Rio Tinto's consent to replace Oyu Tolgoi agreement – FT

The Mongolian government asked for Rio Tinto's consent to terminate a 2015 agreement over the underground expansion of the Oyu Tolgoi copper-gold mine and replace it with a deal offering more benefits for the country, London's Financial Times reported Feb. 7, citing people with knowledge of the situation.

Rio Tinto's 50.79%-owned Turquoise Hill Resources Ltd. holds a 66% stake in Oyu Tolgoi, and the Mongolian government holds the rest. In January, the government flagged that the underground project's increased development costs of $6.75 billion have eroded its potential economic benefits.

The Mongolian government and its new leader engaged Rio Tinto amid pressure from the parliament, which in December 2019 approved a resolution instructing the government to improve the agreement's terms. The 2015 deal was never greenlighted by the parliament, and its mutual termination would fix the legitimacy issue, a source told the FT. The report noted that the government decided not to unilaterally scrap the deal as doing so may jeopardize future foreign investment in Mongolia.

Rio Tinto has already notified the government that the company is prepared to evaluate the possible reduction of project management fees and loan interest rates, according to documents seen by FT. But Rio Tinto may not agree to a new development plan unless it also addresses the project's long-term power solution, its budget for 2021 and other concerns.

In a statement to FT, Bold Baatar, Rio Tinto's new copper CEO, acknowledged the Mongolian government's desire to improve the agreement. Nyambaatar Khishgee, Mongolia’s minister of justice and home affairs and leader of the government's Oyu Tolgoi working group, reportedly said on social media that he had a successful first meeting with Baatar recently. The government declined FT's request for comment.

The country will hold elections in June.