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Rio Tinto, Mongolia close to settling Oyu Tolgoi copper-gold mine disputes

Rio Tinto and the Mongolian government are close to settling a number of disputes that have cast a pall over the development of the Oyu Tolgoi copper-gold mine, The Australian Financial Review reported Oct. 14, citing Mongolian media.

Earlier this year, Mongolia accused Rio Tinto subsidiaries of having outstanding tax bills worth US$155 million, forced the mine to consider alternative power supply options for the operation, and started a corruption investigation on a 2009 agreement that controls Rio Tinto's investment in the mine and how profits are split.

According to Mongolian media, the two sides are close to reaching a deal to resolve several of these matters. Mongolian parliamentarian Gombojavyn Zandanshatar was also quoted as saying that interest rates on shareholder loans would be reduced.

The state owns 34% of the mine but relies on loans at rates of up to the London interbank offered rate plus 6.5% from Rio Tinto to cover its share of construction costs. The report also said a new power station may be built at the Tavan Tolgoi coal mine in Mongolia.

In February, the Mongolian government canceled a power-sector cooperation deal with the mining giant in what Rio Tinto said indicated that government did not view Tavan Tolgoi as a viable power source for the copper mine. Rio Tinto reportedly prefers the quicker option of building a power station directly at Oyu Tolgoi. The mine now runs on power imported from China.

Rio Tinto and its subsidiaries may be forced into international arbitration with the Mongolian government in a bid to resolve the disputes, the The Australian Financial Review reported.

First production from the Oyu Tolgoi expansion could come as early as 2021, but Rio Tinto subsidiaries have suggested "sustainable production" will start in 2022.

In 2016, Rio Tinto, its Turquoise Hill Resources Ltd. subsidiary and the government of Mongolia approved a US$5.3 billion underground expansion at Oyu Tolgoi.