Rio Tinto warned Mongolia against interfering in contracts related to the Oyu Tolgoi copper mine in the Gobi desert if the country wants to attract foreign investors, the Financial Times reported May 22.
The mining giant's copper business head, Arnaud Soirat, said at the Mongolia Economic Forum that the country may become a "successful resource nation," but only if it adheres to tax and royalty agreements. "The world is watching how Oyu Tolgoi develops. It is a test case for future investment in Mongolia which brings with it jobs, new business opportunities and community development," Soirat said in his address to delegates, which included government ministers.
Rio Tinto holds a 66% interest in Oyu Tolgoi through its 51%-owned Turquoise Hill Resources Ltd., and Mongolia owns the remaining 34%.
According to the report, Rio Tinto has invested more than US$7 billion in the first phase of Oyu Tolgoi's development and will invest a further US$5.5 billion to develop an underground mine.
Earlier this year, the Mongolian Tax Authority delivered a US$155 million tax assessment to the company's Mongolian unit concerning an audit on taxes levied and paid between 2013 and 2015, which may jeopardize its expansion plans for Oyu Tolgoi.
The government's frustration over the Oyu Tolgoi contracts is said to stem from its decision to take a 34% equity in the project, the report said, citing analysts. The Mongolian government had to borrow money from a Rio Tinto unit to fund its share of the mine's development costs, in line with the project stake, and it cannot receive dividends until the debt has been paid off.
Rio Tinto may resort to international arbitration if it does not reach a resolution with the Mongolia government over the tax dispute.
