Rio Tinto and the Mongolian government have agreed to continue funding the Oyu Tolgoi copper-gold project to allow commercial production to start in June, but have not managed to resolve a dispute over the growing costs of the project and its longer-term funding.
At a meeting on March 1, the two sides agreed to continue financing the $6.2bn project. This will make it possible for commercial production to start at Oyu Tolgoi, one of the world's largest copper-gold deposits, in Jun 2013 as scheduled.
However, Mongolian government officials are still at odds with Rio Tinto over the growing costs of the project, in which Rio Tinto holds a majority stake through its stake in Toronto-listed Turquoise Hill Resources (formerly Ivanhoe Mines). The Mongolian state has held a 34% stake in Oyu Tolgoi since 2009.
Mongolian officials say that Rio Tinto needs to justify the $2bn over-spend at the mine, and for the increased cost forecasts for starting operations at the underground mine. Costs of the underground mine have spiralled from the $14.6bn forecast by feasibility studies to as high as $24.4bn, UB News reports.
Given the spiralling project costs, Ulanbataar says it will not support Rio Tinto's attempt to raise up to $7bn for the next phase of development. The additional funding is needed to start work on the planned underground mine.
Turquoise Hill said in a February 28 statement that there had been "productive discussions" between Rio Tinto, Turquoise Hill and the Mongolian government. "[A]ll parties have agreed to continue discussions during March 2013 with with a goal of resolving the issues in the near term," the statement said.
Meanwhile, the International Finance Corporation (IFC), part of the World Bank group, announced February 28 that its board of directors had approved plans for it to participate in financing for Oyu Tolgoi. The IFC will now begin the process of working with Rio Tinto, the Mongolian government and the lending partners to complete the financing package, the IFC said in an update published on its website on February 28.
The dispute over Mongolia's most valuable deposit comes at a time when resource nationalism is increasing. Ulanbataar wants to ensure that the Mongolian population gets the benefits of massive projects such as Oyu Tolgoi and the development of the Tavan Tolgoi coalfield. With the presidential elections approaching in June, politicians are keen to avoid accusations of selling out to foreign investors.
In addition to a series of proposals from MPs that the government should take a larger stake in Oyu Tolgoi, investors are also concerned about the planned new mining law. While government officials say the law will benefit both the economy and the environment, Rio Tinto and other investors fear it will discourage investment into the resource rich country.