Rio Tinto's copper and diamond chief executive Arnaud Soirat has put pressure on Mongolia to support its planned $5.3 billion Oyu Tolgoi mine underground expansion, saying foreign companies will be looking at it as a "test case" for future investment.

During his presentation at the Mongolia Economic Forum on Tuesday, the executive said the landlocked, mineral-rich country had all ingredients to become a “successful resource nation,” but only if it honoured agreements around issues such as tax and royalty payments.

Speaking to MINING.com earlier this month, Soirat drew a comparison between Mongolia and Chile, the world's top copper producing country whose economy was spurred by foreign mining investment.

The company, which in the last two years has stepped up efforts to find new copper deposits worth of being developed into mines, applied last year for exploration permits in the South American country’s northern region of Arica.

Soirat's comments come after five months of tensions between Rio and Mongolia, which has included a $155 million tax dispute and a corruption probe.
And while Soirat said that given the nature of very early stage exploration there, he couldn’t provide an update on that work, he noted that Chile continued to be a promising area for exploration. He attributed that not only to the country’s proven track record of discoveries, but also to its business-friendly environment — a characteristic Mongolia seems to be lacking.

Rio's board of directors approved an expansion of the massive Mongolian copper, gold and silver mine in the Gobi desert two years ago, but progress has been held back this year amid series of disagreements with the Mongolian government, including differences over taxes owed and a power contract.

In an effort to strengthen up ties with Asian country’s authorities, Rio announced in February the opening of the new office in Ulaanbaatar. Soirat told MINING.com that the team, which will expand to 80 people over the course of this year, has also been given the task to conduct fresh exploration aimed at finding the “next Oyu Tolgoi.”

He noted that the company is currently Mongolia’s largest foreign investor, having ploughed so far more than $7 billion into the first phase of its Oyu Tolgoi mine. Soirat said the company will continue to invest over $5 billion in the country, tied to the underground expansion of the giant project, at a rate of $1 billion per year.

Plans under threat
Those plans, however, risk being hindered as a result of a string of issues Rio Tinto has been facing in Mongolia in the last five months.

First, the country’s government served Oyu Tolgoi in January with a new bill for $155 million in back taxes — the mine's second tax dispute since 2014. Operator Turquoise Hill said at the time the charge related to an audit on taxes imposed and paid by the mine operator between 2013 and 2015. It added it's disputing the assessment.

Shortly after, the southern Gobi Desert-based mine had to declare force majeure after protests by Chinese coal haulers disrupted deliveries near the border.

In February, the government reinstated a decade-old agreement ordering the company to source power for Oyu Tolgoi domestically, a move could raise the costs of the ongoing expansion of mine, a strategic partnership between Mongolia’s government (34%) and Turquoise Hill (66%), of which Rio Tinto owns 51%.

A month later, the Mongolian Anti-Corruption Authority (ACA) asked it to provide financial data related to the mine, in relation to a probe about possible abuse of power by authorized officials during negotiation of the 2009 Oyu Tolgoi investment agreement.

The mining giant is also facing increasing pressure from shareholders about its alleged lack of transparency about pledges to the Mongolian government and escalating costs for the expansion. It has also been questioned about its treatment of minority shareholders at Turquoise Hill.

Oyu Tolgoi was discovered in 2001 and Rio gained control of it in 2012. Soirat noted that, as part of the underground expansion of Oyu Tolgoi, Rio has just finished the Avarga Chamber, one of the world’s largest underground excavations. “It’s as big as five Olympic swimming pools and 1,300 metres underground,” he told MINING.com.

Once finished, the extension is expected to lift Oyu Tolgoi’s production from 125–150kt this year to 560kt of copper concentrate at full tilt from 2025, making it the biggest new copper mine to come on stream in several years.

Published Date:2018-05-23