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Mongolia pours fresh doubt on Rio Tinto agreement www.afr.com

Rio Tinto is confident the legal agreement to expand Mongolia's Oyu Tolgoi copper and gold mine remains in force, despite indications a court in the Asian nation has ruled it to be invalid.

The legal significance of this week's decision by Mongolia's Administrative Court was not entirely clear on Wednesday, but the decision highlights the discontent that exists in Mongolia over the 2015 expansion agreement, which was struck by Rio chief executive Jean-Sebastien Jacques and former Mongolian Prime Minister Chimediin Saikhanbileg in a Dubai hotel.

That agreement, which kick-started an underground expansion that will cost more than $US6 billion ($8.8 billion), is now the prime source of tension between Rio and the Mongolian government, which is controlled by political opponents of Mr Saikhanbileg.

Mr Saikhanbileg was temporarily put in jail by political opponents in 2018 over allegations he misused his power in the striking of the 2015 Dubai agreement, with some opponents believing he acted unilaterally and without the appropriate level of respect for parliamentary process in the young democracy.

This week's court hearing appeared to hint at similar themes; reports suggest the court upheld claims by a non-government organisation that due process was not followed in the striking of the 2015 underground agreement.

''Rio Tinto strongly refutes any suggestion that the (expansion agreement) or any of the foundational (Oyu Tolgoi) agreements are illegal,'' said Rio in a statement.

Rio gets exposure to Oyu Tolgoi through its 50.79 per cent stake in Canada's Turquoise Hill Resources, and the Canadian company published an almost identical statement on Wednesday.

The court ruling just adds to the many aspects of sovereign risk that surround the project.

Canaccord analyst Dalton Baretto visited Mongolia in September and came away with increased concerns about the impact sovereign risk could have on lenders to the mine.

Rio and Turquoise Hill have started talks with lenders to cover billion dollar cost blow outs on the Oyu Tolgoi expansion, and Mr Baretto believes lenders are unlikely to be able to get the certainty they need before Mongolians vote at elections in the middle of 2020.

''We are very concerned that the debt component of the funding package
will not be in place in time to prevent a slowdown on construction. The lenders have indicated that one of their primary requirements is certainty around any changes to the 2009 and 2015 investment agreements, the negotiations of which could drag on for some time given a pending election,'' he said in a note published in September.

''Additional project financing will require the approval of the government of Mongolia, who could potentially use this as leverage to bolster their negotiating position.''



Published Date:2019-11-20