by Peter Ker

Rio Tinto may have difficult political climate to navigate in Mongolia, after a prominent resource nationalist was confirmed as the next president of the developing Asian nation.

Battulga Khaltmaa has previously criticised the investment agreement that Rio Tinto struck with the Mongolian government for the Oyu Tolgoi copper mine in 2009, and his rise to the presidency was confirmed over the weekend when his rival Miyeegombo Enkhbold conceded defeat.

Khaltmaa is a former judo champion with closer links to Russia than China, and who was investigated by Mongolian authorities in 2016 over suspected money laundering.

He won office in recent days after campaigning for "Mongolia first" and has long criticised the share of Mongolia's mining wealth that flows overseas.

Barely sixteen months ago, Battulga was leading a protest in central Ulaan Baatar about foreign miners' sway in the developing Asian nation.

"Our wealth is shipped outside of the country. Where is that money going?" he was reported to ask the several thousand demonstrators in attendance in late March 2016.

Rio is the most prominent miner in Mongolia and has therefore been the focus of Battulga's nationalist critiques in the past. He has also criticised one of Oyu Tolgoi's major contractors, MCS.

While there has been no sign that Battulga's victory poses a direct threat to Rio's involvement in Oyu Tolgoi, Battulga has vowed to reinstate a law which requires all funds from foreign-controlled projects in Mongolia be funnelled through Mongolian banks.

Such a law was proposed in April, sparking alarm among foreign investors in the nation; the proposal threatened to breach the Oyu Tolgoi investment agreement and caused the International Monetary Fund to delay a bail out of the Mongolian economy.

The proposal was abandoned in May, but Battulga seems determined to reinstate it.

Oyu Tolgoi has been producing copper, gold and silver since 2013, but the bulk of the project's value lies in the underground expansion, which is currently being built but is rumoured to be behind schedule.

The Rio subsidiary that is building the project, Turquoise Hill Resources, expects first production from the underground mine in 2020.

Peak production of about 622,000 tonnes of copper a year is expected to be reached by 2025.

While Rio has traditionally been confident that its investment agreement can legally withstand any political whim in Mongolia, an unhelpful president could still make life in Mongolia uncomfortable for the miner.

Just two months ago, Turquoise Hill and Rio won extra time from the Mongolian government to find a domestic power source for Oyu Tolgoi, under a deal that will allow Rio to continue using power from China in the meantime.

Such deals may prove harder during the Battulga era.

Other ASX listed companies working in Mongolia include Xanadu Mines, which is exploring for copper and gold in the South Gobi Desert, and Aspire Mining, which hopes to develop coking coal mines in the nation.

Rio shares were 11¢ lower at $64.93 in morning trade on Monday. The company will report production results for the June quarter on July 18.

Published Date:2017-07-10