Mongolia threatens to cease Rio Tinto copper mine expansion

Anglo-Australian mining giant Rio Tinto is facing further pressure from the Mongolian government to resolve their dispute over the Oyu Tolgoi copper mine.

Officials have warned the company they are unimpressed with its progress regarding the mine expansion and is threatening to halt the project entirely unless significant gains are made.

The project has faced criticism from the Mongolian government before owing to it running significantly past its deadline and costing billions more than previously anticipated.

Read more: Rio Tinto facing pressure over Mongolian mine extension

Located 80km north of the border with China in the middle of the Gobi Desert, the mine remains one of Rio Tinto's most vital endeavours, and Ulaanbataar has called for the mining giant to select a committee to oversee the remainder of the expansion.

The mine's extension is paramount to the company's shift away from iron ore, which currently makes up 80% of its revenue.

When completed, Oyu Tolgoi is set to be the world's fourth-largest copper mine.

Rio Tinto's new CEO Jakob Strasholm will have to move quickly in order to strengthen the relationship between the two parties and successfully oversee the project completion.

Strasholm has revealed that tempering relationships with governments and stakeholders in the countries it operates in remains its top priority going forward.

66% of the Oyu Tolgoi project is owned by Toronto-based investment firm Turquoise Hill Resources, of which Rio Tinto retains a controlling stake, followed by a 34% stake by the Mongolian government.

Ulaanbaatar's share of the funding was delivered through loans from Rio Tinto and is not set to receive any payback until the project is completed, despite officials' concerns over the government receiving no dividends owing to the substantial debt taken on for the mine's expansion.

These concerns were laid out via a letter unveiled at a virtual meeting last month with company officials.

The letter said: “The estimates whereby the Government will never receive dividend payments and will incur a debt of $22bn create great difficulties for our future co-operation.

“In addition, the estimate that Oyu Tolgoi would pay corporate income taxes or profit taxes only in four years until 2051 raises doubts as to the economic benefits of the project.”

A spokesperson for Rio Tinto announced it is willing to lift the benefits to the Mongolian government on the project, following analysts' predictions that renegotiations risk causing further delays.

The spokesperson, who spoke to The Age and The Sydney Morning Herald, said: "Rio Tinto has been engaged with the government in good faith in relation to the topics raised ... and remains open to improving the underground development plan to increase the benefits of Oyu Tolgoi to all shareholders."

However, the government is slowly shifting its stance on the mine's operation owing to water shortages in an area that already suffers from extreme water scarcity, adding that “it is becoming necessary for us to review and evaluate whether or not this project should go ahead."

“Unless Rio Tinto assesses the situation realistically and accepts the proposal of the working group, we have no option but to formally submit a notice to unilaterally terminate the Dubai agreement," the letter concluded.

The Oyu Tolgoi affair is only one of the numerous controversies Rio Tinto has become embroiled in over the past few years.

Arguably the most notorious scandal the mining giant has been involved in was the destruction of a cave system in Juukan Gorge, Australia - a site sacred to the local aborigines.

The scandal forced the resignation of CEO Jean-Sébastien Jacques

Read more: Rio Tinto CEO quits following Juukan Gorge controversy

The mining giant is also embroiled in a class-action lawsuit filed on behalf of the citizens of the autonomous Papua New Guinea island of Bougainville following the pollution of the local ecosystem by a decades-old disused copper mine.

The mine was directly responsible for a local civil war, which resulted in a unanimous vote for independence from the Island's residents in 2019.

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