The Mongolian government has called on Anglo-Australian mining giant Rio Tinto to cancel the agreement governing the $6.75 billion expansion of the Oyu Tolgoi copper mine in the Gobi Desert.
The project has run significantly over budget and has surpassed its original deadline which has resulted in Ulanbataar to consider axing the entire expansion.
Read more: Mongolia threatens to cease Rio Tinto copper mine expansion
Officials have been generally unimpressed with the progress Tinto has made with the expansion, resulting in billions of dollars being wasted in extra spending.
Newly-elected prime minister Luvsannamsrain Oyun-Erdene has been facing mounting pressure from parliament to replace the agreement over the mine. Instead of acting unilaterally, local authorities have called for a mutual termination of the mine's contract.
Officials hope to, at the very least, make the mine attractive for Mongolia and fear the constant delays and overspending threaten the project's economic viability.
In 2019, Tinto flagged stability risks associated with the project, resulting in the project running an estimated $1.9 billion (€1.57 billion) over budget and leading to a 30-month delay.
If the extension is completed, Oyu Tolgoi at maximum capacity will be the fourth-largest copper mine in the world and will net 500,000 tonnes daily from its existing open pit.
The mining giant has confirmed production is expected to commence in October 2022, based on current estimates.
The mine is the country's largest source of foreign investment and has generated $3 billion (€2.47 billion) in taxes and created thousands of jobs.
66% of the Oyu Tolgoi project is owned by Toronto-based investment firm Turquoise Hill Resources, of which Rio Tinto retains a controlling stake.
Turquoise Hills won key funding in the face of the dispute last week after the Canadian investment firm was granted relief, including protection against Tinto restricting its talks on funding and other issues.
The Mongolian government has also shifted talks about the project owing to water shortages in the area, which would only be exacerbated by the mine.
Tinto has told Ulanbataar it will be willing to work to resolve the issue and look to reducing project management fees, according to the FT.
However, the two parties are unlikely to come to a mutual agreement unless the talks also account for some of the miner's issues, such as the 2021 budget and long-term power solutions. The existing power agreement will extend until March, after which the agreements may be up in the air.
The resolve has led to a power plant supplying energy to the mine and is a revision of the original source framework agreement.
There were concerns the two parties would not reach an accord in line with the UDP, also known as the Dubai agreement.
The agreement was put in place by former CEO Jean-Sébastien Jacques and Mongolia's then-prime minister Chimediin Saikhanbileg.
Read more: Jukan Gorge: Aboriginal owners may refuse to work with Rio Tinto
Tinto is currently fighting a war on multiple fronts as they face mounting pressure from both the Australian government and local aboriginal populations over the blasting of the 46,000-year-old cave complex at Juukan Gorge.
The Oyu Tolgoi mine extension is currently crucial for the mining giant's shift away from iron ore, which currently makes up 80% of its revenue.
CEO Jakob Strasholm has revealed that tempering relationships with governments and stakeholders in the countries it operates in remains its top priority going forward.
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