Rio Tinto is set to commence negotiations with the Mongolian government over its planned $6.75 billion (€5.69 billion) expansion of the Oyu Tolgoi copper mine in the Gobi desert.
Credit: Kelapstick (WikiCommons)
Ulaanbaatar previously threatened to axe the project after disruptions caused it to run massively over budget and past its deadline if the mining giants refused to cooperate and negotiate after growing dissatisfied with its progress.
Read more: Mongolia calls for Rio Tinto to cancel copper mine expansion
The miner is sending a group of executives to the Mongolian capital to work out a new financing agreement so that a development timeline can be met, which could potentially lead to operations starting later this year.
Discussions are expected to delve into various topics, such as power generation, tax and benefit-sharing.
Rumours are circulating that some government officials want the mining company more than $300 million of withholding taxes on income it has received from the Oyu Tolgoi LLC, the state-owned holdings company that actually owns the mine.
Government officials have announced it may be difficult to engage with the miner owing to the payments being based on arbitration in London. However, Tinto believes the issue of withholding taxes is dealt with in the separate investment and shareholder agreements that cover its operations in the country.
If completed, the expansion will be the single largest issue of growth for Rio Tinto, and is also set to be the largest copper mine on Earth. At peak capacity, it is expected to produce almost 500,000 tonnes of copper ore every year.
Executives consider the project to be essential in the company moving away from iron ore, which currently makes up the majority of its revenue.
Production is expected to commence sometime in October 2022, according to current corporate estimates.
The mine is currently the single largest foreign investment in Mongolia, generating more than $3 billion (€2.47 billion) in taxes and creating thousands of jobs.
Rio Tinto does not own a direct share of the mine despite it running operations and being in charge of the expansion project. Its exposure to the financial side of the mine comes through its majority stake in Turquoise Hill Resources, which owns 66% of the mine. The Mongolian government owns the rest.
The project has run nearly two years past its deadline and is currently $1.5 billion over-budget.
Opinions in Ulaanbataar have been mixed, with many no longer seeing the mine as economically viable for the country owing to the constant delays and extra spending.
Mongolia's new prime minister and his party are now looking to change the terms of the expansion agreement, which first came into effect in 2015.
The original agreement sets out the fees Tinto receives for operating the mine as well as the interest rates on cash the government borrowed to finance the mine.
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The agreement was never ratified by parliament, and critics have chosen to focus on this as a focal point in their arguments Mongolia should receive a greater share of the benefits.
Nearly all of the Mongolian government's stake in the mine was granted via loans from Rio Tinto.
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