Rio Tinto considering halting work at Oyu Tolgoi mine over dispute – by Christopher Donville, Todd Baer and Yuriy Humber (Bloomberg News/National Post – January 31, 2013)

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Rio Tinto Group, the second-biggest mining company, is considering a temporary halt to construction work at its US$6.2-billion Oyu Tolgoi copper and gold project in Mongolia as the government demands a greater share of profit from the mine, according to two people familiar with the plans.

The London-based company is discussing the suspension to protest the central Asian nation’s demands for a bigger stake in the project and new mining royalty rates, said the people, who asked not to be identified because they aren’t authorized to comment publicly. A suspension of work, which may halt mining and processing, isn’t certain and is among options that managers are discussing in London, one of the people said.

“We continue to work together with all stakeholders including the government of Mongolia to bring the benefits of Oyu Tolgoi to all parties,” said Bruce Tobin, a spokesman for Rio in Melbourne. He declined to comment on whether it’s considering a temporary halt.

The dispute comes as Mongolian Prime Minister Norovyn Altankhuyag’s government tries to maintain support for foreign investment amid growing nationalism and wealth disparity. In October, Rio rejected a second move by Mongolia to renegotiate a 2009 investment agreement for the development of Oyu Tolgoi, which is currently the world’s biggest copper project under construction.

At full capacity the mine will account for almost a third of Mongolia’s economic output. It’s on schedule to start commercial production in the first half, Tobin said. The first ore has been mined and the concentrator, which processes the raw material at the site, has been switched on, he said.

Price Pressure

Rio dropped as much as 1.6% and closed down 0.7% at 3,552 pence in London. Turquoise Hill Resources Ltd., the Rio unit through which it controls Oyu Tolgoi, fell as much as 10% in Toronto.

“Whilst a shutdown would be negative in the short term, the fact such a move is under consideration suggests Rio is prepared to play hardball to retain its stake in the project,” Richard Knights, a mining analyst at Liberum Capital Ltd. in London, said today.

The mine may contribute 2.2% of the company’s earnings before interest, tax depreciation and amortization this year, Knights said. Rio’s 2013 Ebitda will be US$22.2-billion, according to the average of 25 analysts’ estimates compiled by Bloomberg News.

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