Rio Tinto’s Mongolia Copper Dream Awakens 20-Year-Old Nightmare – by Elisabeth Behrmann & Yuriy Humber ( – February 20, 2013)

Rio Tinto Group’s Mongolia copper and gold mine looks a dream location sitting next to China, the biggest market. Yet, Mongolia’s bid for more control of the project draws comparison with a Rio mine that went badly wrong.

Mongolia’s government is ratcheting up criticism of Rio’s management of the $6.6 billion project, the landlocked country’s single biggest investment. Lawmakers have argued for a bigger share of profit, while President Tsakhia Elbegdorj wants more management control. He faces elections in June with a fifth of the nation’s 3 million people in poverty despite world-beating economic growth of 17.3 percent in 2011.

Rio has refused government overtures to rewrite the agreement on the mine known as Oyu Tolgoi, raising tensions and comparisons with another Rio copper mine more than two decades ago. That project known as Panguna on the island of Bougainville in Papua New Guinea was shut by local protests and is still the subject of a U.S. court case.

“In Bougainville the community felt, rightly or wrongly, they weren’t compensated adequately for the various impacts of mining they were having to absorb,” said Jeffrey Neilson, a senior lecturer in economic geography at the University of Sydney. Governments in emerging economies “have to be seen to be taking a strong stance and making sure that the benefits of their resource wealth are being shared.”

Mining companies also need to consider wealth distribution in countries where they invest as a matter of course, said Michael Bush, who now heads credit research at National Australia Bank Ltd. and formerly worked as a geologist at the Geological Society of Australia.

‘Fingers Burned’

At Panguna, which was closed in 1989 after protests turned violent, the company “got its fingers burned more than many” of its peers, Bush said.

The unrest at Panguna, led by Francis Ona a former Bougainville mine worker, revitalized an independence movement on the island. That prompted the Papua New Guinea government to declare a state of emergency and send in troops in a conflict in which thousands died.

Bougainville landowners later filed a U.S. lawsuit alleging Rio conspired with the PNG government in acts of genocide, human rights abuses and environmental damage. Rio lost an appeal to have the lawsuit thrown out on Oct. 25, 2011. In November the same year, Rio sought to appeal the ruling to the U.S. Supreme Court. No decision has been made, according to the court’s website.

‘Serious Risks’

The company has argued that as the case has no connection whatsoever to the U.S. it shouldn’t be heard in the country and that the U.K. and Australia object to the litigation.

Rio cited a U.S. government filing that supported the company’s view: U.S. courts passing judgment on the conduct of a foreign sovereign, the government warned, pose “serious risks to the United States’ foreign relations with foreign states.”

Mongolia’s Oyu Tolgoi, set to start production in July, has about 25 million metric tons of recoverable copper and an expected life of 50 years. That’s about three-times the size of Panguna, which produced about 3 million tons of copper from 1972 to 1989 and holds another 5 million tons, according to a recent study amid discussions about reopening the mine under Rio unit Bougainville Copper Ltd.

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