Rio Tinto Said to Clash With Mongolia Ahead of Meeting – by Yuriy Humber and Elisabeth Behrmann (Bloomberg Businessweek – February 26, 2013

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Rio Tinto Group’s crucial meeting with Mongolia tomorrow follows weeks of disputes over control of the world’s biggest copper and gold mine under construction, according to two people familiar with the situation.

Financing for the $6.6 billion Oyu Tolgoi mine runs out in three days and tomorrow’s talks to extend the funding come amid allegations of unpaid taxes, and frozen and then unfrozen bank accounts that raise doubts about the project’s future.

Mongolia’s government blocked some of London-based Rio’s bank accounts in the capital Ulan Bator over unpaid tax claims, said the people, who asked not to be named because the information isn’t public. The accounts were unfrozen yesterday, the people said. That move may help improve relations at the talks, one of the people said.

President Tsakhia Elbegdorj this month criticized Rio for cost overruns and said Mongolia wants more control of a project that will represent 30 percent of the economy once in full production. Rio, the world’s second biggest mining company, has considered suspending work until these issues are resolved, two people familiar with the matter said last month. Oyu Tolgoi is scheduled to start production in June.

Tax Dispute
A spokesman for Rio Tinto (RIO) in London declined to comment. An assistant to Puntsag Tsagaan, the senior adviser to the Mongolian president on mining, yesterday said Tsagaan was out of the country and unavailable. Tsagaan didn’t reply to e-mailed questions sent yesterday. Finance Minister Chultem Ulaan said he couldn’t discuss the issue when contacted by phone today.

Rio fell 0.5 percent to 3,511.5 pence in London trading at 9:41 a.m. It earlier fell 0.9 percent to A$65.57 by the close in Sydney.

The company is paying for most of its operational needs in Mongolia through offshore accounts while the dispute continues, two of the people said.

The tax disagreement hinges on $150 million in payments made by Rio during 2010 and 2011, which the company said entitled it to tax credits from 2012, one of the people said. When Rio sought to use the credits, Mongolia’s tax authorities said that the payment wasn’t completed correctly and needs to be renegotiated, the person said.

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