Rio Mongolian Mine Failure Would Be ‘Catastrophe,’ Minister Says – by Michael Kohn ( – March 4, 2013)

Mongolia’s businesses could face a “catastrophe,” if Rio Tinto (RIO) Group and the government cannot resolve a dispute over funding the Oyu Tolgoi copper and gold mine, the deputy minister for economic development said.

The two parties met last week to decide on financing the project through this year, yet disagreements on taxes, cost overruns and management control resulted in a one-month stop-gap budget. Rio in March will shoulder all the costs for a mine that at full production will account for 30 percent of Mongolia’s economy.

“Rio is funding the project for daily, weekly, monthly operations but not for the big structural investment,” said deputy minister Ochirbat Chuluunbat at a forum in Ulan Bator today. “It will be a catastrophe if it stops.”
Illtud Harri, a Rio Tinto spokesman in London, declined to comment on whether the company was providing all of the funding for the $6.6 billion Oyu Tolgoi mine this month.

Rio controls 66 percent of the project through its unit Turquoise Hill Resources Ltd. (TRQ) and the Mongolian government the rest. The shareholders are squabbling even as the mine is expected to start commercial production by June. Turquoise Hill rallied 10 percent to C$7.25 in Toronto on Friday after news of the month extension.

The next round of formal talks between Oyu Tolgoi’s shareholders will take place in late March, Finance Minister Chultem Ulaan said at the forum.

Contractors Hurt

The dispute is damaging contractors who supply the mine known as OT, said the head of a leading business group.

“Things are in slowdown mode because the government is not able to get along with the other investor in the project,” said Bayanjargal Byambasaikhan, chairman of the Business Council of Mongolia, which represents 244 companies and organizations.
“Members of BCM are complaining about the fact that the contracts that they want to get from OT are not being awarded, because of the uncertainty and the disputes.”

Byambasaikhan said 80 percent of Business Council members are directly tied to the project, which employs around 12,000 workers, through procurement contracts or via other companies doing business with Oyu Tolgoi.

Burn Rates

“Revenues are not there and as a result companies have very high burn rates,” he said. “They prepare to supply services or goods to OT and they are not able to do that because of an unconfirmed contract.”

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