Rio Tinto faces renewed political scrutiny in Mongolia this week when lawmakers in Ulan Bator are scheduled to debate the legal agreements that underpin the Oyu Tolgoi copper mine.

Rio has been producing copper and gold at Oyu Tolgoi since 2013 and is currently spending between $US6 billion ($8.7 billioN) and $US8 billion on an underground expansion of the mine, which ranks as the company's most-important growth asset.

The Mongolian government launched a working group in March 2018 to review the implementation of the 2009 Oyu Tolgoi Investment Agreement, the seminal legal contract under which Rio works at the mine.

It examined taxation, energy, and shareholder funding arrangements under the 2009 agreement, which gives the Mongolian government a 34 per cent stake in the mine.

The report was presented to a Mongolian parliament committee in May, at which time a new group of nine Mongolian parliamentarians was formed to draft recommendations to cabinet over the mine's future.

Those recommendations are scheduled to be debated in Mongolian parliament on Wednesday, according to a schedule of parliamentary proceedings published by the Mongolian parliament on Friday.

That schedule fits with guidance provided last week by Turquoise Hill Resources, the Rio subsidiary that owns 66 per cent of the Mongolian company that owns the Oyu Tolgoi mine.

At an investor briefing last week, Turquoise Hill said the working group's "draft resolution'' was ''expected to be discussed during an extraordinary session to be held until September 30, 2019''.

''In the interim, Turquoise Hill remains engaged with the government of Mongolia on multiple fronts.''

Rio owns 50.79 per cent of Turquoise Hill and both companies have repeatedly stressed the importance of honouring and retaining both the 2009 Investment Agreement, and a 2015 agreement struck by Rio's then-copper boss and now-current chief executive Jean-Sebastien Jacques.

The 2015 agreement that Mr Jacques struck with then-Mongolian prime minister Chimediin Saikhanbileg outlined the financial terms upon which an underground expansion of Oyu Tolgoi would proceed.

That expansion was supposed to cost $US5.3 billion, but in July Rio said project management failures and geological challenges would had pushed costs higher to between $US6.5 billion and $US7.2 billion, and that it would be delivered as much as 30 months later than previously expected.

Those cost estimates do not include the cost of building a power station for the mine, which most pundits expect to cost an additional $US1 billion.

Mongolia's equity stake in the project has made it particularly sensitive to cost blowouts, particularly as its economy has laboured under some of the world's highest interest rates, requiring a bailout from the International Monetary Fund in 2017.

Reports have suggested the Mongolian lawmakers may also seek changes to Mr Jacques' 2015 agreement.

While the political turbulence continues in Mongolia, Rio and Turquoise Hill are conducting a major rethink of the mine plan for the underground expansion, and are not expected to settle on a new mine plan until late 2020.

Peter Ker covers resource companies, based in Melbourne. Connect with Peter on Twitter. Email Peter at pker@afr.com

Published Date:2019-09-16