Mongolia’s parliament has delivered its long-awaited verdict on the investment agreements that underpin Rio Tinto’s giant copper project in the country’s Gobi Desert.

The State Great Khural has passed a draft resolution asking the government to seek “comprehensive measures” to improve contracts for the Oyu Tolgoi mine, according to the Parliamentary website.

The resolution also directs Ulaanbaatar to look into swapping its 34 per cent stake in the project for either royalty payments or a production sharing agreement.

The news will be something of a relief for Rio, which feared the parliament might try to completely renegotiate the agreements.

Rio is currently working on a huge underground project at the site, which will be one of the largest copper mines in the world when it is finished.

Oyu Tolgoi also ranks as the company’s most important growth project and is closely associated with its chief executive Jean-Sébastien Jacques.

When Mr Jacques was running the company’s copper business he pulled together the financing package for the underground project.

“We understand that the resolution, which has not yet been officially published, will be finalised according to Mongolian Parliamentary process. Once the resolution is approved and published, we will provide a further update.” the company said in a statement.

The parliamentary working group recommended in April that Mongolia review the 2009 deal, which paved the way for construction of an open pit mine, and revoke the 2015 agreement covering the underground expansion.

Rio has said previously said that it is prepared to tweak the terms of those. Analysts think it could lower the interest rate on the money it has lent Mongolia to cover the costs of developing the mine. If copper prices hold up, they estimate that it will be at least 2030 until the loans are paid off and Mongolia receives any dividends from the mine.

The underground project at Oyu Tolgoi has run into difficulties and could now cost as much as $7.2bn to complete. Rio could also waive the management services fee it charges for running the project. Swapping its stake for royalties, however, would be a much more complex undertaking.

While Rio operates Oyu Tolgoi, it does not have a direct shareholding in the mine. The mine is 66 per cent owned by Toronto-listed Turquoise Hill Resources, in which Rio Tinto has a 50.8 per cent stake, and 34 per cent by the Mongolian government

The Oyu Tolgoi mine is a crucial part of the Mongolian economy. Not only is it the country’s biggest source of foreign direct investment, it also provides thousands of well-paid jobs. The mine, however, has become a political football with members of parliament using it to advance their own interests and agendas.

Earlier this week, an administrative court in Mongolia upheld claims by a non-governmental organisation called Darkhan Mongol that Ulaanbaatar did not follow due process when agreeing the development contracts with Rio.

Rio hit back, saying that it “strongly” refuted any suggestion that its agreements were illegal.

Published Date:2019-11-22