Inside Mongolia’s cavernous parliament, politicians huddle in clusters, rushing between benches and locked-door meetings. A historic confidence vote looms over Prime Minister Oyun-Erdene Luvsannamsrai, whose grip on power is slipping amid corruption allegations and a populist backlash – sending tremors through the country’s most important foreign investment: the vast Oyu Tolgoi copper mine run by Rio Tinto.
The ASX-listed giant has already weathered two decades of turbulence in Mongolia. But the current political crisis – compounded by allegations levelled at the company and a fractured government – threatens to derail its most ambitious expansion, a multibillion-dollar underground mine that would make Oyu Tolgoi one of the world’s five biggest copper producers.
In a former socialist country that has transitioned more successfully to democracy than many others, Rio looms as both a lightning rod for government ire and, as the powerhouse of its economy, the first example politicians point to as a successful model for Mongolia’s future growth.
Street vendors in Mongolia. The country is dependent on resources revenues, making Rio Tinto a central player in the drama unfolding in the government. Bloomberg
A secret lawsuit filed by Mongolian authorities against Rio in Britain’s High Court is a case in point. The Australian Financial Review revealed last week that the company had been accused of involvement in a bribery scheme targeting at least two Mongolian politicians between 2008 and 2012.
Rio strongly denies the allegations, which remain sealed, and come at the same time as the company is in a dispute over $647 million in taxes. “Rio’s poor planning and flawed execution caused financial harm to Mongolia,” reads a passage from the Mongolian government’s confidential court filing, which alleges losses between $2 billion and $27 billion.
At the same time as those lawsuits, government members close to Oyun-Erdene insist that there needs to be stability so that companies like Rio aren’t scared away. They argue that it is only through deals like the one for Oyu Tolgoi – Mongolia owns 34 per cent of the project – that the country will be able to unlock its enormous reserves of natural resources.
“It was difficult to deal with Mongolia because leadership changed so frequently. You’d meet someone, then meet someone completely different the next time,” said Odbayar Erdenebileg, a government minister and the chairman of the national committee for monitoring and evaluation.
“But with this coalition, we’ve seen consistency. For example, the border railway issue involved more than 50 meetings over the years, but this time, a unified team quickly signed a memorandum and launched construction.
“Now, that progress is under threat. I believe foreign partners are in a state of shock. If the most inclusive and promising government structure in recent history collapses, it will seriously damage investor confidence.”
The threat Odbayar is talking about is Mongolian President Ukhnaagiin Khürelsükh, whom the government blames for fomenting unrest against Oyun-Erdene, in a bid to stay in power and manoeuvre around term limits which would otherwise mean he would have to leave office. Khürelsükh, a former prime minister, is close to Russia’s Vladimir Putin. Earlier this month, he attended a military parade in Moscow’s Red Square.
Oyun-Erdene is expected to allow a vote of no confidence in his government this week amid a scandal involving his family’s lavish lifestyle. The fiancée of Oyun-Erdene’s 23-year-old son Temuuleni, for instance, has posted pictures of her luxury bags, expensive rings and a Mercedes-Benz, prompting protest in a country where average monthly salaries are little over $1000.
Foreign investors are rattled. Mongolia’s democratic system, established in 1990 after the collapse of the Soviet Union, has withstood three decades of economic and political change, but its institutions remain young.
“It looks like corruption has been increasing, but actually it is just being disclosed more, which shows the democracy is working,” said Jargalsaikhan Dambadarjaa, an economist at the Defacto Institute, an Ulaanbaatar-based think tank. “People in Mongolia know we have these very rich deposits, but the economy is not competitive right now and inflation is high. The people need to see foreign investment translating into their lives.”
Rio arrived in Mongolia in 2006, when it bought 9.95 per cent of Oyu Tolgoi’s previous owner, Ivanhoe Mines. Over time it increased its stake and by 2012 it was the majority owner of the company, eventually renamed Turquoise Hill. It acquired the remainder of Turquoise Hill in 2022.
Oyu Tolgoi is expected to be one of the world’s top five copper producers later this decade, thanks to a seven-year underground expansion project that was completed in 2023 at a cost of $US7.06 billion ($11.11 billion). Ultimately, construction of the underground mine took almost two years longer than expected and cost almost $US1.7 billion more than planned.
The delays and cost blowouts have made Rio an easy target for parliamentarians and pundits in Mongolia, especially when criticism arises of how the government is managing the economy.
Part of the High Court lawsuit revealed by the Financial Review last week is a request for compensation. And the animosity appears to be both ways. The High Court filing also revealed that the Rio subsidiary that owns and operates Oyu Tolgoi demanded the Mongolian government repay $US371.9 million ($580 million) of excess taxes that it claims were wrongly collected by the government, the equivalent of 1.8 per cent of Mongolia’s GDP.
Rio argues that the complexity of the mine, and the size of the resource, requires it to be flexible about the development. Sometimes, that means higher costs and a different timeline to earlier plans.
“Oyu Tolgoi is one of the largest known copper deposits in the world,” said Munkhsukh Sukhbaatar, the managing director of strategy and growth at Rio’s copper division and the former director of Mongolia for the mining company.
“We are continuing to learn things about this deposit, so sometimes plans need to change, which is standard practice for a mining project of this scale and complexity. Rather than just constructing a building, this project is like a mission to Mars. We adjust as we learn more.”
Rio’s position is particularly precarious. The company needs government approval to expand into nearby tenements that would sustain Oyu Tolgoi’s peak output levels. The company has told investors it will reach those levels this year with a 50 per cent increase in production. But the mining licence for the nearby tenements is held by Canada’s Entrée Resources. Rio is waiting for the Mongolian government to approve the licence transfer.
Any freeze in government approvals or parliamentary paralysis could delay those plans by months – and cost hundreds of millions of dollars.
“Both sides are now working to find solutions within international legal frameworks,” said Odbayar, the government minister. “We must protect investor rights without compromising Mongolia’s national interest or the well-being of our people. Discussions are ongoing.”
Before the latest lawsuit, Rio chief executive Jakob Stausholm and the Mongolian government had attempted a public reset of their relationship. The company even waived $2.4 billion in loans owed by the government. Now, not only is Oyun-Erdene’s position in doubt, but Stausholm is leaving Rio, pushed out by the board after four years in the job. The board, it seems, wants someone with more technical experience who will cut costs.
In Mongolia, perhaps Rio’s best hope is the pressure Oyun-Erdene is under. To prop up his stalling government, those close to Oyun-Erdene point to his pro-business economic agenda, which is centred on a long-term development plan that has 14 megaprojects. Officials say it is vital to break Mongolia’s dependency on raw commodity exports and maintain a strong relationship with international money markets.
Five of those projects are moving ahead. These include a new railway link between Mongolia and China – its first in over 70 years – designed to slash freight times. Announced earlier this month, the project gives Mongolia a transport edge over regional rivals like Australia and Indonesia, which face longer shipping routes to Chinese ports. It is unclear who will fund the railway. A long-stalled uranium mining venture with French developers is also under way, as is the construction of a major hydroelectric power station that aims to reduce Mongolia’s dependence on energy imports.
Two other projects are nearing approval: another large-scale hydroelectric station and a long-awaited copper refinery. Officials close to the government’s economic team argue that all these projects have advanced faster than they would have under previous administrations.
“If [Oyun-Erdene] loses, the political chaos and instability will be a problem,” said one government minister who asked for anonymity. “We need to signal to the world that we are stable.”
“This is not the environment for making billion-dollar investment decisions,” said another.

Published Date:2025-06-02