-- Mongolia suspends mining licenses for explorer part-owned by
Rio Tinto
-- Suspensions ratchet up pressure in dispute over Oyu
Tolgoi
-- Rio Tinto, Mongolian officials meet to discuss huge copper
and gold mine
(Adds further detail and background throughout.)
By Robb M. Stewart and Alex Frangos
Mongolia suspended two mining permits for a Canadian gold and
copper explorer partly owned by Rio Tinto PLC (RIO), raising the
stakes in a dispute over the huge Oyu Tolgoi development in the
Gobi Desert.
Entree Gold Ltd. (EGI), which has been prospecting on land
surrounding the Oyu Tolgoi gold and copper mine, said late
Wednesday two licenses were suspended and a government order
related to the conversion of an exploration permit into a mining
license was cancelled. Rio Tinto controls the Oyu Tolgoi mine, and
owns about 24% of Entree, through its holdings in Toronto-listed
Turquoise Hill Resources Ltd. (TRQ).
Rio Tinto had no immediate comment Thursday. The suspensions
come as company executives are meeting with the Mongolian
government in the capital, Ulan Bator, this week in a bid to
resolve differences over Oyu Tolgoi. Mongolia is refusing to
support Rio Tinto's efforts to raise as much as $6 billion in loans
tied to the mine. Rio Tinto Chief Executive Sam Walsh this month
said the dispute put investment by the mining giant and others in
the emerging Asian nation at risk. Oyu Tolgoi is the country's
biggest investment project.
Under a 2009 agreement, the government holds a 34% stake in Oyu
Tolgoi. Government officials have complained that the
Anglo-Australian miner hasn't been transparent about the operation
and has structured the project's capital in a way that benefits the
miner at the expense of the government.
It isn't the first time Mongolia has canceled mining permits.
Last year, the government suspended licenses for another Rio
Tinto-controlled company, coal miner South Gobi Resources Ltd.
(SGQ.T), in an apparent attempt, according to analysts, to block a
takeover of South Gobi by state-owned Aluminum Corp. of China Ltd.
(ACH). China's voracious appetite for commodities gives neighboring
Mongolia a ready-made, nearby market for its exports. At the same
time Mongolia is wary of letting its biggest customer directly
control its resources. The mining licenses were restored after the
proposed takeover deal was dropped.
Mongolia, a land-locked nation of 2.7 million people, has
stirred interest among foreign investors and mining companies
because of its vast, mostly undeveloped reserves of coal, iron ore,
copper, gold and other minerals.
Despite the latest dispute, the Mongolian government has
signaled it is wary of scaring off foreign investment. A
controversial proposal to change the country's mining law, giving
the state more control over private projects, was recently shelved
until after a presidential election scheduled for June.
Entree said the temporary suspension of the mining licenses
means they can't be transferred or sold. The company said it
believes it has complied with Mongolian laws and regulations and is
working to resolve the matter. Its shares fell 10% in Toronto
Tuesday to close at 45 Canadian cents.
Rio Tinto has said it hopes to close project financing for Oyu
Tolgoi this quarter. A consortium including private banks, the
European Bank for Reconstruction and Development and the World
Bank's International Finance Corp. are involved.
The company plans to begin commercial production from the mine
by the end of June. Over its life, Oyu Tolgoi is expected to
produce an average of 425,000 tons of copper and 460,000 ounces of
gold a year.
Commerzbank analysts said in a research note the government
dispute could delay the mine, possibly leading to a
lower-than-expected global copper supply surplus this year.
Write to Robb M. Stewart at robb.stewart@wsj.com and Alex
Frangos at alex.frangos@wsj.com
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