By Elisabeth Behrmann and Jeffrey Sparshott
Of DOW JONES NEWSWIRES
(Adds comments from Rio Tinto, background.)
Mongolia's parliament Tuesday took a significant step forward in
paving the way for the development of the US$3 billion Oyu Tolgoi
copper-gold mine, which is seen as a blueprint for billions of
dollars worth of future mining investments in the country.
Parliament agreed to cancel a windfall profits tax on copper and
gold, and amended three other laws that were a major hurdle for a
final investment agreement for the project, miners Rio Tinto PLC
(RTP) and Ivanhoe Mines Ltd. (IVN.T) said.
"This is an incredibly important milestone in bringing onstream
one of the finest undeveloped copper-gold projects in the world,"
Rio Tinto Chief Executive Tom Albanese said in a statement.
Following the parliamentary greenlighting of the abolition of
the windfall tax, Mongolia's finance minister said he expected the
signing of a final investment agreement within the next two
weeks.
A Rio Tinto spokesman said that once that agreement was in
place, it will take about six months to conclude the Mongolian
feasibility study for the mammoth project.
Talks on an investment agreement have dragged on since 2003, and
hit a serious snag in 2006, when the country introduced a windfall
tax that emerged as a key sticking point between the government and
the miners.
But with the global financial crisis hitting investments in
general and Mongolia in need of new investments, parliament renewed
interest in getting the agreement off the ground.
Now, Mongolia's lawmakers have added a sunset provision to
cancel the three-year-old tax on copper and gold effective Jan. 1,
2011, Ivanhoe said. The windfall provision imposes a 68% tax on
copper sold above US$2,600 per metric ton and the gold price above
US$500 per troy ounce on the London Metal Exchange.
"Now we are in a position to make arrangements with the
government to sign the Oyu Tolgoi Investment Agreement in the near
future," Ivanhoe President John Macken said in a statement.
Oyu Tolgoi is owned by Canada's Ivanhoe Mines. Anglo-Australian
miner Rio Tinto holds a 9.95% stake in Ivanhoe after making an
initial US$303 million investment in 2006.
Rio has agreed to invest another US$388 million for a further
9.95% at the conclusion of a long-term investment agreement, with
an option to eventually increase the investment to US$2.3 billion
for a 46.65% stake.
Ivanhoe will release an updated cost estimate and development
plan in September-October, and will also have to raise money to
meet its funding obligation for Oyu Tolgoi, a person familiar with
the situation said.
Mongolia's government will have a 34% stake in the project.
The Oyu Tolgoi project is located in the South Gobi region just
north of the Chinese-Mongolian border, and is expected to produce
440,000 tons of copper and 320,000 ounces of gold annually, with a
45-year mine life.
Mongolia, on the doorstep of commodity-hungry China, is rich in
copper and gold, as well as containing significant coal and uranium
deposits.
The Tavan Tolgoi coal mine has already received a number of
expressions of interest from large international mining companies
such as Vale S.A. (VALE) and Peabody Energy Corp. (BTU).
Company Web site: http://www.riotinto.com
-By Jeffrey Sparshott and Elisabeth Behrmann, Dow Jones
Newswires; +61 2 8272 4689; jeffrey.sparshott@dowjones.com
