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Economy / Featured News / Mining / Mongolia News / December 12, 2014

Mongolia Prime Minister Says He’ll Fix Conflict With Rio Tinto

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By Michael Kohn.

Promising no more business as usual, Mongolia’s new Prime Minister Saikhanbileg Chimed said his priority is to resolve a dispute with the country’s biggest foreign investor, Rio Tinto Group, over developing one of the world’s largest copper and gold mines.

In the midst of naming his new cabinet this week, Saikhanbileg met with the chief executive officer of Rio’s copper division Jean-Sebastien Jacques for what were described as highly constructive and collaborative talks, according to a person familiar with the discussions who asked not to be named because the meeting was private.

Saikhanbileg has brought other parties into his cabinet in an attempt to forge what he’s called a Grand Coalition government of national unity. He’s said he’ll focus on fixing an economy that went from fast lane to braking hard, almost in lock step with the Rio conflict.

The cabinet was announced on Wednesday in an English-language e-mailed statement from Mongolia’s Ministry of Foreign Affairs, a communication which is itself unusual and may indicate a fresh approach to foreign investors. That may be welcome news to Justin Kapla, a U.S. businessman prevented from leaving the country for two years due to allegations of tax evasion. He hasn’t been charged or jailed, just told he can’t leave.

Meeting Rio

Jacques will meet with other ministers this week including Minister without Portfolio Enkhsaikhan Mendsaikhan, the person said.

Enkhsaikhan, a former prime minister, will have a role in advancing large projects in the country. He declined to comment on any possible involvement in negotiations about the disputed mine, known as Oyu Tolgoi or Turquoise Hill.

Brian White, a spokesman for Oyu Tolgoi LLC in the capital Ulaanbaatar, declined to comment on any developments with Mongolia’s new government.

Between fighting with Rio and detaining Kapla, Mongolia managed to scare off investment and then watched as its economy went from fastest expansion in the world — 17.5 percent in 2011 — to also-ran — 7 percent through the first nine months of 2014.

Overseas investment in the country went from about $4 billion in the first 10 months of 2012 to $791 million in the same period this year.

That cost the previous prime minister his job and gives Saikhanbileg a chance to convince the foreigners to come back.

Politicized

Oyu Tolgoi and Rio Tinto’s majority control of the mine became politicized when backbench lawmakers began questioning the ownership structure. The issue then became part of election platforms warning that foreigners were pillaging the country’s mineral wealth.

A 2009 Investment Agreement gave 66 percent of the mine to Vancouver-based Turquoise Hill Resources Ltd. (TRQ) and 34 percent to the Mongolian government. Rio controls the project through its majority ownership of Turquoise Hill.

Relations between the two owners turned nasty in 2013 as construction costs for the phase one surface pit went over budget. Then they got worse in wrangles over taxes and the number of locals in management. Oyu Tolgoi’s bank accounts were frozen at one point.

The disputes have held up about $4 billion in project financing for the underground phase of the mine, where most of the copper and gold is. Getting the project moving again will require the signing of a Memorandum of Understanding declaring all past issues resolved.

The prime minister said he’ll need to brief Parliament on his plan and seek political backing from his government and that will take some time, Byambasaikhan Bayanjargal, chairman of the Business Council of Mongolia, said on Dec. 10.

“The fact that we have a Grand Coalition now paves the way for a resolution, Byambasaikhan said. ‘‘You need everyone on the same side of the table.’’

To contact the reporter on this story: Michael Kohn in Ulaanbaatar at mkohn5@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net Peter Langan

SOURCE: bloomberg




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