UPDATE 1-Mongolia woos back miners after investment slump18 minutes ago by Thomson Reuters * Mongolia sees Oyu Tolgoi dispute settled soon
* Oyu Tolgoi CEO sees "constructive progress" in talks
* Tavan Tolgoi IPO set back "2 to 3 years" - government official
By Clara Ferreira-Marques
LONDON, April 17 (Reuters) - Mongolia, hoping to arrest a slide in investment into its mining sector, is planning a new law it says will increase stability by reassuring investors their money will be protected from future rule changes.
Foreign direct investment into Mongolia dropped 17 percent to $3.9 billion in 2012, coinciding with a string of moves by the government that deterred investments in copper and coal.
Regulatory concerns peaked earlier this year when Rio Tinto threatened to delay the start-up of the $6.2 billion Oyu Tolgoi copper and gold mine until it resolves differences with the government over their investment agreement.
Ochirbat Chuluunbat, deputy minister for economic development, said the government was confident of resolving the dispute with Rio within as little as "several weeks".
But it is also seeking to woo back investors with a law that will make all new investments subject to existing legislation, rather than governed by bilateral deals which might be challenged or reinterpreted by the parties at a later date.
"In the last six months we have noticed a slowdown of economic growth in Mongolia due to the reduction of foreign direct investment," Chuluunbat said, speaking on the sidelines of a London conference on Mongolian investment.
"So we have drafted a new law. We want to send a very strong message on the stability and clarity of the treatment of foreign investors in the future in Mongolia - if you invest today, your investment will be regulated over 5, 10, 20 years, by laws of today - future amendments will not affect the rules of today."
Chuluunbat said the law, which could be put to parliament before July, was based on legislation in Canada, Australia and Chile. Mongolia is currently pushing through separate rules on foreign investment in strategic sectors, regulating investment by foreign state-owned investors.
"There will be no restrictions on the amount of foreign investment if it is coming from the private sector," he said.
Rio and the government of Mongolia have been at loggerheads over issues including the rising cost of the Oyu Tolgoi mine - which delays the government's ability to benefit more fully from profits - and disagreements over tax pre-payments.
"There is no big problem," Chuluunbat said, adding he expected a solution to be agreed before June elections.
Oyu Tolgoi CEO Cameron McRae told the conference the mine was on track to begin commercial production in June, adding there was "constructive progress" in talks with government.
"Whilst some of the issues are complex, I am confident these discussions will resolve them and we will deliver the promise of Oyu Tolgoi together," he said.
The high-stakes tussle is a major test for Mongolia's ambitions to become a destination for mining investment, but also for Rio and its new boss, pushing to diversify earnings away from steelmaking ingredient iron ore.
TAVAN TOLGOI ON ICE
Mongolia's flagship coal project, Tavan Tolgoi, has also hit trouble and Chuluunbat said an initial public offering of state-owned Erdenes Tavan Tolgoi would be put off for at least two to three years while the mine is developed.
"It will take some time for TT to go public. The operations are in bad shape and financials are not proven - we want to upgrade the operations over the next two to three years, increase the valuations of the assets, and that will enable us to get a good price," Chuluunbat said, adding there would also be a push to cut costs at Tavan Tolgoi.
"If objectives are not achieved it could be further (down the line)."
Erdenes Tavan Tolgoi, which runs the much-delayed 7.5 billion-tonne development, is seeking to renegotiate a supply contract with the Aluminium Corporation of China (Chalco) , seeking to bring prices for its coal sales into line with international levels.
Analysts have said the price could be as much as $20 per tonne cheaper than the average prices of Mongolian coal delivered into China, which are already much lower than international rates. [ID:nL4N0AX2AM ]
Chuluunbat said negotiations with Chalco were ongoing.