RE:RE:China and Rio Tinto ...... "Rio controls the project through a majority stake in
Turquoise Hill, which has 66 per cent of OT while Mongolia owns 34 per cent." TRQ is mentioned in the article as if it is a footnote, nothing important.
The article is a good summary:
When complete Oyu Tolgoi – known as “OT” – will have an underground mine alongside the operating open pit and should be producing 400,000 tonnes annually, making it one of the world’s biggest copper mines and helping to reduce Rio’s heavy reliance on iron ore for most of its earnings.
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The underground part of OT will cost a further $5bn to $6bn and yield most of the project’s benefit. However, its development is on hold after disagreements between Rio and the Mongolian government, which wants to rethink the split of revenues between and the state over the decades-long life of the project.
Rio’s start-up of OT has also been hit by problems moving copper concentrate across the Mongolian border into China, just 80km away and the only realistic market for the mine’s output. Shipments from OT have gone no further than a Chinese bonded warehouse because customers have not yet obtained approval from customs officials to collect the concentrate. Rio can recognise revenues from OT only once copper leaves the warehouse.
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Rio, which has Chinese state aluminium groupChinalcoas its largest shareholder with more than 12 per cent, indicated on Tuesday that the customs issue should be solved by the end of the year.
The dispute with Mongolia may be harder to resolve. Delays and cost overruns on OT jeopardise planned revenue flows for the government, which is prohibited from running deficits of more than 2 per cent. According to the OT investment agreement, the government does not start to see returns until investors including Rio have recouped their costs. But buoyed by optimism over the prospect of a national windfall, politicians have made a series of popular budgetary commitments to the Mongolian people, including a costly commitment to cap interest rates on mortgages.
Munkhdal Badral, chief executive of market intelligence firm Cover Mongolia, says: “Cost overruns and the project financing are all things that the government of Mongolia probably didn’t figure in at the time of the agreement signing.”
Rio is expected to insist it will not renegotiate the investment agreement and cannot guarantee Mongolia’s level of dividends from OT.
Analysts at Bernstein Research welcomed Rio’s firm line. “The historical precedent for both developed and emerging countries’ governments to demand an increased share of rents extracted along with the minerals from their soil cannot be ignored. We believe that this is ultimately a self-defeating strategy by host governments, but it is one with an impressively long pedigree,” they said.
A person familiar with Rio’s thinking on the project said: “This is a 100-year project. You can’t renegotiate, make a poor deal and then pay for it every day for the next 50 or 100 years. The platform has to be stable.”