UPDATE: Rio Tinto: Has Go Ahead For Mongolian Copper Project

Anglo-Australian miner Rio Tinto PLC (RTP) said Wednesday that the investment agreement for the $4 billion Mongolian Oyu Tolgoi copper-gold mine has become binding and the project will now move into its development phase.

Under the investment agreement, the Mongolian government will own 34% of OT LLC, the license holder of the Oyu Tolgoi project. Mongolia's interest will be held through the state-owned, sovereign-wealth resources company, Erdenes MGL LLC.

The project is being developed by the mine's owner, 66% owner Canada-based miner Ivanhoe Mines Ltd (IVN.T) and Rio Tinto, which holds a 22.4% stake in Ivanhoe and will help develop the project.

The investment agreement marks an important milestone for the development of the project and for mining investment in the country, which has some of the world's largest untapped reserves of coal, copper and other commodities.

"We plan to be a partner in Mongolia for decades to come and are looking forward to moving into the development phase of the project," said Andrew Harding, Chief Executive of Rio Tinto's Copper Group.

At the end of 2009, Ivanhoe Mines had invested about $1 billion in the exploration and development of Oyu Tolgoi since acquiring the exploration licences in 2000. An estimated additional $4 billion will be required from the project's partners to build and commission the mining complex.

"After nine years of discoveries at Oyu Tolgoi, a big piece of the future of copper and gold in Asia is poised to become a reality," said Ivanhoe Mines Executive Chairman Robert Friedland. "With this Investment Agreement taking full effect, we now have a long-term partnership and a definitive blueprint to start building that future at Oyu Tolgoi."

Like other mineral-rich but underdeveloped countries, Mongolia has struggled to attract major investment during the recent global commodity boom because of an uncertain regulatory environment and efforts to secure mining profits. The investment agreement includes key terms regarding a stable operational and tax environment, provisions dealing with the Government's equity participation and financing arrangements.

A clear framework for taxation and government involvement for Oyu Tolgoi is expected to pave the way for billions of dollars of future investment.

The Mongolian Government said in a statement issued in Ulaanbaatar that the completion of the investment agreement will give a "significant boost to the economic and financial development of Mongolia, create large-scale infrastructure projects and the establishment of new urban centers and improve the livelihoods of Mongolian families."

Rio Tinto said the cost to build and commission the mining complex is expected to be about $4 billion, though the final projections are yet to be confirmed. A decision to build a coal-fired power plant for Oyu Tolgoi would require an additional capital commitment, the miner said.

The mine, located in the South Gobi Desert just north of the Chinese-Mongolian border, is expected to produce 450,000 metric tons of copper, about 3% of global supply, and 330,000 troy ounces of gold, with a mine life of 45 years. Production is expected to start in 2013 and take five years to reach full output.

Company Web Site: http://www.riotinto.com

-By Alex MacDonald, Dow Jones Newswires; +44 (0)20 7842 9328; alex.macdonald@dowjones.com (Jeffrey Sparshott, Elisabeth Behrmann and Andrea Hotter contributed to this article)

Ivanhoe Mines (NYSE:IVN)
Historical Stock Chart
From Jun 2024 to Jul 2024