2nd UPDATE: Mongolia,Ivanhoe,Rio Commit To Oyu Tolgoi;Shares Up

Anglo-Australian miner Rio Tinto PLC (RIO), Canada-based Ivanhoe Mines Ltd. (IVN.T) and the Mongolia government have reaffirmed their commitment to the original terms of the investment agreement to develop the massive Mongolian Oyu Tolgoi gold and copper project.

The joint statement marked a positive end to a standoff between the government and the project's stakeholders that had called into question the country's commitment to its foreign investment policy and its ability to avoid the pitfalls of resource nationalism.

Resource nationalism--where governments seek a larger take of profits from projects either through higher equity stakes or higher taxes--has slowed developments in other emerging economies with large reserves of industrial metals and energy, such as Pakistan, Guinea and Venezuela.

Mongolia is attracting billions of dollars in mining and infrastructure investments from Western companies aiming to ship copper and coal to support China's rapid industrialization. When it starts up in 2013, Oyu Tolgoi will catapult Mongolia into the top 10 global producers of copper, used in products ranging from power lines to air-conditioning systems.

In the run-up to Mongolia's general elections next year, the government began talking about a desire to accelerate a stake increase in the project from 34% to 50% rather than wait a requisite 30 years before doing so. The government also wanted to apply a sliding-scale royalty to the project.

The three partners "have concluded discussions on the two aspects of the Investment Agreement that were raised by the Government of Mongolia, and are pleased to confirm that all parties have reaffirmed their continued support for the Investment Agreement and its implementation," they said. The agreement can only be changed by mutual consent from all parties.

The three partners also noted that the shareholders were "united in their commitment to secure the necessary project finance and bring the Oyu Tolgoi Project to completion and full production."

Ivanhoe's shares rose as much as 21% before and paring back its gains to C$17.74, up 14.2% on the day. Rio Tinto's shares were up 7.2% at 3,113.5p while the FTSE-350 index was up 6.1%

Ivanhoe Mines discovered the Oyu Tolgoi deposits and holds a 66% interest in the project, while the Mongolian government owns the remaining 34% stake. Rio Tinto owns a 49% stake in Ivanhoe Mines.

The project is more than halfway done and is forecast to start commercial copper, gold and silver concentrate production in the first half 2013. It will be able to produce 450,000 metric tons of copper and 330,000 troy ounces of gold annually on average.

Rio and Ivanhoe forecast $6 billion will be invested in the project before it starts commercial production.

-By Alex MacDonald, Dow Jones Newswires; 44 20 7842 9328; alex.macdonald@dowjones.com ((David Winning in Sydney and Judy McKinnon in Quebec City contributed to this story)

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