Rio Tinto Group

Rio Tinto may halt work at mine in protest at Mongolian demands

Mining giant 'discussing temporary stop to work' after government demands bigger cut

PUBLISHED : Friday, 01 February, 2013, 12:00am
UPDATED : Friday, 01 February, 2013, 5:23am

Rio Tinto Group is considering a temporary halt to construction work at its US$6.2 billion Oyu Tolgoi copper and gold project in Mongolia as the government demands a greater share of profit from the mine, according to two people familiar with the plans.

The group, based in London and the second-biggest mining company in the world, is discussing the suspension of building to protest at Mongolia's demands for a bigger stake in the project and new mining royalty rates, the sources said.

A suspension of work, which may halt mining and processing, is not certain, and is among options that managers are discussing in London, one of the people said.

Bruce Tobin, a spokesman for Rio in Melbourne, said: "We continue to work together with all stakeholders, including the government of Mongolia, to bring the benefits of Oyu Tolgoi to all parties."

He declined to comment on whether Rio was considering a temporary halt.

The dispute comes as the government of Mongolian prime minister Norovyn Altankhuyag tries to maintain support for foreign investment amid growing nationalism and wealth disparity. In October, Rio rejected a second move by Mongolia to renegotiate a 2009 investment agreement for the development of Oyu Tolgoi, which is the world's biggest copper project under construction.

At full capacity , the mine will account for almost a third of Mongolia's economic output. It is on schedule to start commercial production in the first half, Tobin said. The first ore has been mined and the concentrator, which processes the raw material at the site, has been switched on, he said.

Richard Knights, a mining analyst at Liberum Capital in London, said: "Whilst a shutdown would be negative in the short term, the fact such a move is under consideration suggests Rio is prepared to play hardball to retain its stake in the project."

The mine may contribute 2.2 per cent of the company's earnings before interest, tax depreciation and amortisation this year, Knights said.

Rio's 2013 ebitda will be US$22.2 billion, according to the average of 25 analysts' estimates compiled by Bloomberg.