MPs Approve All Changes, OT Agreement In Two Weeks

bcm-oyu-tolgoiThe special session of Parliament did what it was widely expected to do, and also did it faster at the end. Around 8 on Tuesday evening Parliament approved the last of the four amendments the Government had proposed to facilitate an agreement with the investors in the Oyu Tolgoi project, allowing a relieved and jubilant Rio Tinto CEO Tom Albanese to say in distant Canada, "This is an incredibly important milestone in bringing onstream one of the finest undeveloped copper-gold projects in the world.”

As shares in Vancouver-based Ivanhoe rose 24% in Toronto on receipt of the news, Rio and Ivanhoe both said they now expect to formally sign the agreement with the Government of Mongolia “in the near future”. The Mongolian Finance Minister has said the signing will take place within two weeks.

"The votes today by overwhelming majorities of the members present for the special session of Parliament represent a significant step in Mongolia's commitment to attract foreign investment in the development of the country's mineral resources," Ivanhoe president John Macken said. He was certainly right about the majority support for the amendments. After long months of acrimonious bickering and maddening uncertainty, the MPs approved changes to the law on water by a 90.9 percent majority, to the law on roads by 88.3 percent, and to the corporate income tax by 86.9 percent. The annulment of the windfall profits tax with effect from January 1, 2011 remained the most contentious to the end, but only statistically so, gaining 85 percent support.

Some of its opponents remained unconvinced to the end. Mr. N.Batbayar, one of the MPS who had initiated the tax that was passed in 2006, said after the vote, “The Mongolian Government has just gifted USD20 billion to foreign companies.” Many of the MPs who did favor the annulment shared his concern that the tax, which has brought MNT960 billion to the state budget, will be difficult to replace. The Government’s answer has been that times have changed, the tax has served its purpose, and continuing with it would scare away investment, killing the goose that laid the golden eggs.

The agreement gives the Government 34% shares in Ivanhoe Mines Mongolia, the company that will run the project. Other key terms include a stable and operational tax environment in relation to the development and operation of the project and certainty regarding the term of the investment.

Rio Tinto owns just under 10% of Ivanhoe at present, but an agreement the two companies signed in 2006 allows it to buy another 9.95% for USD388 million when the investment agreement is signed. Rio also gave Ivanhoe a USD350-million loan in 2007 so that project development could continue. Rio could increase its holding of Ivanhoe to approximately 46.5% if all its options are converted to shares.

Ivanhoe expects construction of the mine to take 30 months, but work will begin only after the agreement is approved and signed by the Government and both companies' boards. At the moment, production is targeted for as early as 2013, with a five-year ramp up to full output, Rio said on Tuesday.The Oyu Tolgoi project is located in the South Gobi region just north of the Chinese-Mongolian border, and is expected to produce 440,000 tons of copper and 320,000 ounces of gold annually, with a 45-year mine life.


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Archived Comments
2009-09-01 08:34:30
Mongols have committed the biggest mistake. It was necessary to expel Ivanhoe Mines and Rio Tinto from Mongolia. I hate them.
2009-09-01 15:27:41
Your just a loser who does not understnad business, grow up and get a life, do you want Mongolia to be poor forever??
2009-09-02 06:02:28
Fair deal. Good for both sides. ;)
2009-09-02 08:34:03
This is unfair deal. Due to Ivanhoe Mines and Rio Rinto mongols will be poor forever.
to "nowak"
2009-09-03 05:54:07
'nowak': instead af making ridiculous claims, would you care to enlighten the rest of the educated and rational world, or at least the readers of this website and it's comments, why exactly the deal is unfair and why exactly "because of Ivanhoe Mines and Rio Tinto Mongols will be poor forever"? It would interest me very much to see what you base you comments on. Surely they can not be based on ignorance or lack of understanding basic economic principles. Looking forward to your insight.