Mining giant Rio Tinto Ltd (Public, ETR:CRA1) is sealing the deal with the government of Mongolia over a massive mining site.
Rio Tinto Ltd (RIO.AX) (RIO.L) and joint venture partner Canada’s Ivanhoe Mines Ltd (IVN.TO) (Public, NYSE:IVN) will sign documents later today, which will enable the start up of the $4 billion Olu Tolgoi project.
The partners have been waiting for years, as the miners and the government worked out a tax regime and government intervention details.
The site could produce 450,000 metric tons of copper annually with a mine life of 45 years.
Ivanhoe has spent $177 million on exploration and development at Oyu Tolgoi last year on top of the $279 million spent in 2007.
Three agreements linked with the development of the Oyutolgoi Gold & Copper Deposit will be signed on October 6th, government source said.
The first agreement is related to the investment of the Oyu Tolgoi project. On the Mongolian side, the signatories will be the Finance Minister S.Bayartsogt, Mineral and Energy Minister D.Zorigt, and the Environment and Tourism Minister L.Gansukh. On behalf of the investors, the Director of Ivanhoe Mines and Chief Executive of Rio Tinto Copper & Diamonds, Bret K. Clayton; the Managing Director of Ivanhoe Mines Mongolia, Keith Marshall and Deputy Chairman of Ivanhoe Mines, Peter Meredith.
The second agreement will be on the stocks ownership and signed by the Executive Director of Erdenet-MGL, B. Enebish and the Legal Affairs Manager of Ivanhoe Mines, John Foniani.
The third agreement will include the terms of payment of the deposit amount, and will be signed by the Finance Minister, S. Bayartsogt, and the Managing Director of Ivanhoe Mines Mongolia, Keith Marshall.
Rio Tinto said production was expected to commence in 2013 – 10 years after the Oyu Tolgoi deposit was discovered by the Robert Friedland-chaired Ivanhoe, which had originally planned to commission the mine in 2009, according to its 2005 integrated development plan.
Oyu Tolgoi, in the South Gobi region, is expected to produce 450,000 tonnes of copper and 330,000 ounces of gold per year for at least 35 years.
Under the terms of the agreement the Mongolian government will own 34% of Ivanhoe Mines Mongolia Inc LLC, the license holder of the Oyu Tolgoi Project. Key terms include a stable operational and tax environment, provisions dealing with the Government’s equity participation and financing arrangements.
After 6 years in the works, it is believed the Oyu Tolgoi investment agreement will set a precedent for future foreign mining company investments in Mongolia and it is believed the project will increase Mongolia’s GDP by 34% annually.
Rio Tinto initially made a US$303 million investment in a 9.95% shareholding in Ivanhoe Mines Ltd in October 2006 under the terms of a Placement Agreement, and has the obligation to invest US$388 million for a further 9.95% holding at the conclusion of an unconditional investment agreement with the Mongolian government.
