A $5.4bn expansion of the Oyu Tolgoi project is set to go ahead ending a two-year dispute as Mongolia looks to boost its flagging economy

This article is more than 5 years old

This article is more than 5 years old

Mining giant Rio Tinto and Mongolia agreed a multibillion-dollar expansion of a vast copper and gold mine, officials said on Tuesday, ending a two-year dispute as Ulan Bator seeks to restore its foreign investor appeal.



The deal on the underground second phase of the Oyu Tolgoi project, estimated to cost $5.4bn, comes as Mongolia looks to boost its flagging economic growth after foreign direct investment plummeted by three quarters last year.

“Mongolia is back to business,” said Prime Minister Chimediin Saikhanbileg, according to a statement released by Rio Tinto.

“Unlocking Oyu Tolgoi’s underground mine will have a significant impact on the Mongolian economy, which will benefit Mongolian citizens for generations to come,” he added. “Our joint agreement clearly positions Mongolia as an attractive country for investment.”

Mongolia’s vast reserves of underground resources are estimated to be worth more than $1tn and it enjoyed world-leading economic growth in recent years –peaking at 17.5% in 2011 – on the back of a minerals boom exemplified by Oyu Tolgoi.

But efforts to extract the wealth have stumbled in the face of internal fighting over how much control and profit foreign companies should be allowed.

Oyu Tolgoi is a multibillion-dollar deposit and when it is in full production it is expected to provide as much as one-third of Ulan Bator’s annual revenues.

The government and Oyu Tolgoi’s shareholders have been locked in negotiations since 2013 on the second phase of the mine, with Ulan Bator alleging unpaid taxes and looking to renegotiate the ownership terms.

Rio subsidiary Turquoise Hill last year priced the underground expansion at $5.4bn. It will unlock 80% of Oyu Tolgoi’s value.

The statement said the two sides agreed on a financing plan for the next phase which “addresses the key outstanding shareholder issues and sets out an agreed basis for the funding of the project”.

“This is an extremely positive development for Mongolia and all those involved with Oyu Tolgoi,” Batsukh Galsan, chairman of the mine’s operating company, Oyu Tolgoi, LLC said.

Turquoise Hill owns 66% of the company and the Mongolian government holds 34%.

Rio Tinto added it has already ploughed $6bn into the mine, with $1.3bn paid in “taxes, fees and other payments”.

In 2014 foreign direct investment into the landlocked country plummeted 74%, Mongolian central bank data shows, and economic growth dropped to 7.8%.

Despite the minerals boom many citizens remain poor, and politicians in the country of three million have faced rising suspicion of foreign investors, concerns about environmental damage and how fairly mineral wealth is shared.