Mongolia Parliament Allows Oyu Tolgoi Copper Talks

Mongolia can go ahead with talks with Western miners to develop the giant Oyu Tolgoi copper deposit, after a two-year effort to keep majority control of the project with the state.

Mongolia's parliament passed a vote allowing the state to proceed on Thursday. The decision gave the government the mandate to deal directly with investors Ivanhoe Mines and Rio Tinto.

The Mongolian side would initially hold not less than 34% of Oyu Tolgoi, gradually increasing to 50% after the miners recoup their investments, according to parliamentary records.

The parliamentary decision follows a stalemate of nearly two and a half years, as Ivanhoe resisted a government effort to own over 50% of the project, a move that the Canadian miner argued would make the deposit prohibitively expensive to develop.

Mongolia sought to be sure the potential wealth benefitted the landlocked nation, although some advisors said it could earn as much through properly structuring taxes and royalties.

Negotiators may consider designing a production sharing contract to develop Oyu Tolgoi. The agreement is also likely to address the infrastructure needs of the deposit, which lies in the Gobi desert.

After several years of rising commodity prices that brought unprecedented revenues to the government, Mongolia now faces a budget deficit for 2009 as the global financial crisis has caused copper prices to crash.

The parliament also authorised negotiations to begin for the huge Tavan Tolgoi coal project, which also lies in the Gobi. The majority of the rights to that project have already been acquired by the state from a consortium of Mongolian businessmen.

The Mongolian side will own not less than 51% of Tavan Tolgoi, Parliament said.

Mongolia has deferred for now considering revisions to the contentious minerals law, which the ruling party had sought to revise to give the state a majority stake in strategic deposits.

The 2006 version of the law allowed the state a share of up to 34% of deposits found with private funds and up to 50% of those found with state funds.

Lawmakers trying to balance the interests of the state with the need to attract investors may revisit a windfall tax on copper and gold, which also dates from the summer of 2006.

By Jargal Byambasuren, Reuters