(Updates with ministry statement in third paragraph.)
March 1 (Bloomberg) -- Turquoise Hill Resources Ltd., the Rio Tinto Group unit in charge of the Oyu Tolgoi copper and gold project, said construction funding was extended while talks continue with Mongolia’s government to resolve disputes.
“The Oyu Tolgoi LLC board has approved continued funding to progress the project,” Vancouver-based Turquoise Hill said in a statement. “All parties have agreed to continue discussions during March 2013, with a goal of resolving the issues in the near term.”
A dispute between Rio and Mongolia escalated this year as President Tsakhia Elbegdorj called for more control of the $6.6 billion project. The talks extension is crucial for Oyu Tolgoi, in which Turquoise Hill holds 66 percent, as an interim two- month budget ended yesterday. Oyu Tolgoi’s annual budget for 2013 has not been approved yet by both parties, Mongolia’s mining ministry said in a statement posted on its website today.
“The reports of progress between the two shareholders of Oyu Tolgoi is certainly welcome news,” said Jackson Cox, founder of Ulan Bator-based consulting firm Woodmont International. “They aren’t out of the woods yet and as long as differences remain it will be important for both sides to redouble efforts so that this critical project can move forward in confidence.”
The conflict over Oyu Tolgoi, which will account for 30 percent of Mongolia’s economy at full production, centers on cost overruns, financing, taxes and more locals in Oyu Tolgoi management.
Mongolia temporarily froze Rio’s local bank accounts as part of a tax dispute, while the company has considered idling Oyu Tolgoi until all issues are solved, people familiar with the matter said in January.
Mining minister Davaajav Gankhuyag said yesterday the government plans to charge Oyu Tolgoi interest on unpaid tax. The company denies it has any taxes due.
“Our shareholders have been working through a number of issues, but everyone shares a strong commitment to the success of Oyu Tolgoi,” Chief Executive Officer Cameron McRae said in a statement today. “Some of the issues are complex, so it’s natural that resolution is taking some time.”
Bruce Tobin, a Melbourne-based spokesman for Rio Tinto, declined to comment on the talks with the Mongolian government and the extension of discussions.
Oyu Tolgoi will begin production as planned by the end of June, subject to a resolution, Turquoise Hill said in the statement dated yesterday.
“Oyu Tolgoi producing as planned by the end of June is definitely a good thing for both entities,” said Vidur Jain, an analyst at Ulan Bator-based Monet Capital Investment Bank. The continued talks will “hopefully” produce a framework on how disputes between the two sides can be avoided in the future, he said.
--With assistance from Elisabeth Behrmann and Keith Gosman in Sydney. Editors: Abhay Singh, Peter Langan