* Important that production start on time-official
* Some politicians believe Rio taking advantage of country
* Government concerned rising costs will delay payoff for
By Rujun Shen
SINGAPORE, March 14 Mongolian officials tried on
Thursday to calm fears that disagreements between the government
and miner Rio Tinto Ltd would delay a planned June start
of commercial production at the giant Oyu Tolgoi copper and gold
Rio and Mongolia are at loggerheads over the future of one
of the world's largest untapped copper deposits just as the mine
ramps up output and the Rio subsidiary that owns it tries to
line up $4 billion for the next stage of development.
The mine is operating under a temporary budget after the two
sides failed to agree on a deal last month, having disagreed
over taxes and rising costs that Mongolia fears will erode
prospective earnings. They are set to meet again next week.
"The Mongolian government and the investor both highlight
the importance that the production should start on time,"
Dorjsuren Javkhlanbold, a senior official at Mongolia's mines
ministry, told Reuters on the sidelines of a conference.
"We have a joint understanding of what we are going to do.
We need to make several clarifications (to) our investment
agreement and we are confident the revision will soon be
The high-stakes tussle is a major test for Mongolia's
ambitions to become a destination for mining investment, but
also for Rio and its new boss, pushing to diversify earnings
away from steelmaking ingredient iron ore.
Rio Tinto and Oyu Tolgoi owner Ivanhoe Mines - now called
Turquoise Hill Resources - signed an investment
agreement with Mongolia in 2009. The government last year stood
by the deal despite calls from politicians to amend it.
That agreement gave Mongolia a 34 percent stake in the
project and allows the government to increase that to 50 percent
after the first 30 years of operation. It provided for the state
to receive a 5 percent royalty on sales and set the company's
effective corporate tax rate at 25 percent.
The government has now raised concerns about rising costs
that will delay the state receiving its share of profits from
the mine and is looking for ways to increase the benefits for
the country's impoverished population.
Nationalist politicians believe Rio is taking advantage of
the country and want independent experts to ensure operating and
capital costs are being properly controlled.
Javkhlanbold said the amount of initial investment - which
he said had risen from $4.7 billion to $7.1 billion - was key to
the discussion. Oyu Tolgoi puts total capital required for the
project's first phase at $6.6 billion.
"It is important to make the rules of the game clear," he
said in Singapore. "If we don't have clear rules, we will
misunderstand each other and after a long time this
misunderstanding will become conflicts between the investor and
Rio is the largest single investor in Mongolia - a country
where livestock outnumber people 15 to one - and one of few with
the financial might and technological know-how to build and run
a giant mine.
Rio Tinto has already delayed a feasibility study on the
project's second stage, which could cost some $7 billion
according to analyst estimates.