Mongolia to grill Rio over Oyu Tolgoi costs-govt source

Tue Feb 5, 2013 11:06pm EST
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By David Stanway

Feb 6 (Reuters) - Mongolia will press global miner Rio Tinto to explain a spike in costs at the huge Oyu Tolgoi copper and gold mine, a government source told Reuters, warning that it could threaten efforts to finance other projects in the country.

Oyu Tolgoi, 34 percent owned by Mongolia and controlled by Rio Tinto, produced its first concentrate last week and is on track to start supplying metal and paying royalties by June.

But the government, which is due to hold talks with Rio Tinto on Wednesday, is under pressure to plug a budget deficit and increase its share of the wealth.

"We would like to have some mechanism where we can control such cost increases. We do not know if they are justified," said the source, who requested anonymity and said that the cost of the first-phase of the mine was around $2 billion higher than originally stated in the project's feasibility study.

"We also want to know why our share of the revenues from the project has fallen so much, so at least we can understand it and explain it to the people," he said.

A statement issued on Oyu Tolgoi's website ( late on Tuesday put the total capital required for the project's first phase at $6.6 billion, compared to $5.7 billion in the original 2010 feasibility study.

It said concerns about the costs of the project had already been addressed in a series of meetings between both sides.

"The fact that these issues are still being raised underscores the importance of our ongoing efforts to communicate fully with the government and citizens of Mongolia," Oyu Tolgoi chief executive Cameron McRae said in the statement.   Continued...