Mongolia wants to resolve mine dispute with Rio Tinto by early 2014

Wed Nov 20, 2013 11:42pm EST
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By David Stanway

BEIJING Nov 21 (Reuters) - Mongolia hopes the $5 billion expansion of a giant copper and gold mine can start next year as it works to resolve a dispute with global mining giant Rio Tinto, its partner on the project, a government source said.

But Rio Tinto may be reluctant to push on too quickly due to bleak market conditions, the source said, with copper prices down more than 10 percent in 2013 and expected to drop further on a flood of new supplies from South America and Africa. The company was not immediately available for comment.

Copper shipments from the first phase of the Oyu Tolgoi project started in June, but Rio Tinto put plans to build an underground mine on hold in late July amid complaints by Mongolia that costs had spiraled out of control and that its interests had not been fully served.

Mongolia, looking to find the revenues to fund ambitious social and infrastructure plans, is keen to press ahead with a project that is set to account for a third of its total economy by 2020 once the underground mine is built. Foreign investors also see the way the government develops Oyu Tolgoi as a key indicator of the country's willingness to do business.

"Our side is committed to starting the second phase as soon as possible and we can agree on certain issues in December or January and plan development," said the source, who is involved in Mongolia's discussions with Rio Tinto but did not want to disclose his name.

"Both sides are working on the updated feasibility study. After that, if both sides agree, there will be no challenges. I hope we can agree early next year."

With Rio's new chief executive Sam Walsh focused on slashing costs, cutting capital spending and paying down $22 billion in debt, there is some question on how soon the company would want to go ahead with the Oyu Tolgoi expansion.

"That is fine - we can understand that, but what we cannot accept is that the Mongolian government is the only reason for the delay ... I hope the market will understand that," the source said.   Continued...