UPDATE 1-Mongolia looks at equity for royalties swap to break mining deadlock

Thu Feb 5, 2015 8:09pm EST
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* Mongolia plan could break Oyu Tolgoi deadlock

* Oyu Tolgoi copper expansion could boost economy by third

* Rio Tinto has long been against re-opening investment agreement (Adds comment from analyst, Turquoise Hill, Rio Tinto)

By Terrence Edwards

ULAN BATOR, Feb 5 (Reuters) - Mongolia is looking to revive stalled foreign investment in large mining projects by cutting its equity stake in strategic mines in exchange for more royalties, according to a government plan due to be unveiled on Friday.

The country holds some of the world's largest copper and coal deposits but its economy has been held back by disputes with foreign investors over assets such as the $6.5 billion Oyu Tolgoi copper mine.

Anglo-Australian miner Rio Tinto has stalled a $5.4 billion underground expansion project at Oyu Tolgoi, which could boost the economy by a third, because of arguments over cost overruns and $30 million in tax that the government says it owes.

On Friday, Prime Minister Chimed Saikhanbileg will propose in parliament an amendment to the mineral resources law to allow the government to exchange state-owned equity in "strategic mines" for higher royalties, according to a spokesperson for the prime minister.

Analysts said the move made sense for Mongolia which is keen to boost its revenue in the near term, but without knowing details on the size of the royalty, they said it was unclear whether it would be good for Rio Tinto, whose Turquoise Hill Resources arm owns two-thirds of the Oyu Tolgoi mine.   Continued...