LONDON/TORONTO (Reuters) - The Mongolian government, Ivanhoe Mines IVN.TO and partner Rio Tinto RIO.L have agreed to back a 2009 investment agreement for the Oyu Tolgoi copper-gold deposit, ending discussions over possible changes and sending shares of Ivanhoe up as much as 18 percent.
The news calmed investors, who had sold off the stock last month after Mongolia’s finance minister told local media that the government was discussing changes to the terms and conditions of the agreement.
The 2009 deal gave a 66 percent stake in the massive Oyu Tolgoi project in Mongolia’s South Gobi region to Canadian miner Ivanhoe, in which mining giant Rio Tinto RIO.AX now owns a 48.5 percent stake.
The Mongolian government holds the remaining 34 percent stake and can increase its stake to 50 percent after 30 years.
Some politicians had hoped Mongolia could increase its stake in the project faster than outlined in the existing agreement, but investors warned that populist policies could slow the country’s mining boom.
Wednesday’s joint statement said that “all parties have reaffirmed their continued support for the investment agreement and its implementation.” It sent Ivanhoe’s shares up as high as C$18.81 on the Toronto Stock Exchange. The stock was 11.52 percent higher at C$17.33 in the afternoon.
Rio Tinto’s UK-listed shares closed up 7.6 percent.
The statement said the shareholders were “united in their commitment to secure the necessary project finance and bring the Oyu Tolgoi project to completion and full production.”
Dahlman Rose mining analyst Adam Graf said the news was positive for the development of Oyu Tolgoi and for future mining projects in Mongolia.
“It shows that the contracts have held and that Mongolia honors contracts,” he said, noting that the government’s move may have been based more on politics than a real desire to change the pact.
Ivanhoe and Rio Tinto have already sunk billions of dollars into Oyu Tolgoi, which is expected to begin initial production in 2012.
They expect average annual output during its first 10 years of commercial production to exceed 650,000 ounces of gold, 3 million ounces of silver and 1.2 billion pounds (544,000 tonnes) of copper.
Reporting by Clara Ferreira-Marques in London and Julie Gordon in Toronto; editing by Janet Guttsman