* Minister says Mongolia wants to renegotiate agreement
* Ivanhoe says expects government to honor existing deal
* Ivanhoe shares down more than 12 pct on NYSE, TSX (Adds details on power supply; updates share price move)
By Euan Rocha and David Stanway
Sept 26 (Reuters) - Shares of Ivanhoe Mines (IVN.TO) fell more than 12 percent on Monday after Mongolia said it plans to renegotiate a landmark deal related to the development of the huge Oyu Tolgoi copper-gold project.
Vancouver-based Ivanhoe's shares tumbled on both the Toronto Stock Exchange and New York Stock Exchange, despite a strong statement from the company that it expects Mongolia to honor the existing investment pact, which was signed in 2009 following years of negotiations.
The existing investment agreement gave 66 percent of the multibillion-dollar Oyu Tolgoi project to Ivanhoe, with the rest held by the Mongolian government. The deal says the government can raise its stake to 50 percent after 30 years.
However, a group of 20 parliamentarians in Mongolia has submitted a petition to the government asking it to reopen negotiations to increase the government's stake.
Mongolia's mining minister, Dashdorj Zorigt, told reporters on Sunday that the government has submitted a revised agreement to Ivanhoe that would speed up the timetable for it to increase its stake to 50 percent.
Ivanhoe and Rio Tinto have already sunk billions of dollars into the project, which is expected to begin initial production in 2012. Average annual output from Oyu Tolgoi during its first 10 years of commercial production is expected to exceed 650,000 ounces of gold, 3 million ounces of silver and 1.2 billion pounds (544,000 tonnes) of copper.
Ivanhoe, which is led by well-known mining financier Robert Friedland, argues that the existing investment agreement for Oyu Tolgoi remains a fair and legally binding contract.
"The investment agreement has been fundamental in building Mongolia's reputation as an increasingly reliable and stable destination for foreign investment," the company said in its statement.
"I know the current agreement is based on law, but we need to change it," G. Bayarsaikhan, a lawmaker who signed the petition, told Reuters.
"I know foreign companies are working in a high-risk environment, but the interests of both sides need to be taken into account," he said. "Trust is the basis of business but any agreement must be of benefit to both sides. Agreements are made to be revised."
Bayarsaikhan said the petition calls for the ownership terms to be changed as soon as the foreign companies investing in the project recover their investment.
"It could be five years, six years or 10 years," he said.
Political opinion in Mongolia on the subject is not unanimous, however. Sanjaasuren Oyun, a former foreign minister and a current member of parliament, said the country should honor the existing pact.
"We shouldn't focus on Oyu Tolgoi - Oyu Tolgoi is already done," he told Reuters in an interview. "The agreement should stay. It shouldn't be changed."
The growing uncertainty around the agreement led to a sharp sell-off in Ivanhoe shares on Monday. The stock was down 12.6 percent at $13.99 on the NYSE and down 12.4 percent at C$14.47 in Toronto. Rio Tinto shares ended the day down 0.7 percent at 2,945.77 pence on the London Stock Exchange.
Ivanhoe shares, which touched a record high of C$28.98 on the Toronto Stock Exchange in February, have dropped roughly 50 percent since then on concerns about the global economy and the price of copper, along with fears that Mongolia would try to renegotiate the investment agreement.
Ivanhoe also said recent comments from Rio executives about a possible delay in the delivery of electric power to Oyu Tolgoi were not accurate.
The company said it remains confident that "the necessary agreements between Mongolia and China will be satisfactorily concluded to secure the timely supply of interim, high-voltage electric power from China to ensure that Oyu Tolgoi can begin commercial production on schedule."
"Ivanhoe will be informing Rio Tinto of its objections to a number of recent statements and will ask Rio Tinto to adhere to a policy of public disclosure that is accurate, clear and complete on key details and fair to all Ivanhoe shareholders," the company said.
$1=$1.03 Canadian Reporting by David Stanway in Ulan Bator and Euan Rocha in Toronto; Editing by Lisa Von Ahn and Peter Galloway