Mongolia submits agreement for Ivanhoe, Rio Tinto

ULAN BATOR, Mongolia: Mongolia has submitted a draft agreement to allow mining giants Ivanhoe Mines and Rio Tinto to mine at one of the country's largest gold and copper deposits. Mongolian Prime Minister Baya Sanjaa gave the investment agreement on the Oyu Tolgoi copper-gold project in Mongolia's South Gobi Region to parliament late Wednesday for approval. It requires a majority vote to pass. It is not known how long it will take for the approval. Canadian company Ivanhoe Mines, has been trying since 2001 to develop the potentially huge Oyu Tolgoi mine, but it has been held up by disagreements over how to share the wealth in a country suffering from widespread poverty and corruption. The Mongolian government is turning to mining to supply badly needed revenue for its $1.1 billion economic stimulus plan approved this week that aims to ease the crisis battering the resource-rich country as a result of falling commodity prices. Mongolia, with a population of 3 million people, has been walloped by the plunging value of copper, its main export. Ivanhoe Mines said in a statement on its Web site Tuesday that it welcomed the agreement, and that it would still have to be approved by the boards of Ivanhoe and its strategic partner Rio Tinto. The negotiation was conducted within the framework of Mongolia's 2006 Minerals law, which allows the state to own up to 34 percent of privately explored deposits, said Zorigt Dashdorj, minister of Minerals and Energy, who negotiated with the two mining giants. It will be signed for 30 years, after which the government's stake will rise to 50 percent. Mongolia will take $125 million as advance payment for royalty and taxes and at least 90 percent of the employees will be Mongolian. Zorigt said the companies will not pay a 68 percent windfall profits tax that had scuppered previous negotiations to develop the mines in late 2007. Instead in addition to the 25 percent corporate tax rate they will pay 30 percent tax as a royalty payment once the initial amount of investment plus an additional 29.9 percent has been recouped, he said. A copper smelting factory will also be set up in the country, he said. Mongolia is also negotiating rights for a large deposit of coking coal in the South Gobi region called Tavan Tolgoi, which has attracted interest from 10 international mining companies including China's Shenhua Energy, a Russian consortium led by Gazprom, and Australia's BHP Billiton.