Rio Tinto (NYSE:RIO) and its Turquoise Hill (NYSE:TRQ) subsidiary move closer to getting the Oyu Tolgoi copper project back on track, after Mongolia's vice minister of mining confirms a tax dispute has been resolved for a $30M payment, far less than the $130M the government originally said was owed.
Resolution of the tax issue solves the major dispute between Mongolia and Rio, and provides hope that other disputes over the cost of building the $6B second stage of the Oyu Tolgoi mine can be solved quickly.
In maintaining its Outperform rating, Cowen says the resolution removes a major hurdle towards eventual development of Oyu Tolgoi underground; following an official resolution, development should proceed once a feasibility study has been completed, which could be as soon as this year (Briefing.com).
Turquoise Hill (NYSE:TRQ) says Q2 concentrate production at the Oyu Tolgoi mine in Mongolia returned to normal rates after recovering from Q1 repairs, while metal production was impacted by lower-grade ore due to delayed mine advancement.
TRQ continues to expect Oyu Tolgoi to produce 135K-160K metric tons of copper and 600K-700K oz. of gold in concentrates for 2014.
Q2 concentrate sales rose significantly due to ongoing improvements in customer logistics and marketing, prompting sales to exceed production and resulting in an inventory drawdown for the quarter.
Turquoise Hill (TRQ) says it has filed a notice of dispute with Mongolia's government following a recent audit report which claimed unpaid taxes, penalties and disallowed entitlements connected with the initial development of the Oyu Tolgoi copper mine.
TRQ says it has paid all taxes and charges required, and that it "strongly disagrees" with the audit report.
Next comes a 60-day period during which a settlement could be negotiated; if that fails, the dispute could be referred to international arbitration , a process that could add to the often delayed Oyu Tolgoi project.
Rio Tinto's (RIO +1.8%) $6.2B Oyu Tolgoi copper and gold project in Mongolia hits another snag, as Turquoise Hill Resources (TRQ -4.1%), the Rio-owned mining company that owns the rights to the mine, is handed a new audit claiming unpaid taxes and penalties.
TRQ says it disputes the government's claims and that a failure to resolve the issue before the end of the month could jeopardize the mine's next phase of development.
RIO and TRQ say they may consider taking Mongolia to international arbitration if they decide the new tax claim amounts to a breach of their investment agreement.
Rio Tinto (RIO -2.8%) may be making progress in resolving differences with Mongolia's government over the planned expansion of the Oyu Tolgoi mine, FT reports, as potential lenders extend a deadline to arrange financing for the project until the end of September.
Turquoise Hill (TRQ -2.5%), the Rio-controlled company that owns most of Oyu Tolgoi, says all parties had requested the extension of the deadline, which had passed last month, suggesting agreement over the request between TRQ and the government.
Rio and the government have battled over the costs of developing the next phase of the mine - critical for the miner as its largest new copper development, and for the country, since it will generate up to one-third of Mongolia's GDP.
Rio shares are lower, however, after mixed Q1 production results with iron ore and coal production exceeding expectations but with most other commodities falling short.
Rio and Mongolia's government are trying to solve disagreements over some development costs, but TRQ, the Rio-controlled company that owns 66% of Oyu Tolgoi, says the issues may not be resolved until a feasibility study for the mine’s growth is completed in H1 of this year.
Rio would thus be placed at risk of missing a March 31 deadline to close project finance agreements with commercial banks and multilateral development banks.
In another setback, TRQ cuts this year's output estimates for the part of the mine already operating to 135K-160K metric tons of copper in concentrates vs. a previous forecast of 150K-175K, and trims its estimate for output of gold, a byproduct at the mine.
Turquoise Hill Resources (TRQ) +4.1% AH on speculation from the Daily Mail that Rio Tinto (RIO) is preparing to bid ~$8/share for the outstanding 49.2% of the company it doesn't already own.
Billionaire Robert Friedland holds 3% of TRQ is said to have been against selling out to RIO until recently.
TRQ holds 66% of the massive Oyu Tolgoi copper and gold mine, but progress on the $6B second stage of the project has been held up by RIO’s inability to strike an agreement with the Mongolian government.