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.
Turquoise Hill Resources (TRQ -7.6%) says FY 2013 gross revenue for its Oyu Tolgoi gold and copper project in Mongolia totaled $55M, falling short of initial projections, with some sales expected to be deferred into Q2 and Q3 2014.
TRQ says an option to restart underground development of Oyu Tolgoi has been proposed even as negotiations with the Mongolian government continue to resolve outstanding issues that led to the project's suspension last July.
Further delays in the project may occur if outstanding shareholder issues are not resolved before the expiration of lender commitments on existing project finance arrangements.
Production rates recently were hurt by various post-commissioning issues which will result in the shutdown of one line for up to eight weeks, but TRQ continues to project 2014 output of 150K-175K metric tons of copper in concentrates and 700K-750K oz. of gold in concentrates.
Rio Tinto (RIO) holds a 50.8% controlling interest in TRQ.
Turquoise Hill Resources (TRQ +0.2%) is upgraded to Hold from Reduce with a C$4.50 price target, up from C$4.25, at TD Securities, as the firm foresees higher near-term copper prices and lower long-term gold prices and rolls forward its distributable cash flows estimates for the Oyu Tolgoi mine by one year.
With the rights offering complete, the firm estimates TRQ now has a positive net cash position, which should grow over the rest of the year from strong cash flows generated from Oyu Tolgoi.
The firm expects TRQ to complete an updated feasibility study for Oyu Tolgoi with 6-12 months and resolve the key outstanding issues with Mongolia's government to allow resumption of the underground mine construction.
Turquoise Hill (TRQ +9.7%) shoots higher a day after reporting its Oyu Tolgoi copper and gold mine in Mongolia produced 76.7K metric tons of copper in concentrates during 2013, and inventories are expected to rise during Q1 2014.
Copper and gold in concentrates during Q4 rose 8% and 18%, respectively, Q/Q.
TRQ, which owns a 66% interest in Oyu Tolgoi and is in turn 51% owned by Rio Tinto (RIO +3.5%), says the mine is still producing more concentrate than it is shipping.
Some sales have been deferred to Q2 and Q3, and inventory levels should return to normal by the end of this year, TRQ says.