The stand-off with Rio hinges in part on whether the Mongolian government – a 34 per cent equity holder in Oyu Tolgoi – can get a guaranteed return, industry figures said. Mongolia, meanwhile, wants to ensure that cost overruns do not eat into its share of the revenues.

Amid lengthy negotiations, Rio wrote down the value of the unit developing the mine by $4.7bn and warned of another $800m in writedowns if underground mining does not begin in the next 12 months.

Oyu Tolgoi is naturally seen as a big test of Mongolia by foreign investors. They are cautiously optimistic about a revised foreign investment law, which it is hoped will stabilise regulations after years of sudden and destabilising reversals. Mongolia, for its part, is worried foreign investors could turn around and sell its most valuable assets to Chinese firms, increasing the country’s dependence on its much larger neighbour.
An agreement on the mine “would be a wonderful signal, but there has got to be a lot more than that,” said Jim Dwyer, head of the Business Council of Mongolia, which promotes trade and investment in the country.

In 2013, parliament passed a law to treat foreign and domestic investors the same. But foreigners remain concerned by Mongolia’s history of sudden regulatory changes and corruption probes that have sometimes ensnared foreign projects or citizens.
Brian Gordon, a partner at international law firm Holman Fenwick Willan, said of the fresh Oyu Tolgoi delay: “This will do little to bolster foreign firms’ confidence about committing themselves to projects in the region”.

Much will depend on the spring parliamentary session, which begins on Monday, when the government’s approach to Oyu Tolgoi will be debated.

“There has been a change in attitude. They are taking clear steps to attract international capital back,” said Alex Kim, co-founder of Skypath Partners, which advises foreign investors interested in Mongolian assets.

Source: The Financial Times