Rio Tinto has warned Mongolia not to tamper with the contracts that underpin its investment in a giant copper mine in the Gobi desert if it wants to attract more foreign capital to the country.

Speaking at the Mongolia Economic Forum on Tuesday, Arnaud Soirat, the head of Rio’s copper business, said Mongolia had all ingredients to become a “successful resource nation” but only if it honoured agreements around issues such as tax and royalty payments.

“The world is watching how Oyu Tolgoi develops. It is a test case for future investment in Mongolia which brings with it jobs, new business opportunities and community development,” he told delegates, including government ministers.

Rio is currently the largest foreign investor in Mongolia. It has ploughed more than USD 7bn into the first phase of the Oyu Tolgoi. It is planning to spend a further USD 5.5bn on developing an underground mine that will unlock the project’s full potential.

But these plans are under threat. Earlier this year, the cash strapped government hit Rio with a USD 155m tax bill, while members of parliament have set up a working group to review the agreements that underpin the development of the Oyu Tolgoi mine.

Analysts say much of the frustration with the contracts can be traced to the government’s decision to take a 34 per cent equity stake in Oyu Tolgoi. To finance its share of the mine’s development costs Ulan Bator has had to borrow money from a Rio subsidiary. Until that debt is paid off it cannot receive dividends.

Rio has said it will take the tax dispute to international arbitration if it cannot reach agreement with the government. (Financial Times)