An influential group of Mongolian
backbench lawmakers has urged Prime Minister Norov Altanhuyag to seek talks to
trim mining giant Rio Tinto”s stake in the $13-billion Oyu Tolgoi copper-gold
project in the country”s South Gobi region.

Elections in June ushered in a
coalition government under which the major risk for mining firms, the engines
of economic growth, threatens to be the influence of lawmakers who want
Mongolia to have greater control of its resources.

Oyu Tolgoi, located 80 km north of
Mongolia”s Chinese border, is expected to become one of the world”s three
largest copper and gold mines when it reaches full production in 2018.

The deposit contains an estimated 41
billion pounds of copper and 21 million ounces of gold. It is anticipated that
revenue from the mine could boost Mongolia”s GDP by one third.

The original 2009 investment
agreement gave 66 percent of the project to Canada”s Ivanhoe Mines, now known
as Turquoise Hill Resources and 51 percent owned by Rio Tinto. The deal has
long rankled a group of nationalist lawmakers that has lobbied to reduce
foreign ownership of the country”s mines.

In a petition to the prime minister
on Wednesday, a group of 24 MPs called for the enforcement of a parliamentary
resolution that the Mongolian government should own 51 percent of the project
once foreign partners recoup their start-up investment.

The original deal allowed Mongolia
to increase its stake in the project, but only 30 years after it had gone into
operation.

Last October, nationalist
backbenchers made their first attempt to change the Oyu Tolgoi agreement, but
Ivanhoe Mines rejected a government request to reopen negotiations.

This time, the MPs could receive a
more sympathetic hearing from the government, after new mining minister Davajav
Ganhuyag told domestic media last month that he was in favour of increasing the
country”s stake in Oyu Tolgoi.

The project is due to begin initial
production this month or early in October, with commercial production set to
begin in the first half of 2013.

In a statement on Thursday, Rio
Tinto said, “The reported comments of the petitioners do not reflect the
reality of the agreement between investors and the government.”

Mongolia needed to take “the
long view”, Cameron McRae, Oyu Tolgoi”s chief executive and the country
manager for Rio Tinto, told the Discover Mongolia mining forum in Ulan Bator
last week.

“When international investors
make big decisions to employ their scarce capital, cutting-edge technology,
management expertise, and marketing prowess, they look for responsible
partners,” he said. “Partners like Rio Tinto prefer to invest in
countries when the government takes the long view, as we do.”

McRae said Mongolia was earning far
more from the project than just 34 percent, and the 2009 agreement had also
paved the way for other foreign investments, which had increased 13-fold since
the Oyu Tolgoi deal was signed.

Investment in the Oyu Tolgoi project
already accounts for more than a third of Mongolia”s total economy, Rio Tinto
says.

By Terrence Edwards

Reuters