Thursday, January 10, 2008

Canadian Trade Minister seeks answers on Mongolia copper project

Canada's Minister of International Trade, David Emerson, was expected to raise the Oyu Tolgoi copper/gold project in discussions this week with Mongolia's government, amid reports that the country's new Prime Minister, Sanjaa Bayar, wanted his cabinet to re-examine a draft investment deal agreed to last year with the project's owners, Rio Tinto and Ivanhoe Mines.

Emerson's visit to Mongolia is the first by a senior Canadian minister in a decade.

“I know that that was one issue that the Minister was keen to obtain more information about, in order to get a clearer picture of the situation,” his communications director, Francois Jubinville told Mining Weekly Online on Wednesday morning.

“We have a number of Canadian companies invested in Mongolia, and it is important that the Minister has a sense of the legal and regulatory hurdles.”

Emerson would travel to China, Mongolia and Hong Kong to "pursue trade and investment opportunities", the Ministry said in an earlier statement.

The Oyu Tolgoi deposit, in the South Gobi region of Mongolia, has been touted by Rio Tinto as the world's largest undeveloped copper-gold project.

After five years of negotiations, the Mongolian cabinet last year approved a draft investment agreement, which would give the government a 34% interest in the property.

The agreement was then being reviewed by a working group comprised of Members of Parliament from the parliamentary Standing Committee on the Economy, which was to report to Parliament.

However, Bayar, who was elected in November last year, has withdrawn the document and wants the agreement to be reviewed by his new cabinet.

It remains unclear whether this will have a negative effect on the project's schedule, as Bayar has not provided details of the proposed review.

However, he has indicated that he wants the process to be completed before the next elections, which are scheduled for June.

In a letter to Rio Tinto and Ivanhoe Mines on December 26, Bayar said that he intended to meet this month with the project's owners to discuss the review of the agreement.

Mining Weekly Online understands that a date has yet to be set for such a meeting.

In his letter, Bayar said that his government would continue to support private investment, “including foreign investment, and intends to see the projects such as Oyu Tolgoi, that not only have a significant impact on the development of the country but also largely shape the perception of its investment environment, commence during its term in office”.

Ivanhoe president and CEO John Macken said that the firm welcomed the assurances contained in Bayar's letter.

“Ivanhoe is looking forward to a meeting proposed by the Prime Minister this month and to receiving the necessary details of the Prime Minister's proposed action plans to conduct a review of the existing draft investment agreement and expedite the finalisation of a mutually acceptable draft agreement for the development of the Oyu Tolgoi Project,” he said in a statement this week.

Bayar has also said that he wants to involve independent, internationally recognised financial experts in the negotiation process.


Meanwhile, preconstruction work is continuing at the Oyu Tolgoi site, where Ivanhoe has spent some $600-million to date since 2000.

The firm is completing the sinking of the first vertical shaft, and expects to start lateral development early this year.

Ivanhoe has said that it expects construction of the mine to take 30 months, once it has received the go-ahead that the investment agreement has been approved.

According to a 2005 study, the Oyu Tolgoi mine could produce more than a billion pounds of copper and 330 000 oz of gold for at least 35 years.

Peak annual production of more than 1,6-billion pounds of copper and 900 000 oz of gold is projected to be reached six years after initial production begins.

The first stage of construction, which will involve building an openpit mine, ore-processing plant, a power station and the early-stage development an underground mine is expected to cost about $2,7-billion, according to Ivanhoe's website.

The second stage - completion of the underground mine and expansion of the processing plant - will be paid for out of operating cash flow remaining after government fees and taxes.


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