Mongolia withdraws Ivanhoe Mines pact from review

By Lucy Hornby

BEIJING, Jan 7 (Reuters) - Mongolia has withdrawn a draft investment agreement from consideration by Parliament for a big copper and gold project backed by Ivanhoe Mines, which suggests further delays for the long-awaited Oyu Tolgoi venture.

The government will instead form a group of cabinet ministers and legislators to try to move the project forward, Mongolia's foreign minister said on Monday.

Canadian exploration firm Ivanhoe Mines (IVN.TO: Quote, Profile, Research) and Australian miner Rio Tinto (RIO.L: Quote, Profile, Research)(RIO.AX: Quote, Profile, Research) signed the draft agreement in June, setting the terms for their investment in the massive Oyu Tolgoi project. Under the agreement, Mongolia would take a 34 percent stake.

The pact had yet to be ratified and was being reviewed by a parliamentary working group, but was withdrawn in late December after the appointment of Prime Minister Sanj Bayar, who took office following the forced resignation of Miyeegombiin Enkhbold.

It was not clear what changes, if any, might be made to the draft agreement.

"It was withdrawn, but I don't see it as a bad sign," said Mongolian Foreign Minister Sanjaasuren Oyun, a geologist by training, who follows the sector closely.

"The withdrawal means the government, in a working group with members of Parliament, can come up with a joint solution."

Ivanhoe and Rio Tinto propose to spend up to $3 billion developing Oyu Tolgoi in the Gobi Desert, and have agreed to build a copper smelter in Mongolia in return for a tax holiday on copper concentrate exports to China before the smelter is completed.

They had hoped Parliament would ratify the deal in its current session. Rio, which owns 10 percent of Ivanhoe and has options to raise its stake, said in November it could not keep pouring tens of millions a month into an uncertain project, although it had no plans to pull out.

MORE DELAYS?

"The prospect of a longer and more contentious revision process makes it unlikely that an investment agreement will be approved by the current Parliament," said Eurasia Group analyst Kyle Jaros in a research note.

In a December speech, Bayar called for an international body to help negotiate Oyu Tolgoi on the Mongolian government's behalf.

That advisory body would probably include the World Bank, the European Development Bank, and other multilateral institutions, a World Bank official in Ulan Bator said.

In a statement, Ivanhoe said Bayar had indicated he wanted to complete the agreement before the next general election, scheduled for June.

"Ivanhoe Mines will await the necessary details of the prime minister's proposed action plans before assessing any implications for the draft agreement and the ongoing development of the Oyu Tolgoi project," the company said.

Development work at the site has slowed, in part due to the onset of winter and because major construction can't continue until the agreement has been finalized, Ivanhoe said.

Bayar and other top officials will meet on Wednesday with Canadian Trade Minister David Emerson, during the first visit to Mongolia by a senior Canadian minister in a decade.

Although Oyu Tolgoi is not explicitly on the agenda, Emerson will use the visit to promote "Canada's trade and investment interests," his office said.

Ivanhoe shares slipped 2 Canadian cents to C$10.72 on the Toronto Stock Exchange. The stock is down 40 percent since hitting a 2007 high of C$18 in July. (Additional reporting by Cameron French in Toronto; Editing by Rob Wilson

From: Reuters