Thursday, June 5, 2008

Rio Tinto, Ivanhoe May Agree to Share Mongolia Output

By Stewart Bailey and Rob Delaney

June 4 (Bloomberg) -- Rio Tinto Group and Ivanhoe Mines Ltd. may share production or profits from a Mongolian copper and gold mine with the nation's government to win approval to continue developing the site.

The production-sharing plan at the Oyu Tolgoi project may replace a 34 percent equity stake included in an agreement proposed last year, Ivanhoe Chief Executive Officer John Macken said in an interview.

Final government approval for the project, which Rio Tinto has called ``the world's largest undeveloped copper-gold resource,'' has been delayed as lawmakers debate changes to the nation's mining laws. Mongolia is seeking to benefit more from its copper, coal and other resources as the commodities' prices surge.

``Is it production-sharing, is it profit-sharing? It's one of those,'' Macken said today in New York, where he's attending a conference. ``I believe we'll see this project move forward in the very near future.''

Asked whether the government would demand a share of production corresponding to the previously proposed 34 percent equity stake, Macken said, ``It'll probably be closer to 50 percent.''

Negotiations about a final agreement for Oyu Tolgoi will resume after changes to the law are completed, Macken said.

Rio Tinto fell 125 pence, or 2 percent, to 6,004 pence in London, where the company is based. Ivanhoe, based in Vancouver, rose 45 cents, or 4.8 percent, to C$9.75 as of 4:10 p.m. in Toronto Stock Exchange trading. The shares have fallen 9.7 percent this year.

Legislative Session

A special legislative session that convened in March failed to complete the amendments, and debate may continue until June, Ganpurev Dugarjav, vice chairman of Mongolia's Foreign Investment and Foreign Trade Agency, said in an April interview.

Oyu Tolgoi, located about 80 kilometers (50 miles) north of the Mongolia-China border, contains 78.9 billion pounds of copper and 45.2 million ounces of gold on a measured, indicated and inferred basis, according to the most recent estimates.

Mongolia's prime minister vowed to complete an agreement ``as soon as possible,'' Chairman Robert Friedland said yesterday in a presentation at the World Mining Investment Congress in London. The first shaft at Oyu Tolgoi has been sunk, and the second is under construction, Friedland said.

Ivanhoe plans to conduct initial public offerings of stakes in its Bakyrchik gold project in Kazakhstan and its Australian copper, uranium and gold assets, Macken said today.

Ivanhoe estimates the Australian assets have a value of C$500 million and the Kazakh unit is worth C$750 million, according to Macken's presentation. Ivanhoe plans to keep stakes in the projects in both countries, Macken said.


June 4, 2008

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