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Rio Tinto’s Massive $6.2 Billion Oyu Tolgoi Mine in Mongolia Hits Another Snag; Operating Company Handed a New Audit Claiming Unpaid Taxes and Penalties

Rio Tinto’s Oyu Tolgoi Mine in Mongolia Hits Another Snag

Operating Company Handed a New Audit Claiming Unpaid Taxes and Penalties

ALEXIS FLYNN

June 23, 2014 11:38 a.m. ET

LONDON—One of Rio Tinto RIO.LN +1.61% PLC’s largest projects hit another snag Monday after the company running the $6.2 billion Oyu Tolgoi copper and gold mine in Mongolia was handed a new audit claiming unpaid taxes and penalties.

Turquoise Hill Resources Ltd. TRQ.T -3.18% , the Rio Tinto-owned mining company that owns the rights to Oyu Tolgoi, said it disputed the Mongolian Tax Authority’s claims and that a failure to resolve the issue before the end of the month could jeopardize the mine’s next phase of development.

“We strongly disagree with the claims in the audit report and are currently reviewing all options to resolve this matter,” said Turquoise Hill Chief Executive Kay Priestley.

Rio Tinto and Turquoise Hill said they would consider taking Mongolia to international arbitration if they decide that the new tax claim amounts to a breach of their investment agreement.

Mongolian government officials didn’t immediately respond to requests for comment.

An enormous copper trove that could eventually represent a third of landlocked Mongolia’s economy, Oyu Tolgoi has been beset by delays and complicated negotiations between Rio Tinto, Turquoise Hill and the government.

Earlier this year, Turquoise Hill was forced to renegotiate with 15 of the international banks financing the project as talks continued to drag. Renewed agreements with foreign lenders were reached in May, though these are due to expire at the end of September.

Although Oyu Tolgoi’s open pit mine has commenced production, an underground expansion has yet to go ahead amid continued wrangling between the government and the companies.

As a result, Turquoise Hill was forced to reduce its anticipated output for the year. It now expects Oyu Tolgui to produce between 135,000 metric tons and 160,000 tons of copper in concentrates for 2014, and 600,000 to 700,000 troy ounces of gold in concentrates, the company said in March.

 

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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