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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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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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