Mongolian lawmakers sidestep foreign mining pact

ULAN BATOR, Mongolia — Mongolia’s parliament, unable to agree on a mining deal, has given the government a freehand to renegotiate terms with Ivanhoe Mines Ltd. and Rio Tinto Ltd. over the long-delayed copper and gold project.

After several days of heated discussions, the Great Hural, as the parliament is known, decided Thursday not to vote on the latest draft investment agreement with the mining companies.

In ordering renewed negotiations, parliament also authorized the government to conclude a deal without further legislative approval. Lawmakers recognized that any agreement would be so complex and fraught with politics that they are unlikely to ever agree on it.

Legislators balked over the complicated details and provisions that would initially cap Mongolia’s share of the massive Oyu Tolgoi mine to 34 percent while exempting the foreign miners from a windfall-profits and customs tax.

Negotiations over Oyu Tolgoi in the southern Gobi desert have sputtered on since 2001 as Mongolia grapples with how best to exploit the impoverished landlocked country’s sizable mineral wealth. The protracted dealmaking has become a test of the government’s willingness to welcome foreign investment and counterbalance the country’s economic dependence on neighbors China and Russia.

“We have been discussing this investment agreement for such a long time now that everybody in Mongolia talks as if they are professional geologists and miners,” said Chuluunbaatar Ochirbat, a lawmaker with the Mongolian People’s Revolutionary Party.

The parliament’s latest order to the government to renegotiate the mining deal comes after lawmakers rejected an agreement in 2005 and a renegotiated pact in December 2008. Parliament also called in April for the government to negotiate better terms for the Mongolian side.

Canadian-based Ivanhoe reacted cautiously to parliament’s decision, saying in a statement that it expected to reopen discussions soon and hoped to conclude an agreement.

During their debate, lawmakers noted that delays over an agreement might deter foreign miners and they raised questions about whether Rio Tinto would remain involved.

The Anglo-Australian mining giant is hitting rocky times with China, one of its largest customers and the likely purchaser of Oyu Tolgoi’s cooper and gold.

Rio Tinto recently rebuffed an investment offer by state-run Aluminum Corp. of China, and Chinese police are holding a senior Rio executive and three other employees on espionage charges related to negotiations on iron ore purchasing prices.

Ivanhoe Mines Ltd.: www.ivanhoemines.com

Rio Tinto Ltd.: www.riotinto.com