Rio Tinto (ASX:RIO) is scrambling to strike a new deal at its Oyu Tolgoi copper mine in Mongolia in an effort to keep its mining plan on track.
The mining giant is in discussions with Vancouver-based Entree Resources (TSX:ETG) and the Mongolian Government, which owns a 34% stake in the Oyu Tolgoi Project through the operating company Oyu Tolgoi LLC (OTLLC). Rio holds the remaining 66%.
For its part, Entree has various interests in the Entree/Oyu Tolgoi JV property, which spans 39,807 hectares and covers the eastern portion of the Shivee Tolgoi licence and all of the Javhlant licence. The company has the right to 20% of the mineralisation below 560m at the property, and 30% of the mineralisation above that depth.
Initial agreements to consolidate Entree’s tenements into the broader Oyu Tolgoi Project have been in place for decades, but a final deal is now required within the next eight weeks to keep the mine moving along.
Oyu Tolgoi began production in 2013, and last year delivered 168,100 tonnes of copper and 177,300 ounces of gold.
One area of Oyu Tolgoi at which mining is taking place is the underground ‘panel cave zero’ zone, with extraction due to occur at a new, high-grade zone called ‘panel cave one’ in the coming months.
However, panel cave one sits within a tenement 20% owned by Entree, and Rio Tinto has not been able to convince the company to sell its rights.
Construction of the new zone can only go ahead once Rio Tinto and Entree have a deal, and if one cannot be struck within the next eight weeks, Rio Tinto will be forced to mine lower-grade sections of rock next year, reducing copper production volumes and revenue.
“Key points in the discussions have been the transfer of the Shivee Tolgoi and Javhlant mining licences to OTLLC, the treatment of taxes payable in Mongolia in connection with such licence transfers, and ensuring there is an effective mechanism for Entree to fulfil any obligation under Mongolian law to share with the state up to 34% of Entree’s economic benefit,” Entree said in a statement.
“Entree believes transfer of the licences to OTLLC, as manager and owner of an 80% participating interest in the Entree/Oyu Tolgoi JV, is necessary to maximise operational efficiencies and provide certainty with respect to taxes and royalties.”
Should a deal between Rio Tinto and Entree be reached, a similar one will need to be made with the Mongolian Government, which requires a 34% stake across all aspects of the Oyu Tolgoi Project.
Located in the south of the Gobi Desert, the US$6.9 billion ($10.5 billion) Oyu Tolgoi Project is expected to be the world’s fourth-largest copper mine in the decade ahead if Rio Tinto can develop it according to its preferred plan.
Write to Oliver Gray at Mining.com.au
Images: Oyu Tolgoi LLC
