The Mongolian government is confident it can resolve disputes with Rio Tinto over a $5 billion expansion of the Oyu Tolgoi Copper-Gold Project by December 31, which is the deadline for sealing financing for the project.  1

When asked by reporters last week whether Mongolia would be able to resolve issues ahead of the deadline, the Mining Ministry’s director general of strategic policy and planning, Otgochuluu Chuluuntseren said “I am very confident.”

Rio Tinto started exporting concentrate from the $6.2 billion open pit mine in July but stopped work on the phase 2 underground mine in August and threatened to cut up to 1700 jobs as the government refused to approve financing terms for the project.

The mine’s expansion is vital to Mongolia as it is expected to boost the economy by 33% by 2020 and is key to Rio’s effort to ease its dependence on iron ore. Rio’s Turquoise Hill Resources unit owns 66%.

The Oyu Tolgoi board, including three new Mongolian directors, met in London recently to try to resolve concerns that the Mongolian government has raised. It is yet to be satisfied on three major issues - terms for project financing, an analysis of cost overruns at Oyu Tolgoi and feasibility studies for the mine’s expansion.

The government hopes to see a feasibility study for phase 2 by early 2014 and wants a detailed breakdown of costs for each phase of the mine’s development, rather than accepting a figure of more than $14 billion for the whole development. “The Mongolian Government has equity so we have to closely follow the costs,” Otgochuluu said.

Mongolia has a 34% stake in Oyu Tolgoi but will not receive any share of the profit until Turquoise Hill recovers all costs of the project, which it has funded with Rio’s support.

Otgochuluu said progress had been made in the talks and the government would be willing to tackle some of its minor concerns after work resumes on the underground mine.

Uncertainty over Oyu Tolgoi, as well as changing foreign investment rules, have led to a 43% drop in foreign direct investment in Mongolia this year.