The desire to pour cold water on a simmering dispute with the Mongolian government has prompted Rio Tinto to announce plans to open a new office in the country’s capital.
The base in Ulan Bator will take Rio Tinto’s staff in the country to 80 and is intended to foster relationships with its local partners.
The London-listed global mining giant digs up metals and ores including iron, aluminium, copper, gold and uranium, plus diamonds, coal, salt and other minerals, employing 55,000 people in 40 countries on six continents.
Since 2010, Rio has invested more than $7 billion in Mongolia, which boasts abundant reserves of copper, in particular. The country’s proximity to China, the world’s biggest copper consumer, has drawn in international investors, hoping for a leap in demand for electric vehicles and renewable energy and therefore more demand for the red metal.
Rio has a controlling stake in Oyu Tolgoi, one of the world’s largest new copper-gold mines, which is located in the South Gobi region of Mongolia. This month it revealed that copper production in its open pit operation in the fourth quarter was 23 per cent higher than the previous quarter, while work was progressing on its underground project.
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However, its negotiations with the government have not always been easy. Relations between Rio and the Mongolian authorities soured in 2013 during a dispute over costs and taxes related to a proposed expansion of Oyu Tolgoi, which the two sides jointly own.
The matter was resolved in 2015, but now the mine is the focus of renewed pressure, with local politicians expressing frustration at the high costs of financing the mine and the wait of several years before the government receives its share of the profits. Last week, Rio was forced to halt shipments of copper concentrate from Oyu Tolgoi after a week-long dispute at the border crossing between Chinese trucking companies and Mongolian officials over health insurance for drivers.
Turquoise Hill Resources, Rio’s Canadian-listed subsidiary, which holds the shares in the Oyu Tolgoi mine, also was hit with a $155 million bill for back taxes after an audit of 2013-15 payments by the mine. The company said that it disputed the assessment.
Rio ran into further trouble this month when the Oyu Tolgoi mine was raided by Mongolian immigration officials. Several visas that were checked were found to be in breach of local rules. A Rio Tinto spokesman said the workers concerned were employed by Hofmann Engineering, an Australian engineering services business, and that those with an incorrect visa had been asked to leave the country.
Some analysts and lawyers have expressed concerns about the risk that the Mongolian government could try to seize a bigger share of the mine, but the company’s decision to deepen its roots in the country and to focus on strengthening local ties is likely to be taken as a sign that it is optimistic about the possibility of improving working relations with the authorities.
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“We are demonstrating the deepening of our commitment to Mongolia through the establishment of a new country office under new Mongolian leadership,” Jean-Sébastien Jacques, Rio Tinto’s chief executive, said.
“Mongolia is one of Rio Tinto’s most strategically important markets and we are here to stay. We are proud to partner with Mongolia to build one of the best copper and gold mines in the world, suppling the essential materials used in everyday life.”
Rio Tinto’s shares fell 17½p to £39.99 yesterday.