By Elisabeth Behrmann and Jeffrey Sparshott
Mongolia's Parliament agreed to cancel a windfall-profits tax on copper and gold and took other steps aimed at hastening development of its more than US$3 billion Oyu Tolgoi project, one of the world's largest undeveloped mineral assets.
The mine, which is being developed by Anglo-Australian mining giant Rio Tinto /zigman2/quotes/222358280/composite RTP +2.93% and Canada-based Ivanhoe Mines /zigman2/quotes/207656050/delayed CA:IVN 0.00% Ltd., is viewed as a blueprint for billions of dollars of investments in Mongolia. The country has some of the world's largest untapped reserves of coal, copper and other commodities.
But like some other mineral-rich developing countries, Mongolia struggled to attract major investment during the recent world-wide commodity boom because of an uncertain regulatory environment and efforts to secure more mining profits at foreign companies' expense.
Now the Mongolian government is softening its position amid a weaker global economy. In a special session, Mongolian lawmakers agreed Tuesday to cancel their three-year-old windfall tax on copper and gold, effective Jan. 1, 2011.
Mongolia's finance minister said he expected the signing of a final investment agreement within the next two weeks. Ivanhoe President John Macken in a prepared statement said he expects to sign the agreement "in the near future."
Talks on an investment agreement have dragged on since 2003 and hit a serious snag in 2006, when Mongolia introduced its windfall tax in a bid to capture more profits from its resources. The provision imposed a 68% tax on copper sold above US$2,600 a metric ton and gold priced above US$500 a troy ounce on the London Metal Exchange. Copper is now trading at about US$6,200 a ton, while gold is about US$945 an ounce.
Ivanhoe will release an updated cost estimate and development plan in September or October and will have to assemble a funding plan for Oyu Tolgoi, a person familiar with the situation said.
The Oyu Tolgoi project is located in a desolate area of the South Gobi desert just north of the Chinese-Mongolian border, and is expected to produce 450,000 tons of copper and 330,000 ounces of gold annually, with a 45-year mine life. Production is expected to start in 2013 and take five years to reach full output.
Other Mongolian assets have also attracted international interest, including a coal project named Tavan Tolgoi that has received expressions of interest from Vale /zigman2/quotes/204339679/composite VALE +3.01% SA of Brazil and Peabody Energy /zigman2/quotes/203600175/composite BTU +9.46% Corp.
Patrick Barta contributed to this article.