Aug. 26, 2009, 11:09 p.m. EDT

Big Mongolia Mine Clears Hurdle

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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.

Mine

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."

Copper

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.

Write to Elisabeth Behrmann at Elisabeth.Behrmann@dowjones.com and Jeffrey Sparshott at jeffrey.sparshott@dowjones.com

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Volume: 1.61M
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