POLITICS
10/03/2011 10:34 EDT | Updated 12/03/2011 05:12 EST

Ivanhoe Mines and Rio Tinto not willing to re-open Oyu Tolgoi investment deal

VANCOUVER - Ivanhoe Mines (TSX:IVN) and Rio Tinto PLC (NYSE:RIO) have warned Mongolia that a demand to renegotiate a key agreement could raise concerns about the country as a safe and stable place for investment.

The companies said Monday they have formally told the Mongolian government they're not prepared to reopen an investment agreement for the Oyu Tolgoi gold and copper mine, which is under construction.

They also wrote to members of Mongolia's National Security Council asking for help to ensure the government's "full and immediate" support for the deal.

"Ivanhoe Mines expects that the parties will continue to honour and implement the terms of the agreement as previously negotiated and has asked the government to affirm its full support for the agreement," the company said in a statement.

The Mongolian National Security Council includes the president, the speaker of the country's parliament and the prime minister.

Last week, Ivanhoe received a letter from a representative of the Mongolian cabinet asking the company and Rio Tinto, which owns a 49 per cent stake in Ivanhoe, to discuss potential changes to the investment agreement.

The changes sought include an ability for the Mongolian government to increase its stake in the mine and the application of a sliding-scale royalty to the project.

Ivanhoe noted that Mongolian President Elbegdorj has said recently that Mongolians should keep their word, however a general election is set for the country next June.

The investment agreement was signed by the Mongolian government, Ivanhoe and Rio Tinto in October 2009 and may be amended only by mutual consent of all three parties.

Toronto-listed Ivanhoe Mines holds a 66 per cent interest in the project, while the Mongolian government holds 34 per cent.

Rio Tinto owns 49 per cent of Ivanhoe and is managing construction of the Oyu Tolgoi mining complex.

The project, which is 50 per cent complete, is on track toward production of its first ore next year and commercial production of copper, gold and silver concentrate in the first half of 2013.

Oyu Tolgoi is expected to produce 1.2 billion pounds of copper and 650,000 ounces of gold per year in the first decade of operation.

Rio Tinto is one of the world's major suppliers of aluminium, copper, diamonds, thermal and metallurgical coal, uranium, gold, industrial minerals.

In addition to its stake in Oyu Tolgoi, Ivanhoe holds a 57 per cent interest in Mongolian coal miner SouthGobi Resources (TSX:SGQ), 54 per cent stake in Ivanhoe Australia (TSX:IVA) and a 50 per cent interest in Altynalmas Gold Ltd., a private company developing a gold project in Kazakhstan.

Ivanhoe shares were down 29 cents at $14.16 in trading on the Toronto Stock Exchange on Monday.