With international fraud squads and market regulators already investigating Rio Tinto's activities in Guinea and Mozambique, the last thing the company needed was a fresh inquiry from an anti-corruption agency in Mongolia.
But that's what happened on Tuesday evening, when the Independent Agency Against Corruption of Mongolia (IAAC) sought information from the Rio subsidiary that owns just over 66 percent of Mongolia's Oyu Tolgoi copper mine; Turquoise Hill Resources (TRQ). Toronto-listed TRQ indicated an investigation was underway into the negotiations surrounding the 2009 investment agreement for Oyu Tolgoi, which is the seminal legal and financial framework under which Rio and TRQ operate in Mongolia.
"The request relates to an investigation about possible abuse of power by authorised officials during negotiation of the 2009 Oyu Tolgoi investment agreement," said TRQ in a statement. "There is no indication in the IAAC information request to suggest that Oyu Tolgoi is a subject of the investigation." The 2009 investment agreement was negotiated when TRQ was known as Ivanhoe Mines and was chaired by prominent mining entrepreneur Robert Friedland. Rio owned less than 10 percent of Ivanhoe at the time, and did not assume more than 50 percent ownership of Ivanhoe until January 2012. However, Rio was still involved in the striking of the investment agreement. It was uncertain on Wednesday morning which authorised officials were being investigated by the IAAC.
This year, Dutch not-for-profit SOMO heavily hinted about millions of dollars being mysteriously stashed in Swiss bank accounts controlled by some of those close to the Mongolian side of the 2009 negotiations. That particular section of SOMO's report into Oyu Tolgoi prompted a vigorous response from Rio and TRQ.
"This section irresponsibly and unquestionably repeats speculative assertions that have been firmly denied," said TRQ in its response to SOMO in January. "Insofar as allegations are made against Rio Tinto or Turquoise Hill, they are entirely untrue and there is no evidence to support them. The publication of this section is likely to cause serious harm to the reputation of Rio Tinto and Turquoise Hill Resources, it is defamatory." It was unclear whether the saga referred to by SOMO has any link to Tuesday's inquiry by the Mongolian regulators.
The corruption inquiry comes after a turbulent year for Rio and TRQ in Mongolia, during which the IAAC demanded USD 155 million from the mine after auditing its finances between 2013 and 2015. The mine was also forced to declare force majeure on copper exports from Oyu Tolgoi in January when protests at the Chinese border interrupted the flow of product to Chinese customers. Force majeure was lifted on March 1.
In February, Mongolia enforced a clause in the investment agreement that requires Rio to source Oyu Tolgoi's power from within Mongolia within four years. The power has so far been sourced from neighbouring China, and the demand may force the Oyu Tolgoi partners to spend money on their own new power station, given the shortage of power supply in the remote South Gobi Desert.
By Peter Ker
With international fraud squads and market regulators already investigating Rio Tinto's activities in Guinea and Mozambique, the last thing the company needed was a fresh inquiry from an anti-corruption agency in Mongolia.
But that's what happened on Tuesday evening, when the Independent Agency Against Corruption of Mongolia (IAAC) sought information from the Rio subsidiary that owns just over 66 percent of Mongolia's Oyu Tolgoi copper mine; Turquoise Hill Resources (TRQ). Toronto-listed TRQ indicated an investigation was underway into the negotiations surrounding the 2009 investment agreement for Oyu Tolgoi, which is the seminal legal and financial framework under which Rio and TRQ operate in Mongolia.
"The request relates to an investigation about possible abuse of power by authorised officials during negotiation of the 2009 Oyu Tolgoi investment agreement," said TRQ in a statement. "There is no indication in the IAAC information request to suggest that Oyu Tolgoi is a subject of the investigation." The 2009 investment agreement was negotiated when TRQ was known as Ivanhoe Mines and was chaired by prominent mining entrepreneur Robert Friedland. Rio owned less than 10 percent of Ivanhoe at the time, and did not assume more than 50 percent ownership of Ivanhoe until January 2012. However, Rio was still involved in the striking of the investment agreement. It was uncertain on Wednesday morning which authorised officials were being investigated by the IAAC.
This year, Dutch not-for-profit SOMO heavily hinted about millions of dollars being mysteriously stashed in Swiss bank accounts controlled by some of those close to the Mongolian side of the 2009 negotiations. That particular section of SOMO's report into Oyu Tolgoi prompted a vigorous response from Rio and TRQ.
"This section irresponsibly and unquestionably repeats speculative assertions that have been firmly denied," said TRQ in its response to SOMO in January. "Insofar as allegations are made against Rio Tinto or Turquoise Hill, they are entirely untrue and there is no evidence to support them. The publication of this section is likely to cause serious harm to the reputation of Rio Tinto and Turquoise Hill Resources, it is defamatory." It was unclear whether the saga referred to by SOMO has any link to Tuesday's inquiry by the Mongolian regulators.
The corruption inquiry comes after a turbulent year for Rio and TRQ in Mongolia, during which the IAAC demanded USD 155 million from the mine after auditing its finances between 2013 and 2015. The mine was also forced to declare force majeure on copper exports from Oyu Tolgoi in January when protests at the Chinese border interrupted the flow of product to Chinese customers. Force majeure was lifted on March 1.
In February, Mongolia enforced a clause in the investment agreement that requires Rio to source Oyu Tolgoi's power from within Mongolia within four years. The power has so far been sourced from neighbouring China, and the demand may force the Oyu Tolgoi partners to spend money on their own new power station, given the shortage of power supply in the remote South Gobi Desert.
By Peter Ker