Issues related to the development of the Oyu Tolgoi underground mine were clarified from B.Solongoo, Deputy Head of the Cabinet Secretariat.
-Did you send an official letter to Turquoise Hill to cancel the underground mining financing plan?
-The government established a working group in December 2019. The main purpose of the working group is to negotiate with the Oyu Tolgoi project investor. In other words, the aim is to improve the investment agreement and the shareholders' agreement in accordance with Mongolian law, and to improve the underground mining financing plan in accordance with Mongolia's interests and legislation. Related to this, the government took several actions. We see that the development of underground mines is necessary for Mongolia and will bring economic benefits. However, the financial estimates of the revised amendment to the 2020 Oyu Tolgoi Feasibility Study show that the economic benefits are likely to decline significantly. We are conducting a financial analysis and estimate that Rio Tinto has provided the Government of Mongolia with an estimate that the underground mine won’t receive dividends until 2051 and will remain in debt of USD 22 billion. As a result, corporate income tax will be paid for only 4 years until 2051.
Paying tax for only 4 years out of years 40 of operation is not enough. The fact that Mongolia is not receiving dividends and that tax revenues are declining. An official letter has been sent which has meaning that there is a serious need to talk to investors about
whether the project is beneficial to Mongolia. The government is focusing on the implementation of the Parliament Resolution 92. The Parliament gave direction to revise the Underground Mining Development and Financing Plan, considering it did not comply with the law. The government is making certain demands and suggestions to the investors, and negotiations are under process.
I don't think the problem will get worse. The government has not offered to stop the project, but it is necessary to talk to investors about whether it is really beneficial for Mongolian economy. The project should be profitable for our country and should generate
tax revenue.
-Will the preparations for the underground mine continue normally without stopping?
-Rio Tinto and Turquoise Hill did not mention any problem with the project. We also expressed our support for the project. When the agreement was signed in 2015, the government expected the underground mine to start operating in January 2021. This date has been postponed to be October 2022. Reason of postponement might be dependent on many issues.
-What suggestions did you make to increase the project benefit?
-Investment cost decreases the project benefit. Rising investment costs are delaying the payment of dividends to the government. For example, current underground mining investment costs are 1.4 times higher than planned. The planned cost was USD 5.3 billion.
It is expected to increase by about 30 percent. Also the company operation is financed by loan. The company has total loans of USD 11 billion. Loan repayment makes high expenses. We made suggestions to decrease management service payment and reduce shareholders’ loan. Also a suggestion to appoint an external analyst on finding a reason for the cost increase has been made. Related to this, the Board of Oyu tolgoi created a special committee including two people from the Government and two from Turquoise Hill, and started working to appoint the external analyst.
-What is your position on the investor's proposal to resolve financing by selling Oyu Tolgoi gold in advance?
-The reason for supporting Oyu Tolgoi underground mine is that 80% of the reserves will be explored from underground mines. At current levels, it accounts for half of total exports and total sales of about USD 1.1 billion, making it the world's fourth largest mine when operations expand and the underground mine is in operation. Therefore, we support the project and are focusing on this due to our economic benefits declining. We will work on improving the project benefit. The investor also promised to support it. We see that it is possible to solve the problem in a mutually beneficial way.
Issues related to the development of the Oyu Tolgoi underground mine were clarified from B.Solongoo, Deputy Head of the Cabinet Secretariat.
-Did you send an official letter to Turquoise Hill to cancel the underground mining financing plan?
-The government established a working group in December 2019. The main purpose of the working group is to negotiate with the Oyu Tolgoi project investor. In other words, the aim is to improve the investment agreement and the shareholders' agreement in accordance with Mongolian law, and to improve the underground mining financing plan in accordance with Mongolia's interests and legislation. Related to this, the government took several actions. We see that the development of underground mines is necessary for Mongolia and will bring economic benefits. However, the financial estimates of the revised amendment to the 2020 Oyu Tolgoi Feasibility Study show that the economic benefits are likely to decline significantly. We are conducting a financial analysis and estimate that Rio Tinto has provided the Government of Mongolia with an estimate that the underground mine won’t receive dividends until 2051 and will remain in debt of USD 22 billion. As a result, corporate income tax will be paid for only 4 years until 2051.
Paying tax for only 4 years out of years 40 of operation is not enough. The fact that Mongolia is not receiving dividends and that tax revenues are declining. An official letter has been sent which has meaning that there is a serious need to talk to investors about
whether the project is beneficial to Mongolia. The government is focusing on the implementation of the Parliament Resolution 92. The Parliament gave direction to revise the Underground Mining Development and Financing Plan, considering it did not comply with the law. The government is making certain demands and suggestions to the investors, and negotiations are under process.
I don't think the problem will get worse. The government has not offered to stop the project, but it is necessary to talk to investors about whether it is really beneficial for Mongolian economy. The project should be profitable for our country and should generate
tax revenue.
-Will the preparations for the underground mine continue normally without stopping?
-Rio Tinto and Turquoise Hill did not mention any problem with the project. We also expressed our support for the project. When the agreement was signed in 2015, the government expected the underground mine to start operating in January 2021. This date has been postponed to be October 2022. Reason of postponement might be dependent on many issues.
-What suggestions did you make to increase the project benefit?
-Investment cost decreases the project benefit. Rising investment costs are delaying the payment of dividends to the government. For example, current underground mining investment costs are 1.4 times higher than planned. The planned cost was USD 5.3 billion.
It is expected to increase by about 30 percent. Also the company operation is financed by loan. The company has total loans of USD 11 billion. Loan repayment makes high expenses. We made suggestions to decrease management service payment and reduce shareholders’ loan. Also a suggestion to appoint an external analyst on finding a reason for the cost increase has been made. Related to this, the Board of Oyu tolgoi created a special committee including two people from the Government and two from Turquoise Hill, and started working to appoint the external analyst.
-What is your position on the investor's proposal to resolve financing by selling Oyu Tolgoi gold in advance?
-The reason for supporting Oyu Tolgoi underground mine is that 80% of the reserves will be explored from underground mines. At current levels, it accounts for half of total exports and total sales of about USD 1.1 billion, making it the world's fourth largest mine when operations expand and the underground mine is in operation. Therefore, we support the project and are focusing on this due to our economic benefits declining. We will work on improving the project benefit. The investor also promised to support it. We see that it is possible to solve the problem in a mutually beneficial way.