TORONTO (miningweekly.com) – Rio Tinto and Ivanhoe Mines, which are building the giant Oyu Tolgoi copper/gold/silver mine in Mongolia, will likely go back to arbitration later this month, after a six-month suspension on the proceedings expires, Ivanhoe said on Thursday.

Construction at the $6-billion project, which is now more than 23% complete, will not be affected by the arbitration, Ivanhoe CEO Robert Friedland said.

In fact, Ivanhoe and Rio Tinto are investing an average of $7-million a day at the moment, much of it in Mongolia, on purchases of goods and services to advance the project. The firms have set a total capital budget this year of $2.3-billion for Oyu Tolgoi.

Rio currently holds a 42% stake in Ivanhoe, and, under a 2006 agreement, could have increased its holding in Ivanhoe to about 46.6% until October 2011.

But Ivanhoe this year implemented a shareholder rights plan that would prevent the bigger firm from increasing its stake even after the agreement expires next year, unless it makes an offer to all shareholders.

Rio Tinto disputed the shareholder rights plan and the two parties headed to arbitration over the issue.

In December last year, the two companies announced they had reached a new agreement that would result in Rio assuming management of the big copper/gold project, as well as taking a bigger stake in Ivanhoe.

The new deal includes support from Rio for a previously disputed rights offering and help with arranging project funding, as well as a six-month suspension of the arbitration process.

Friedland said in a statement on Thursday the company remains “highly confident” that the shareholder rights plan does not breach Rio Tinto's contractual rights.

“We are committed to vigorously protecting the rights of all of our shareholders and have received very strong support from institutional shareholders for our insistence that all shareholders be treated fairly during any takeover bid."

Friedland said Ivanhoe also continues to assess “potential strategic initiatives” and was negotiating with several parties.

Ivanhoe owns 66% of the Oyu Tolgoi project and the Mongolian government holds the balance, after the two signed a long-awaited investment agreement in October 2009.

Rio's interest in the asset is indirect only, through its shareholding in Ivanhoe, but there has been speculation that CEO Tom Albanese wants either a direct stake in the project or control of Ivanhoe itself.

The Oyu Tolgoi mine is expected to produce more than 1.2-billion pounds of copper and 650 000 oz of gold a year in the first ten years of operations.

PEAK CONSTRUCTION

The construction activity at Oyu Tolgoi will likely reach a peak in the third quarter of this year, Ivanhoe said on Thursday.

The concentrator is more than 32% complete, and the first line will be ready to start commissioning in the second quarter of 2012.

The overall project is still ahead of schedule, and prestripping of the openpit mine will start in the third quarter of this year, with commercial production scheduled for the first half of 2013.

The company also said it has received approvals for and started work on a 95 km high-voltage power line from the Oyu Tolgoi site to the Mongolia-China border, where it will connect to a proposed supply line in China.

“Discussions to secure electricity imports from China during Oyu Tolgoi's initial four years of commercial production are continuing between Chinese and Mongolian representatives,” Ivanhoe said.
 

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