Mongolia has threatened to declare the 2009 Oyu Tolgoi copper/gold mine investment agreement void, unless the international tax arbitration proceedings brought against the government are dismissed in their entirety.
This is according to Canada-based Turquoise Hill, which holds 66% of Oyu Tolgoi LLC (OT) – the Mongolian company owning the mine.
OT in February last year instituted international tax arbitration proceedings against Mongolia and the government has now filed its statement of defence together with a counterclaim.
Although it is not a party to that arbitration, Turquoise Hill said on Monday that it understood that the defence and counterclaim included a request that the arbitral tribunal add both the company and a member of the Rio Tinto Group as parties to the arbitration.
The counterclaim also reportedly made assertions surrounding allegations of historical improper payments to government officials and seeks unquantified damages, the TSX- and NYSE-listed miner stated.
In a statement, Turquoise Hill said it would oppose the request that it be added to the tax arbitration and that it would defend itself against the counterclaim.
“The company understands that the principal thrust of the government defence and counterclaim is to seek the rejection of OT’s tax claim in their entirety.”
"In the event OT's tax claims are not dismissed in their entirety, [the government of Mongolia] is seeking in the counterclaim an alternative declaration that the 2009 investment agreement is void," Turquoise Hill stated.
The project, billed as one of the biggest copper/gold deposits, has been beset by problems, including development struggles, delays and cost blowouts that have led to tensions between the government and Rio Tinto.
Earlier this year, Mongolia threatened to cancel the 2015 Oyu Tolgoi underground mine development and financing plan, which sets out a basis for funding of the project. Mongolia has expressed concern about Rio Tinto’s revised budget of $6.75-billion for the expansion of the Oyu Tolgoi mine, stating that the rising development costs are eroding any economic benefit it would receive from the mine expansion.
Rio Tinto operates the Oyu Tolgoi mine through its majority ownership of Turquoise Hill.
Oyu Tolgoi is expected to produce 480 000 t/y of copper on average from 2028 to 2036 from the openpit and underground, compared with 146 300 t/y in 2019 from the openpit.