TORONTO (miningweekly.com) – Rio Tinto subsidiary Turquoise Hill Resources this week reported that negotiations to resolve tax issues with the Mongolian government regarding the massive Oyu Tolgoi copper/gold mine could be delayed after Prime Minister Norov Altankhuyag was removed when members of Parliament voted to dismiss him earlier this month.
He had been accused of economic mismanagement, corruption and nepotism.
Turquoise Hill CEO Kay Priestly in response to questions on Monday told analysts on a conference call that the $5.4-billion underground project could be delayed as a result of the political situation.
The political changeover came at a time when Rio Tinto and Turquoise Hill were pursuing negotiations regarding investment terms with the government and to resolve a tax dispute.
Priestly also noted that Turquoise Hill had presented the Oyu Tolgoi board and government representatives with an offer before the Prime Minister was ousted, aimed at resolving the negotiations deadlock.
Turquoise Hill in September reported that it had completed a detailed review of a tax ruling by the Tax Dispute Resolution Council of the Mongolian General Taxation Department issued on September 10.
The ruling had reduced the amount of tax, interest and penalties claimed to be payable by Oyu Tolgoi, in which Turquoise Hill had a 66% interest, from about $127-million to about $30-million.
The company, which is 50.8% owned by Rio Tinto, noted that despite this significant reduction being welcomed, there were aspects of the ruling that required further clarification. Priestly said while the reduction was welcome, the company was appealing the ruling.
“It is important that the tax situation clear to support further investment,” he pointed out.
Project finance lender commitments for the suspended underground development of Oyu Tolgoi expired in October as a result of the stalled negotiations.
Priestly said Turquoise Hill remained in contact with the group of lenders, noting that they remained supportive of the project. “Indications suggest financing will be available when we are ready,” she added.
For the three months ended September 30, the company recorded a net loss of $38.6-million, or $0.02 a share, compared with a net loss of $94-million, or $0.09 a share, in the comparable quarter a year earlier.
Strong concentrate sales were expected to continue during the fourth quarter and sales were expected to exceed output for the quarter.
Contracts had been signed for 100% of Oyu Tolgoi's expected 2014 concentrate production and long-term contracts accounted for 92% of 2015’s planned output.
Turquoise Hill had earlier this month lowered its 2014 output guidance owing to delays in advancing the Oyu Tolgoi mine development in the third quarter.
The miner explained that it expected the mine to produce between 550 000 oz and 600 000 oz of gold in concentrates this year, down from the 600 000 oz to 700 000 oz it had predicted in August.
It also lowered its expectation for copper concentrate output to between 135 000 t and 150 000 t this year, down from a previous range of 135 000 t to 160 000 t.