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Turquoise Hill surges as parent Rio, Mongolia settle Oyu Tolgoi stand-off

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Disputes between Rio Tinto and Mongolia over taxes and the costs of building the first stage stopped work on the second phase in 2013.

Turquoise Hill Resources (TSE:TRQ), the Canadian mineral exploration company focused on the Asia Pacific region, soared in morning trades after Mongolia and parent Rio Tinto Group settled a dispute over the Oyu Tolgoi copper and gold mine. 

Shares of the Vancouver, British Columbia-based company, which owns 66 percent of Oyu Tolgoi, advanced 5 percent to C$5.50 at 2:42 p.m. in Toronto. The stock has rallied 53 percent so far this year.

The $5-billion Oyu Tolgoi project, which started producing from an open pit mine two years ago, is the biggest single foreign investment in Mongolia, and resolution of the disputes over the second phase has revived hopes for a string of other stalled mining projects.

The underground expansion, with 25 billion pounds of copper and 12 million ounces of gold reserves, will make Oyu Tolgoi one of the world’s top 10 copper mines and propel growth for global miner Rio Tinto outside iron ore. Rio is operator of the project, located in the Gobi desert near Mongolia’s border with China.

The deal, signed in Dubai at a midnight ceremony, opens a “new page in history” for Mongolia, Prime Minister Saikhanbileg Chimed said in a statement. “Now it’s very clear. Mongolia is open again.” Mongolia owns 34 percent of Oyu Tolgoi. 

Disputes between Rio Tinto and Mongolia over taxes and the costs of building the first stage stopped work on the second phase in 2013.

The project is expected to boost Mongolia’s economy by a third when it reaches full capacity.

Under the pact announced today, Rio Tinto agreed to cut its management fees in half to 3 per cent of capital costs, gave up a smelter royalty, and agreed to base its 5 percent sales royalty to the government on gross revenue.

Turquoise Hill said those factors were worth less than 2 percent of the $7.4 billion valuation on the underground project.

Before development can begin, Oyu Tolgoi will need to finalize C$4 billion in project financing, submit a final feasibility study and secure permits.

When fully operational, Oyu Tolgoi is set to produce an average of 450,000 metric tons of copper and 330,000 troy ounces of gold a year, in addition to vast quantities of silver and molybdenum.

 

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Price: 0.85 CAD

TSX:TRQ
Market: TSX
Market Cap: $1.71 billion
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