Over the next 25 years, it is predicted that the world will need the same amount of copper as was produced globally over the last 500 years. Meeting this huge demand is an exciting challenge and a terrific opportunity that copper producing nations like Mongolia can use to accelerate development and grow rapidly – if they act now.
Driven by the rise of electric vehicles, battery storage, and green energy innovations like wind and solar power that all need copper, the demand for this precious metal is expected to grow. This presents a great opportunity for Mongolia to generate significant value for its people; through jobs, taxes, royalties and building local supply chains. Mining can kickstart local economies and help new businesses start-up. But to make the most of a country’s natural resources, foreign investment and know-how is likely to be needed.
And Mongolia is well placed to attract more foreign investment into the country. However, Mongolia is competing with other copper-rich countries, from Chile to the USA. For example, Rio Tinto is actively increasing investment in copper mines in Chile, the US, and Australia.
To date, Oyu Tolgoi has been very successful in attracting foreign investment into Mongolia. This investment was possible only because of the three legal Investment Agreements that were negotiated and signed in good faith between all of the shareholders, including the Government of Mongolia.
All of the money invested in Oyu Tolgoi to date, and all the future investment to keep it moving, is backed by the three legal agreements – the Investment Agreement, the ARSHA (Amended Shareholders Agreement) and the Underground Development Plan (UDP). If you want to know more about these – take a look at the OT website – these Agreements have been openly shared for all to see.
Since the OT Investment Agreement (IA) was signed in 2009, we have worked with over 20 finance partners representing international finance institutions, credit agencies, and banks to fund the more the potential $12 billion investment needed to develop and expand this world-class mine in the Gobi Desert. The success of getting OT up and running and working to international best practice on safety, productivity, and technology, should not be underestimated and should actually be celebrated. It’s Mongolian ingenuity on a world scale.
We are now building the underground mine that will be the size of central Ulaanbaatar; it will make OT one of the most exciting copper and gold projects in the world.
It is one of Rio Tinto’s most technically advanced and most difficult to build mine – very few companies in the world that can do this type of block cave mining. Rio Tinto is one of them.
But, we had to stop the underground development once before for two years because the mine became a political chess game. We should not let that happen again. The UDP agreement of 2015 resolved many outstanding issues as well as imposing obligations on OT such as:
- regular audits and monthly operational reviews
- making fixed contributions for local and regional development
- clarifying value sharing between the Government of Mongolia and the shareholders, with a majority going to the people of Mongolia
- confirming the tax obligations of OT, and
- putting in a place a comprehensive financing plan that is the basis for attracting financing from almost 20 lenders
The UDP was negotiated in good faith and spirit. As an international company, listed on three stock exchanges, Rio Tinto has to comply with the UK Anti-Bribery Act and the US FCPA and follows a code of conduct set out in OECD principles of doing business. This is why we have our global code of conduct, The Way we Work – which we strictly follow at all times.
Since OT started in 2010, the Mongolian government has received over $2.3 billion of taxes, fees, and royalties. The mine operations and project development employ over 17,000 people, of which over 90 percent are Mongolians. If you include suppliers, that is an additional 45,000 people. There is no reason why this successful journey shouldn’t continue. But we need to act fast Mining is a cyclical business and if you pick the wrong time, you can miss the cycle for a decade.
I also believe that history offers us great lessons about how success can be achieved. Chile, for example, demonstrates how private capital, government, and communities create real benefits by working together to achieve shared success.
Today, in many ways, Mongolia mirrors where Chile was in the early 1990s. A copper-rich country faced with a game-changing opportunity to deliver significant prosperity for its citizen. Chile’s wealth was unleashed by sound government economic policies, starting with those related to supporting a thriving mining industry. Value creation of mineral wealth is strongest when there is a framework to make that possible, providing certainty and a favorable climate for foreign investment. A clear regulatory framework and an independent judiciary, a commitment to honouring agreements and contracts are essential, especially in our industry, where time horizons are long, and upfront investment is huge.
At Oyu Tolgoi, the key investment agreements make the shareholders’ potential US$12 billion investment in Mongolia possible. Without these agreements, we do not have a business case. And we will not have an operation.
It is essential that we as partners understand that while Rio Tinto and TRQ are open to exploring ways to find additional benefit and value from OT within our existing agreements, any attempts to make changes to the IA, ARSHA or UDP are likely to lead to serious consequences, over which we may not have control.
I am currently in Mongolia, my 11th visit in the last 12 months, to once again meet with the Government and other stakeholders to find a win: win solution. I urge the Government to continue to work with us right now so we can move forward.
We do not want to stop the underground project, but we will need to do so if we are tasked to negotiate further any aspects of existing agreements that we have negotiated and agreed before. The pace of development of the project is now at risk given multiple audits and lack of action on key issues, such as power.
We have communicated to our partners for two years that we are open to increasing the benefit sharing of Oyu Tolgoi, such as resolving the tax claim, improving the interest rates, progressing a power solution and increasing the social benefits. These improvements fit within the Agreements, and our door is open to finding a way forward.
We are not open however to renegotiating the elements of the fundamental agreements that Rio Tinto and the other 20 or so global financial institutions see as essential.
So you see, we now face an important crossroad and we urge the Mongolian Parliament and government representing the long term interests of the Mongolian people to choose a way forward that keeps Oyu Tolgoi in business, keeps 17,000 Mongolians employed, keeps 900 suppliers in operation (employing 45,000 people) and puts Mongolia on the world map as a preferred investment destination. A country where there is not one but five or ten OTs all across Mongolia, employing the talented Mongolians who want to see their country progress.