Tuesday, March 31, 2015

[BREAKING: Tax breakthrough at Oyu Tolgoi, "misunderstandings" on tax resolved -source]

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Tuesday, March 31, 2015

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Tax breakthrough at Rio Tinto's Mongolia copper mine -source


March 31 (Reuters) - Rio Tinto and Mongolia have made a breakthrough in a tax dispute that has been among issues stalling development of the $6.5 billion Oyu Tolgoi copper mine, according to an official familiar with the government's position.

Disputes over costs and taxes have delayed an expansion of the mine that would extend its life beyond an estimated 15 years.

"Misunderstandings and issues surrounding the tax climates have been resolved," the official told Reuters, without specifying the terms of an agreement or what other issues needed to be resolved for the next underground phase of the project to go ahead.

"The parties are working towards agreeing on the commercial terms of the underground project," added the official, who asked not to be named because no announcement had been made yet.

A Rio Tinto spokesman and a spokesman for Mongolia's mining ministry declined to comment.

A spokesman for Rio's Turquoise Hill Resources, which owns 66 percent of the mine, also declined to comment and pointed to a statement last week that said Oyu Tolgoi was appealing a ruling by Mongolia's Tax Dispute Resolution Council to the country's Administrative Appellate Court.

Last year, Rio handed Mongolia a proposed memorandum of understanding that would provide consent to move forwards with the expansion project.

First, however, Rio and the government need to find consensus on issues including a $127 million tax claim against the company, that was later reduced to $30 million, and approval of a $4 billion project financing package.

Rio Tinto's chief executive Sam Walsh said in an interview with Reuters on Saturday that the proposal sent to the government in November was the miner's "best and final offer" and that it did not seek "special treatment" with the agreement.

Walsh added that there "are issues we're working through with the government, and I'm hopeful we'll bring to resolution."

He said the firm would be willing to go to international arbitration to resolve the tax dispute, but said it was not expected to affect current phase-one production at the mine.

In addition to the open-cut mine now in operation, the phase two project would see the construction of an underground mining complex.

Walsh visited the mine on Sunday to mark the one million tonnes of concentrate that had been shipped since its opening in 2013.

Walsh has said financing for the second phase will have to be renegotiated, especially in light of volatile copper prices.

Mongolia has been concerned about costs because it cannot receive dividends for its 34 percent stake in the mine until after investors first recoup their investment.

Construction on the underground complex is currently projected to cost $5.4 billion. 

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