Ivanhoe, Rio Tinto, Mongolia to Sign Oyu Tolgoi Agreement Today

By Rob Delaney and Rebecca Keenan

Oct. 6 (Bloomberg) -- Ivanhoe Mines Ltd. and Rio Tinto Group plan to sign an agreement today with the government of Mongolia to develop the Oyu Tolgoi copper-gold project, which Rio has called the world’s largest such resource.

The accord sets up a “legal, stable, long-term tax and regulatory environment for the construction and operation of the Oyu Tolgoi mining complex,” Vancouver-based Ivanhoe said yesterday in a statement. No terms of the agreement were given and Ivanhoe spokesman Bob Williamson declined to comment. A news conference in Ulaanbaatar is scheduled for 3 p.m. local time today, according to an invite sent by the Mongolian parliament.

The deal may last as long as 30 years and is valued at $30 billion to $50 billion, Mongolian President Tsakhiagiin Elbegdorj said last month. Ivanhoe, the developer of the project, has tried for more than six years to reach an agreement to mine the deposit, which is about 80 kilometers (50 miles) north of Mongolia’s border with China.

The site contains about 78.9 billion pounds (36 million metric tons) of copper and 45.2 million ounces of gold, according to company estimates from March 2008. Ivanhoe spent $156 million on exploration and development at Oyu Tolgoi last year and $245.5 million in 2007, the company said in April.

Ivanhoe rose 2.1 percent to C$13.91 in Toronto Stock Exchange trading yesterday. London-based Rio gained 2.2 percent to A$58.08 as of 2:16 p.m. in Sydney.

Rio Tinto agreed to buy 9.9 percent of Ivanhoe in October 2006. The company has the option to increase its stake to 43.1 percent in stages as development progresses, according to a Sept. 23 statement from Ivanhoe. The stake can rise to 46.65 percent should Rio buy Ivanhoe shares on the market, the statement said.

Disagreements

Ivanhoe Chairman Robert Friedland’s efforts to get the project into production had been stymied by disagreements between Mongolia’s parliament, ministers and the mining companies over how much ownership the government should take in its mineral wealth. Protests over benefits for foreign miners led to the collapse of a coalition government in 2006.

Friedland has staked the prospects for Oyu Tolgoi on demand for copper from manufacturers in China, where imports rose more than threefold to 213,399 tons at the end of last year from three years earlier, according to the country’s customs data.

Oyu Tolgoi will “make Ivanhoe a major producer of copper,” said Ray Goldie, an analyst at Salman Partners Inc. who has a “buy” rating on Ivanhoe since April 2008, according to data collected by Bloomberg.

Ivanhoe would likely profit from production at Oyu Tolgoi if copper prices were trading as low as $1.50 a pound.

Copper for December delivery on the Comex division of the New York Mercantile Exchange rose as much as 1 percent to $2.755 a pound. The metal hasn’t traded below $1.50 since Feb. 27.

To contact the reporters on this story: Rob Delaney in Toronto at robdelaney@bloomberg.net; Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net.