Mongolia’s Turquoise Hill [Blog]

 Turquoise Hill is the translated name of Mongolia’s largest financial investment in its history – the Oyu Tolgoi project. 

Now being developed by Rio Tinto in association with Ivanhoe Mines and the Mongolian Government, Oyu Tolgoi was once firmly in the sights of BHP Billiton, who lost the asset as part of their late nineties selloff. Speculation on the Gobi Desert site began in 1996, when an American and two Mongolian geologists began to peg the ground. It took over 130 drills before they hit the rich copper deposits that lie in this region. The Oyu Tolgoi mine is scheduled to begin production in 2013, and will account for over 30% of Mongolia’s GDP.

Some disagreement has muddied the investment arrangement, with Ivanhoe Mines and Rio Tinto receiving communications from a representative of the Mongolian Cabinet requesting a re-negotiation of terms. The Mongolian Government seek to change the terms of the initial contract to increase their share of ownership, and create a sliding-scale royalties scheme. The project is now 50% complete, and Rio Tinto have approached the Mongolian National Security Council to support their investment and initial contract.

Oyu Tolgoi can be expected to produce 1.2 billion pounds of copper and 650,000 ounces of gold in its first decade of operation. The terms of the original contract can only be changed with accord of all three shareholders. There is some concern over shareholder confidence in the investment, with discord between the key developing partners creating ripples. Ultimately, the wealth of minerals and return that this project offers should overcome any jitters present from the sharemarket.

After all, this is a site where Ghenghis Khan himself melted rocks down for copper. That’s a sign of confidence equal to any Warren Buffet we can think of.

Cheraine Milburn is a mining specialist and principal consultant at Boston Kennedy. This originally appeared on her blog.


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