Tax dispute arises between Rio Tinto and Mongolia

Rio Tinto’s company in Mongolia has been accused of evading
taxes and penalties payments related to the Oyu Tolgoi copper and gold mine.

Rio Tinto owns 50.8 per cent, the controlling interest in mine
operator Turquoise Hill Resources, a Vancouver-based company that owns 66 per
cent of the mine.

The remaining 34 per cent is owned by the Mongolian
Government, a relationship that has been plagued by disagreements, over revenue
sharing, access to water issues and $2 billion worth of cost blowouts on the first
stage of the mine.

An audit report received by Turquoise Hill from the Mongolian
Tax Authority claimed unpaid taxes, penalties and disallowed entitlements with
the initial development of the mine.

However, Turquoise Hill CEO Kay Priestly has rejected the
allegations, claiming the company has paid all taxes and charges as required.

“We strongly disagree with the claims in the audit report
and are currently reviewing all options to resolve this matter,” she said.

“It is important that we protect our right of tax
stabilisation provided by the investment agreement.”

Rio Tinto and Turquoise Hill have said they are reviewing
the detailed tax claim, but have warned that any breaches of the Investment
Agreement could lead to international arbitration.

The companies have also said that a feasibility study for
underground expansion will be delayed if the matter is not resolved by the end
of the financial year.

Last month Rio Tinto fired 300 workers from the Oyu Tolgoi
mine as a cost cutting measure.

Oyu Tolgoi accounts for 30 per cent of the economy of
Mongolia, which has a national population of more than 3 million people.