Shares of Ivanhoe Mines (TSX:IVN) closed Monday at their lowest level in more than a year as the company fought back against an attempt by the Mongolian government to take a bigger stake in its massive Oyu Tolgoi copper-and-gold project.
The Canadian mining company said its investment agreement with the Mongolian government complies with all the country’s laws and was negotiated in accordance with all resolutions issued by the country’s parliament.
“The agreement has been the basis for the commitment by Ivanhoe Mines and its strategic investor, Rio Tinto, to invest billions of dollars in the development of the mining complex,” the company said.
“Oyu Tolgoi already has created jobs for thousands of Mongolians and has helped Mongolia to achieve one of the highest growth rates of any developing country in the world. The project’s benefits also have been shared among local businesses and suppliers, which now form an integral and growing part of the project.”
The Mongolian government is demanding a bigger stake in the massive gold and copper mine.
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A government statement said the cabinet had asked the ministers of finance and minerals to re-negotiate the 2009 investment agreement.
The statement followed a petition by 20 members of Mongolia’s national parliament to pursue changes to the deal ahead of a general election set for next June.
Ivanhoe owns a 66 per cent in the Oyu Tolgoi project while the Mongolian government owns 34 per cent.
The company said one reported potential proposed change would see an acceleration of the Mongolian’s right to increase its 34 per cent stake in the mine to 50 per cent.
Rio Tinto, which agreed in 2006 to jointly fund the project, owns a 48.5 per cent stake in Ivanhoe Mines.
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In 2009, Mongolian lawmakers voted to phase out a windfall profits tax in 2011, removing the last obstacle to a deal with Rio Tinto and Ivanhoe Mines to develop the Oyu Tolgoi mine. The tax was enacted in 2006 at a time of surging metals prices, but miners said it made tax rates too uncertain and would discourage investment.
Ivanhoe said the agreement has been fundamental in building Mongolia’s reputation as a jurisdiction for foreign investment.
“Ivanhoe Mines is confident that Mongolia’s leadership understands the fundamental importance of Oyu Tolgoi’s contractual commitments and stabilized investment agreement that were formalized less than two years ago,” the company said.
The project, which is 50 per cent complete, is on track toward production of its first ore next year and commercial production of copper, gold and silver concentrate in the first half of 2013.
The mine is expected to produce 1.2 billion pounds of copper and 650,000 ounces of gold per year in the first decade of operation.
Ivanhoe shares closed down $1.51 at $15 on the Toronto Stock Exchange on Monday, the company’s lowest close since February 2010.
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