Business Mongolian copper Halfway to where?
商业 蒙古铜矿 车行半路，前途未卜
A massive mining project hits a snag
IN THE endless brown wastes of the Gobi desert in the south of Mongolia huge blue structures are springing up.
Some 18,000 workers are employed on Oyu Tolgoi, or "Turquoise Hill", the largest undeveloped copper and gold mine in the world.
Rio Tinto, the mining giant that is managing the project,
flew its chairman, Jan du Plessis, to the site for a ceremony on September 25th to mark the halfway point of the first phase of construction.
Celebrations were hardly marred by rumblings of discontent back in the capital, Ulaanbaatar, from Mongolian politicians.
But since then the rumblings have got louder, worrying not just Oyu Tolgoi's investors, but all those gleeful at the prospect of a prolonged mining-led boom in the country.
A group of 20 members of parliament signed a petition in early September asking the government to reopen negotiations on the 2009 "Investment Agreement" that set the $10 billion project in motion.
That could be dismissed as populist political noise ahead of elections due next year.
But by the end of the month, it had become the basis of a formal request from the government to Ivanhoe Mines of Canada, which has a 66% stake in the company that owns the mine and is in turn 49% owned by Rio.
Opening parliament this week, the speaker, who sits on the National Security Council, voiced his support for a renegotiation.
The main demand is to bring forward the date when the government has the option to increase its 34% share in the project to 50%.
At present, its share—which was financed by a loan from Rio—cannot rise until 2040.
The government also wants to impose a "sliding-scale royalty" on the project.
This week, Ivanhoe and Rio shot back a letter saying the agreement was not up for renegotiation.
All they will concede is that, under its terms, the government is within its rights to ask for talks.
They are adamant, however, that the terms cannot be changed.
The mining companies point out the huge benefits the project brings in terms of employment, tax revenue and foreign exchange.
By 2020, when it will be producing 450,000 tonnes of copper a year, which will be sold across the nearby Chinese border, it is expected to account for a staggering one-third of Mongolia's GDP.
They also argue that, with the copper price falling, a renegotiation might leave the government in a worse position.
The current agreement has the effect of insuring its equity stake against market risk.
The investors feel some Mongolians do not understand that, because of taxes and royalties, the government's 34% share grossly understates the benefits it will receive from the project.
Oyu Tolgoi is the poster project for a national mining boom that sees Ulaanbaatar crawling with foreign miners and their investment bankers.
Of immediate concern are plans to raise billions of dollars through a multinational offering of shares in a huge coal project, Tavan Tolgoi, also in South Gobi province.
Oyu Tolgoi already faces problems enough.
Inter-governmental negotiations with China have yet to produce an agreement on its supply of power for the early years of production.
Ivanhoe has been snapping at Rio for making "unauthorised remarks" about the project,
and there is the small matter of $4 billion in bank finance to be raised.
So the government needed a face-saving way out of the latest fine mess it had gotten the project into.
On October 6th it issued a joint statement with the foreign partners saying they had settled their differences, without amending the Investment Agreement.
Rio and Ivanhoe will be relieved.
But it will still have to deal with the disgruntled parliamentarians, not to mention voters.