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http://zgm.mn/post/632/

Arnaud Soirat: OT agreements are not renegotiable (Part 1)

Agreement were negotiated in good faith with people that were mandated by the Cabinet

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http://zgm.mn/post/632/


ZGM Daily had the opportunity to sit down with Arnaud Soirat, Rio Tinto’s Chief Executive of Copper and Diamond, about the company’s stance on the current turmoil around the Oyu Tolgoi (OT) project.

-How does Rio Tinto feel about what is happening in Mongolian politics lately? The tax act, for instance.

-I have just come back from OT. I was with my whole executive team. When you go to the site, it was absolutely amazing. You can see Mongolian people being very motivated doing a top job in managing the operations and constructing some of the underground projects. Right now, we have got 14 thousand employees in OT altogether. The vast majority of those employees are Mongolians, which is 94 percent of the total employees. We also indirectly employ around 13 thousand employees through our food suppliers and contractors. We have contracts with around one thousand local companies. So, when you put everything together, we are the biggest private employer in Mongolia and we are providing to Mongolian people an opportunity to learn best practices from around the world in mining and we are deeply contributing to the economy. So, when I hear people complaining about the fact that OT is not contributing enough to the economy and to Mongolia, I thinking that they should visit the site and we should be looking at facts to be able to understand how important OT is to Mongolia. So, if i can give you just a few numbers; we have invested USD 7.5 billion in total since the beginning of the projects. We are intending to invest another USD 5 billion. We have paid USD 1.8 billion of taxes and royalties, so this money has been contributing directly to the Mongolian economy. If you look at the overall share of value, the Mongolian Government’s 34 percent of the shares is going to get more than 50 percent of the economic benefit. Overall, I know the context is difficult politically; but, if you really look at the facts, OT is an outstanding opportunity for the country.

-As it happens, politics does not regard facts. So the question is, how do you plan to solve all this political ping pong on whether or not Mongolia needs OT?

-I hear your comment but I do not do politics. I am a businessman and I am sticking to facts. I think, as you know, there are quite a lot of good deeds and reviews that are currently being done here on OT by the parliamentary working group. Actually, it proposed to look at the benefit of OT to the country and I think this is an outstanding opportunity for people in the parliamentary working group to spend some time to read the agreements. Because many people criticize the agreements, but very few of them have actually read them. Those agreements are here. They are available. We published those agreements on our website straight after we had signed them in full transparency. We have been even recognized by international NGOs for the transparency of the way we do business in Mongolia. So, we do encourage people to read those agreements and then the parliamentary working group has got a chance to have a look at the facts and to educate the whole population of Mongolia. Because, a lot of misinformation have been communicated for political reasons. Therefore, I really see the parliamentary working group as a key opportunity to correct those misperceptions and to help people understand the Investment Agreement, Amended and Restated Shareholders Agreement, and Underground Development Plan (UD P) are good agreements. They were agreements that were negotiated in good faith with people that were mandated by the Cabinet at the time to be able to do those negotiations. They have been negotiated according to best practices. Ultimately, it is a very good overall deal for Mongolia. The Mongolian Government has got 34 percent of the shares, has not invested a single penny in OT.


• Mongolian Government’s 34 percent of the shares is going to get more than 50 percent of the economic benefit.

• Mongolia is the only shareholder who had return on OT.

• Underground production of OT will come on the right time when the price would have increased and the market will need additional copper.


Yet, this is the only shareholder who had return on OT , USD 1.8 billion of taxes and fees of different sources. Other shareholders, TR Q, which is a Canadian company, and Rio Tinto have not had a single return yet. I know many people conveniently want to forget about this and rather talk about something else, but I think the parliamentary working group has got a key opportunity to put it in front of everyone. Because ultimately, one should never forget that those agreements, investment agreements and UD P are the foundation of our investment. It is very important that we operate in a country that respects the rule of law and respects agreements that have been signed. Those are the foundation. These foundations are actually what is going to support the investment and operations for many years to come. These are enabled by UD P and IA. Therefore, those agreements are absolutely critical for us to continue investing. If there were no agreement or if those agreements were to be challenged, then it would significantly jeopardize our ability to continue to invest in the country.

-Have you had meetings with the working group? How progressive has it been?

-Personally, I have had meetings with key politicians. But people in my team have had regular meetings with the working groups. We have got four working groups with the Government. One on the interest rate of the loans that Government contracted with the shareholder. One on the tax act, one on power and one on town development. We have people in my teams and OT that are so involved with the working groups of the Parliament. We have collaborated fully with the parliamentary working group. They have asked for lots of information and data. We have been transparent and given it to them. Some members of the parliamentary working group have been on site and they have had the opportunity to see by themselves. What has been built underground is one of the most complex underground project in the world. We are using a technology that only a very few mining companies in the world could master. The scale of the project is such, that once we’ve reached full production from the underground, OT will become the world’s third biggest copper mine. That does not come by luck. That comes by signing the UD P. With the UD P, we have been able to borrow USD 6 billion through 15 different reputable international agencies and we have been able to hire 7 thousand Mongolians. We have been transferring best practices for them to be able to construct and build underground projects. With that, we will be generating the equivalent of 30-40 percent of Mongolia’s GDP once we start exporting the ore coming from underground. What has been done is something to be proud of.

-Has the tax act influenced the operation at the site?

-No. We are trying to keep things separate. The tax act, in some ways, is a shareholders’ issue. We are keeping people very focused on the site on safely and cleanly operating the open pit mine and delivering the underground projects. Our experts have discussed with the Government on tax act many times. For us, it is very clear that we have and will pay the taxes that we owe. We are convinced that the taxes that we have paid during the previous years, which have made us one of the biggest tax payers in the country, are fair and reasonable, and they are in accordance with the agreements that we have signed.

If OT agreements were to be challenged, it would jeopardize our ability to invest in Mongolia

An audit was done and came up with not over USD 155 million of additional tax. We looked at it in details. We agreed on USD 5 million, which we have paid. As for USD 150 million, we do not agree. Because they are in disagreement with the agreements that we signed with the government. Therefore, I think the best way to resolve it is to be clear. That is not unusual. You see that in many other countries. To be clear of what you do amongst good friends. When you cannot agree on the interpretation of an agreement that you have signed, you go to a third party and ask them for their independent analysis. That third party is called an arbitrator. We are in arbitration in Australia with the tax office in Australia, for example, on some aspects of interpretation of the legislation and agreements.

-So you have already gone to the arbitration?

-No, but we have noticed the Government that we could go to arbitration if we cannot come to an agreement.

-What would be the breaking point?

-We are continuing to discuss and our people are still going to meetings. Ultimately, we need to find a solution.

-I understand that the political hassle has not affected the time when OT’s underground will go into full production. Is it due on track?

-It is still on track. We are still moving first pillar head. But I think it is at risk. This project is so complex, we cannot do this on our own. We need the support of the local communities, which where we have, but of broad community in general, we need the support of the government and parliament. Currently, I think there is more work to be done for us to feel comfortable that we have got this support. So the current political environment is a concern to us.

-We have been witnessing Rio Tinto move out of some of its assets, namely coal. How important does that make copper projects, such as OT, for the company?

-Copper is very important to Rio Tinto. OT is the biggest investment we are making in copper. We believe copper is a good industry to be in. The market fundamental is good. The demand is very healthy with close to three percent growth per year. It is underpinned by some key fundamentals. There is a good growth in demand because of industrialization of many countries in the world and that industrialization requires equipment, which requires copper. It is also because of urbanization. Many people move from the country to the town and new buildings are being constructed, and those buildings need a lot of copper wiring. It is also related to clean energy, renewable energy and electrical vehicles. When you put all of these together, the demand is very healthy. Yet, what makes the copper market really interesting is actually not so much on the demand side, but on the supply side. Because from what we have seen and we are not the only one to see it, our competitors have not invested enough in new mines and new developments. In mining, you get lower and lower grades progressively. Some mines are coming to the end of their life and are shutting down. So, regularly, you need to be able to invest in new projects just to compensate for this natural decline in production. Those investments have not been done enough in the past. So, we think that in the coming years, market will be undersupplied. Therefore, the price will be sustained. If we can continue with the underground project, the production of the OT underground will come on the right time when the price would have increased and the market will need additional copper.

Second part of the interview will be published on tomorrow's (June 15th) issue of ZGM Daily.


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Mongolia announces to support U.S victims of Hurricane Florence

​Prime Minister Khurelsukh meets the Vice President of the U.S Mike Pence​

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Prime Minister Khurelsukh Ukhnaa, who is on an official visit to the United States of America, met with the Vice President of the United States Michael Richard Pence at the White House and exchanged views on expanding bilateral trade and cooperation. Underlining shared common values of both countries such as democracy, legitimacy, respect for human rights, freedom, justice and equality, Prime Minister U.Khurelsukh expressed his pleasure with ties between Mongolia and the United States which are developing successfully in all areas such as politics, defense, economy, culture and humanitarianism over 30 years of period since the establishment of diplomatic relations. He addressed that the people of Mongolia always recall persistent supports of the US administration and its people for Mongolia’s democracy and people’s aspiration for their rights and freedom along their generous assistance for Mongolia to overcome difficulties during transitional period to a free market economy. Sides confirmed that the two countries’ aspiration to deepen relations and cooperation to strategic levels, and within the frame, stepping up to Extended Comprehensive Partnership and negotiated on the Road Map for Mongolia-U.S Extended Economic Partnership.

The road map is a significant part of Mongolia’s objectives to diversify its economy and will enable cooperation on agriculture and renewable energy with the U.S. Also, certain Congress Members of the U.S have initiated a bill to exempt Mongolian cashmere and textile products from tax. He highlighted that the Compact Agreement established between the Government of Mongolia and the U.S. Millennium Challenge Corporation has great significance for improving livelihood of Mongolian people and ensuring economic growth as well as environmental and ecological sustainability and he expressed sincere gratitude to the Government of the United States. Moreover, the PM expressed deepest condolences on behalf of the Government and people of Mongolia for the loss of lives due to Hurricane Florence in the United States and announced that Mongolia will gift USD 100,000 in camel hair blankets to those affected by the hurricane. Mr. Pence recognized the strong support that Mongolia has pledged to continue to provide to NATO’s Resolute Support Mission in Afghanistan and Mongolia’s continued enforcement of UN sanctions on North Korea. He thanked the Prime Minister on behalf of President Trump and the American people for Mongolia’s gift. Mongolian PM Khurelsukh then invited Mr. Pence to visit Mongolia at his convenience.

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2018 best of journalism awarded

​10th Baldorj Awards takes place ​

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The 10th Baldorj Awards, annual ceremony for the best journalistic works, took place yesterday. ZGM Newspaper journalist Z.Tselmeg's work was awarded as one of the Top 10 works of journalism. This year’s Grand Prix Prize went to J.Suvdmaa and T.Enkhbat, correspondents of the Today Newspaper for their “Mining Partnered Modern Herder” reportage and “In Search of Responsible Mining” series of articles, followed by the investigative broadcast series on Human Rights by G.Batzaya, J.Zolzaya and B.Lkhagvasuren of MNB television channel. Traditionally, the Baldorj Grand Prix is presented by the President of Mongolia; however, this year's winner was awarded by the former President Bagabandi Natsag as President Battulga Khaltmaa is currently on a working trip in Zavkhan aimag.

Top works of journalism are as follows:

1st-“Tragedy of the Buun Tsagaan Lake” and “How is life” series of articles by Kh.Uyanga /Today Newspaper/.

2nd-“Minus Degree: Gold Regrets or Power of Habitat” and “Abandoned Awe of Khuvsgul Lake” by D.Ganzorig of /TV-9/.

3rd-“We and Mongolian Steppe Love You” and “Pathway to School of a Six-year old Bayanduuren“ by B.Enkhmart /National Post Newspaper/.

4th -“One-time National Content: Once upon a time in Mongolia and South Korea” by D.Erdenebayar, J.Purevdavaa, G.Munkhbayar and G.Natsagdorj /TV-25/.

5th-“Uncultured Mongolia” by S.Batzaya /Mongolian Media Corporation/.

6th-“Give Mongolians the Right to Consume Clean Water” and “Protecting Wildlives Seeking Salvation” by B.Solongo /Zuunii Medee Newspaper/.

7th-“Tears Behind Handset” and “3 Million Living on Lead Meat in a Country with 60 Million Livestock” by Z.Tselmeg /Zasgiin Gazriin Medee Newspaper/.

8th-“One Day of Raging Mongolians at Zamiin-Uud” by E.Khurelbaatar /Daily News Newspaper/.

9th-“Time in Deepest Silence” series of articles of B.Altankhuyag /Montsame News Agency/.

10th-“Made in Mongolia” broadcasting series of N.Khongorzul / Bloomberg TV Mongolia/. Special Prize of the Ambassador of Canada - J.Mandkhai

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Legal dispute over EMC ownership comes to an end

​Supreme Court resotres MCC's 49 percent stake of EMC​

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(MCC) won over the Government of Mongolia at the Supreme Court for the second time yesterday. Thus, the property dispute over Erdenet Mining Corporation (EMC) between MCC and the Government that dragged on for two years finally came to an end. Earlier this year, the Cabinet decided to forcefully nationalize the 49 percent stake of EMC owned by MCC with its 7th resolution, which was followed by massive public backlash because the Supreme Court ruled against the Government on December 7, 2017. Therefore, the Government’s act has been confirmed unacceptable by several courts and the EMC board, which is fully formed by Cabinet members, was suspended. During the yesterday’s ruling, the Supreme Court revoked the Government’s 7th resolution on nationalizing EMC, resinstating the 49 percent stake of MCC. “With the Supreme Court's second ruling, the EMC will now be able to operate normally. We will now demand the Government to fulfill the court's decision and immediately hold the board meeting to address the facing issue as EMC is currently suspended by the international arbitration over a case involving the Government's share of 51 percent stake,” remarked Purevtuvshin Tsooj, CEO of MCC.


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Scholars disclose potential trilateral corridor on tourism

​Fourth Mongolia-Russia-China Think Tank Forum kicks-of​

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The fourth Mongolia-Russia-China Think-Tank Forum kicked off yesterday to discuss the establishment of a trilateral economic corridor between the three countries. The forum is organized by a trilateral think tank union, which was established in 2015 to give advices to industrial, economic, humanitarian, ecological, infrastructure and regional actions between the three countries and is being held in Mongolia for the second time after taking place in Russia and China respectively. During the two-day event, some 120 experts and officials from the three countries are expected to submit their proposals and exchange views on intensifying the establishment of the Mongolia-Russia-China economic corridor and strengthen trilateral cooperation. Under the themed, "Mongolia-Russia-China economic corridor: Innovation and Co-Development," the forum will focus on cooperation in energy, transportation, education, culture, science, technology and socio-economic issues through three panel discussions. "The trilateral economic corridor, an important part of China's Belt and Road Initiative, is related to not only the economy but also various fields such as culture, science, tourism and people-to-people exchanges," Tumurbaatar Yadmaa, President of the National University of Mongolia (NUM), said at the opening ceremony of the forum.

After reviewing the activities of the last three years, the authorities decided to add new members to the Think Tank Union, including National Development Agency of Mongolia, several governors of Chinese provinces and the administration of Chita, Russia. According to Battsengel Vandansambuu, a Professor at the NUM, the union is currently focusing on two projects, namely transit transportation corridor and tourism corridor in Khailaar-Chita-Choibalsan route. “Although China is making significant initiatives in the tourism route, Mongolia is in need to improve infrastructure as the majority of tourists are returning after reaching Buir lake. Dornod aimag has numerous natural and historical wonders and unique places; however, the poor development of hotel, tourist companies and road is becoming a giant obstacle,” addressed Mr. Battsengel. Scholars also pointed out that transit railway transportation will reach 48 million tons by 2020 and 76 million tons by 2030 if the trilateral economic corridor is successfully established. During the meeting of the heads of State of the three countries, a total of 32 programs have been approved, of which 13 are on infrastructure development. The forum is expected to continue with trilateral energy, resource usage and cooperation today.