Mongolia To Rescind Mining Windfall Tax

by Mary Swire, Tax-News.com, Hong Kong

28 August 2009

The government of Mongolia agreed to scrap the 68% windfall profit tax on August 25, paving the way for an agreement with Rio Tinto, and its partner Ivanhoe Mines, to allow major copper-gold mines to be established. According to the government the tax will be rescinded in early-2011, in preparation for the start of production, scheduled for 2013. Negotiations have been ongoing since 2001.

Rio Tinto and Ivanhoe Mines have welcomed the Mongolian parliament’s approval of amendments to four laws that clear the way for the finalisation of the Investment Agreement for the Oyu Tolgoi copper-gold complex in Mongolia's South Gobi region.

Within the deal it is understood that in exchange for ‘a stable and operational tax environment in relation to the development and operation of the Oyu Tolgoi Project and certainty as to the term of the investment’ for the miners, the government will receive increased royalty payments as well as a shareholding of 34% in Ivanhoe Mines Mongolia Inc.

According to Rio Tinto and Ivanhoe the signing of an agreement, finalizing the deal with the Mongolian authorities, is imminent. Rio Tinto expects production to commence as early as 2013 with an approximate five-year ramp-up to full production. Average production capacity of the mine over its lifetime is expected to be 450,000 tonnes of copper per year and 330,000 ounces of gold.

Welcoming the removal of the windfall profits tax, Ivanhoe Mines President John Macken said in a statement: “The votes today by an overwhelming majority represents a significant step in Mongolia’s commitment to attract foreign investment in the development of the country’s mineral resources.”

“This expression of confidence in Mongolia’s future clears the way for the finalization of an agreement with the government for the construction of Ivanhoe’s Oyu Tolgoi copper-gold complex in the South Gobi Region. Now we are in the a position to make arrangements with the government to sign the Oyu Tolgoi Investment Agreement in the near future.”

Tom Albanese, Chief Executive of Rio Tinto added: “This is an important milestone in bringing onstream one of the finest undeveloped copper-gold projects in the world. The Investment Agreement is also a landmark for the future development of Mongolia's resources industry.”

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