Ivanhoe Mines Ltd. share price rose to its highest price in almost a year in Toronto after saying changes to Mongolia’s laws will help it complete an investment agreement on the Oyu Tolgoi copper-gold project “in the near future.”
Mongolia’s lawmakers approved amendments that will eliminate a three-year-old, 68 percent windfall profit tax on copper and gold effective Jan. 1, 2011, Vancouver-based Ivanhoe said today in a statement. Ivanhoe has tried for more than six years to reach an agreement with Mongolia to develop Oyu Tolgoi and benefit from demand in China, the biggest metals buyer.
“This is it,” Dale Choi, an economist at Frontier Securities in Ulan Bator, said in a phone interview today. “Parliament had been the stumbling block” in allowing concessions sought by Ivanhoe and development partner Rio Tinto Group, which include elimination of the windfall tax and rights to build roads and use water, Choi said.
Oyu Tolgoi is about 80 kilometres (50 miles) north of Mongolia’s border with China. Ivanhoe in March 2008 estimated the copper resources in the project at 78.9 billion pounds and the gold resources at 45.2 million ounces. London-based Rio Tinto called Oyu Tolgoi “the world’s largest undeveloped copper-gold resource” when it agreed to buy 10 percent of Ivanhoe in 2006.
“This expression of confidence in Mongolia’s future clears the way for finalization of an agreement with the government for the construction and operation of Ivanhoe’s Oyu Tolgoi copper- gold complex,” Ivanhoe Chief Executive Officer John Macken said in the statement. “We are in a position to make arrangements with the Government to sign the Oyu Tolgoi Investment Agreement in the near future.”
Rio said in a separate statement that production “is expected to commence as early as 2013 with an approximate five- year ramp-up” to full capacity. Oyu Tolgoi’s average production capacity over the entire mine life is estimated at 450,000 metric tons of copper per year and 330,000 ounces of gold, the company said.
Copper for delivery in three months on the London Metal Exchange has doubled this year, partly on government stimulus spending and stockpiling in China. Copper fell 1.8 percent to $6,311 a ton today on the LME.
Oyu Tolgoi “is right next to the consumer of all of the copper concentrate the companies can produce there,” Frontier’s Choi said.
Refined copper imports by the Chinese more than doubled to 1.78 million metric tons in the first half and reached a monthly record of 378,943 tons in June, customs data show.
China’s manufacturing expanded for a fourth month in June as a 4 trillion yuan ($585 billion) government stimulus package and record bank lending revived the world’s third-largest economy. Inflation concerns and economic growth of 7.9 percent in the second quarter also boosted demand for commodities.
Under a 2007 draft investment agreement for the project, the Mongolian government would have had the right to a 34 percent equity stake in the project and related taxes equivalent to 55 percent of the profits, Rio Chief Executive Officer Tom Albanese said in February 2008.
Neither company’s statement today said how large the Mongolian government’s stake will be.
Ivanhoe spent $156 million on exploration and development at Oyu Tolgoi, the company said in an April 1 statement. Engineers at the site completed the construction of a shaft to a full planned depth of 1,380 meters in February 2008.
Source: Bloomberg
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