October 11, 2012
Reposted from The UB Post
By B. Khash-Erdene
Turquoise Hill Resources, previously Ivanhoe Mines, opened the Oyu Tolgoi mine in 2001. The Rio Tinto Group joined in on the project in 2006. The three year anniversary of the establishment of investment agreement was held was on the 6th of this month and CEO and President of Oyu Tolgoi, Cameron McRae, released further information about the project. He noted that the Oyu Tolgoi’s investment agreement is enormously beneficial to the Mongolian government and people. He noted that in the last three years, foreign investment directed toward Mongolia has increased 13 times, without including the Oyu Tolgoi investments, which has increased the confidence to the investors in Oyu Tolgoi project.
McRae stated that 6.2 billion USD was spent on infrastructure development and construction work of the Oyu Tolgoi project which is now in its final stages. More than ten years will be needed to fully establish the underground mine facility. The Oyu Tolgoi project has a much greater ore deposit than an open pit mine and will be the world’s biggest, deepest and most technologically advanced mining facility. Until the underground mine becomes operational, shareholders and investors will not receive any dividends, which are expected to be distributed by 2020. This factor is highly dependent on copper and gold prices on the global market.
Since the establishment of the investment agreement, 36 months have passed and the project has purchased products and services worth 837 million USD from Mongolian enterprises. Though the project has not yet begun to make a profit, it has paid a total of 803 million USD in taxes to the Mongolian government. A sum of money this high can be used to distribute 20 thousand MNT to every child below the age of 18 in Mongolia every month for six years, as reported by the company.
The Oyu Tolgoi project has contributed 125 million USD or 170 billion MNT on training and developing the Mongolian educational sector. At present, around 12 thousand Mongolian workers work in the construction and development sector of the mine, as well as in the offices in Ulaanbaatar, according to the company.
To this point the Oyu Tolgoi project has built more than 200 km of a 220 kilowatt transmission line and over 100 km of roads, as well as 90 km of underground water pipes. They are also planning to build an international airport and a 450 megawatt power station. The power supply agreement between Oyu Tolgoi, Mongolia and the Chinese government is reportedly in its final stages.
The International Monetary Fund estimates that 71 percent of the profit made by the Oyu Tolgoi will go to the Mongolian nation, including taxes and fees. This data is consistent with the estimation conducted by Oyu Tolgoi and although the Mongolian government owns only 34 percent of the shares, it will receive 71 percent of the total cash flow. More specifically, value added tax, customs and other taxes, and the mineral resource exploitation tax are added to the Mongolia share holding percentage which makes up 71 percent of the total cash flow.
On a side note, McRae stated that since the taxes remain same, even if the raw material price drops on international markets, Mongolia will still receive its 71 percent without loss.