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Mongolia tax repeal clears way for $4 bln mine

Mongolia tax repeal clears way for $4 bln mine

Mongolian lawmakers scrapped a controversial tax that was delaying a multibillion-dollar deal on a new copper and gold mine, clearing the way for Rio Tinto Ltd. and Canada's Ivanhoe Mines Ltd. to go ahead with the project.
Lawmakers voted Tuesday to phase out a windfall profits tax in 2011, removing the last obstacle to a deal with Ivanhoe and Rio to develop the Oyu Tolgoi mine in the Gobi desert. The tax was enacted in 2006 at a time of surging metals prices, but miners said it made tax rates too uncertain and would discourage investment.
Ivanhoe and Rio Tinto both said they are ready to sign an investment agreement. Finance Minister Bayartsogt Sangajav said that should happen within two weeks.
"This expression of confidence in Mongolia's future clears the way for finalization of an agreement with the government," Ivanhoe president John Macken said in a statement.
Negotiations over Oyu Tolgoi have sputtered since 2001 amid disagreements over how to exploit Mongolia's mineral wealth. The talks were a test of Mongolia's willingness to welcome foreign investment and pursue commercial ties with Japan, the United States and others to offset its economic dependence on neighbors China and Russia.
Legislators had balked at the complexity of the proposed agreement and provisions that would cap Mongolia's stake in the mine at 34 percent while exempting the foreign miners from a windfall-profits tax.
Parliament told the government in July to renegotiate the deal after lawmakers rejected an agreement reached in March. Opponents complained the deal shortchanged the country and said the government should own at least 51 percent of the mine.
Under the latest version, the government can negotiate to raise its stake to 50 percent after 30 years once the miners recoup their initial investment. That is to be $4 billion, with the government receiving a $250 million advance payment on its expected revenues.
Legislators also agreed Tuesday to make other legal changes to let the foreign miners build their own road to the mine and drill for water.
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On the Net:
http://www.ivanhoemines.com
http://www.riotinto.com