Rio Tinto linked to Oyu Tolgoi settlement as Mongolian politics poses new governance challenge
Rio appears close to settling with investors who accused the miner of withholding information about cost blowouts and delays at Oyu Tolgoi, although it may have bigger problems in Mongolia.
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Rio Tinto is poised to extract itself from one of the damaging lawsuits surrounding its Oyu Tolgoi copper mine in Mongolia to focus on its succession dilemma.
It is understood Rio is close to reaching a financial and legal settlement with investors who accused the mining giant of withholding information about cost blowouts and delays with the mega project.
The US lawsuit was instigated by investors in Turquoise Hill in 2022, and has been led by Florida-based hedge fund Pentwater Capital Management.
Sources with knowledge of the dispute said it made sense for Rio to agree to a settlement as it faced fresh problems in Mongolia where new regulatory obstacles have surfaced, and given the damaging nature of some evidence already presented to a New York court.
Rio refused to comment on Sunday due to the “legal proceedings being ongoing”.
On Friday night, Rio revealed the Mongolian government dealt it a delay in the approvals needed for the mine to enter tenements partly owned by Canadian company Entree Resources.
Entree chief executive Stephen Scott said: “We are obviously very disappointed that we have been unable to achieve a timely transfer of title to the joint venture mining licences, necessitating this pause.
“Our top priority is to try to reduce the adverse economic impact on all Oyu Tolgoi project stakeholders, including the people of Mongolia, that will result from a Panel 1 underground development delay.”
The latest setback for Rio at Oyu Tolgoi, a key pillar of the company’s growth, comes amid a hotly contested succession race.
“Development work in the Entree joint venture area is now being paused until the necessary transfer of licences from Entree to Oyu Tolgoi LLC is processed by the government of Mongolia,” Rio said in a statement on Friday night.
Hours earlier, departing chief executive Jakob Stausholm and his potential successor, Simon Trott, opened the company’s newest iron ore mine in Western Australia.
The relationship between Rio and the unsettled Mongolian government is fraught.
Rio and Mongolia are in court over $US438m in disputed taxes. And Mongolia has launched action in the British High Court that accuses Rio of bribing politicians and government officials.
The situation is further complicated by last week’s resignation of Mongolian prime minister Luvsannamsrain Oyun-Erdene.
In the US case, documents already before the court indicate Rio told investors in October 2018 that a $US5.3bn expansion at Oyu Tolgoi was proceeding on budget and to schedule.
In the days immediately after Rio’s statement to the ASX, its copper and technical evaluations teams held an “urgent review” and advised the investment committee of the prospect of a near-nine month schedule overrun.
Internal Rio communications indicate executives discussed a blowout in one major contract from $US263m to $US433m as far back as March 2018.
Rio eventually told the ASX in July 2019 that costs at would slip by $US1.2bn-$US1.9bn and the schedule pushed back by 16-30 months.
If the matter is settled, it is unclear if Rio will have to disclose the size of any payout to the aggrieved Turquoise Hill shareholders.
Rio gained control of the monster copper project and became the operator in 2012 by acquiring a 50.7 per cent stake in a company later renamed Turquoise Hill. Rio acquired the remainder of Turquoise Hill for $US3.1bn in December 2022.
Mr Trott, Rio’s iron ore boss in WA, declined to comment on Friday when asked if he wanted the top job. His candidacy was also trumpeted by Federal Resources Minister Madeleine King who urged Rio to appoint Mr Trott or fellow WA exec Kellie Parker to foster closer ties to Australia.
However, the claims of another leading internal contender, Bold Baatar, may be complicated by his Mongolian nationality and past involvement in Oyu Tolgoi.
Mr Baatar, the company’s chief commercial officer, is responsible for the Simandou iron ore project in Guinea with chief technical officer Mark Davies overseeing the project and development work.
And, Rio’s executive in charge of aluminium, Jérôme Pécresse, has impressed many since joining the company from General Electric Renewable Energy where he was CEO.
Although a rising star, the political career of his wife Valérie Pécresse is a factor for the Rio board to consider. Ms Pécresse is a member of France’s The Republicans party, successor to the UMP, and who ran in the 2022 presidential election.
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