Rio Tinto Comments on Recent Decisions in Mongolia

Rio Tinto said it “welcomed” the Mongolian Parliament’s recent approval of amendments to four laws that should clear the way for finalization of the investment agreement for the Oyu Tolgoi copper-gold complex in Mongolia’s South Gobi region. Rio Tinto and Ivanhoe Mines Ltd., the development partners for the project, expect to formally sign the agreement with the government of Mongolia in the near future.

Rio Tinto also noted that investment in the Oyu Tolgoi project through its shareholding in Ivanhoe Mines is consistent with its strategy of focusing on large-scale, long-life, low-cost assets. Production is expected to begin 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 mt of copper per year and 330,000 oz of gold.

Under the terms of the agreement, the government of Mongolia will hold 34% of the shares of Ivanhoe Mines Mongolia. Key terms include 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. Rio Tinto initially spent $303 million for a 9.95% share in Ivanhoe Mines in October 2006 and at that time agreed to invest $388 million for a further 9.95% holding at the conclusion of a long-term investment agreement with the Mongolian government. Payment of this second tranche is automatically triggered once the conditions precedent to the signed investment agreement have been satisfied.

In September 2007, Rio Tinto agreed to provide Ivanhoe with a convertible credit facility of $350 million for interim financing for the project. This agreement raised both Rio Tinto’s fixed price conversion and warrants from 33.35% to 42.2% and restrictions on total Ivanhoe share acquisitions from a maximum of 40% under the October 2006 transaction agreement to 46.65%.

Report Reveals Long-Term Benefits of Gold Mining to Developing Economies

A report issued in mid-September by the World Gold Council (WGC) in partnership with the International Council on Mining & Metals (ICMM) and Oxford Policy Management claims that large-scale gold production has been found to be a major factor in bolstering the economies of developing countries.

The study, The Golden Building Block: Gold Mining and the Transformation of Developing Economies, authored by Maureen Upton, sustainability advisor to World Gold Council, considers the macroeconomic benefits of gold production in developing countries, taking into account the much-debated “resource curse” theories, and examines evidence of actual contributions through a case study of Tanzania and the effects of gold mining on its economy over a 40-year period.

The report also reviews case studies undertaken within the ICMM’s Resource Endowment initiative, analyzing the costs and benefits of mineral extraction in Chile, Ghana, Peru and Tanzania. The final section offers observations on policy approaches and conditions likely to positively impact the economic contribution of gold mining more generally across other developing countries.

Commenting on the report, Aram Shishmanian, CEO of the World Gold Council, said: “Tanzania provides the perfect test case to conduct such a comprehensive assessment of both gold mining’s contribution to date and its potential future contributions to the economy over the life cycle to mine closure. The findings of the study uncovered that the most significant contribution that gold mining provides to Tanzania’s economy is its effect on foreign direct investment (FDI) which has been enabled by the mining law reforms introduced over the past 12 years.”

According to the report sponsors, the Tanzania case study employs a life-cycle assessment (LCA) of gold mines over their entire lifespan, from construction to closure, utilizing WGC’s access to the world’s largest producers’ data for nearly all major gold mines in the country. The study, undertaken in the spring of 2009 collaboratively by World Gold Council and Oxford Policy Management for the ICMM, is claimed to be the first of its kind, according to the sponsors, as the approach “ensures that long-term benefits are captured, by way of both historical data and projections through to mine closure in a key producing country.”

Capturing some 120 specific metrics across the planned 40-year operating period of large-scale gold mining in the country (1995–2034) from World Gold Council members Barrick Gold, Anglo-Gold Ashanti and Iamgold, the aggregated figures were used to present to Tanzanian government officials at an

ICMM Workshop in May 2009.

The findings of the study reveal that the most significant contribution that gold mining provides to Tanzania’s economy is its effect on FDI. In the early 1990s, prior to large-scale gold mining, Tanzania would have appeared near the bottom of rankings of African countries as a destination for FDI. Today however, the country is now in the upper-middle rankings, with over $2 billion (nearly two-thirds) of the surge in FDI after 1998 shown to have come from the five gold mines surveyed in the LCA alone.

The report sponsors said that, contrary to critics’ views that the gold mining industry in Tanzania provides relatively low tax receipts, the study shows that the two producers surveyed, Barrick and AngloGold Ashanti, are currently among the highest single taxpayers in the country. In addition, export earnings from gold mining are already $770 million, but are estimated to more than double by 2016.

Job creation, although not typically among the greatest benefits of large-scale mining due to its capital-intensive nature, is in fact an important direct benefit of gold mining in Tanzania, with the industry employing more than the country’s utility sectors combined, including gas, electricity and water, with the resulting wages injected in to the Tanzanian economy an equally important metric.

 

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