ULAANBAATAR, Mongolia, Oct. 7 (UPI) -- Canada's Ivanhoe Mines Ltd. and Rio Tinto Group signed an agreement Tuesday with the Mongolian government for development of the $5 billion Oyu Tolgoi copper-gold property.
The deal comes after six years of negotiations, which eventually redefined Mongolia's mining and investment laws, now said to be more favorable to the people of Mongolia. The country had a history of mining agreements with foreign investors that exploited the land and its citizens.
The Oyu Tolgoi mine, in the South Gobi region just north of the Chinese-Mongolian border, is scheduled to start production in 2013 and is expected to generate an estimated $30 billion to $50 billion over 30 years. It will employ around 3,000 people.
When the mine reaches peak production in 2018, it is expected to produce 450,000 tons of copper and 330,000 ounces of gold each year. In 2008 Ivanhoe said Oyu Tolgoi contained 45.2 million ounces of gold and 78.9 billion pounds of copper. That estimate came after an investment of $450 million from 2000-07 by Ivanhoe.
Earlier, Rio Tinto invested $300 million in Ivanhoe for a 9.95 percent ownership stake. By investing an additional $388 million, it could double its stake. With options, it has the right to raise its stake to 46.65 percent. Ivanhoe said it is considering negotiating the sale of equity to two global strategic investors.
The Oyu Tolgoi agreement gives the government of Mongolia a 34 percent equity interest in the project.
Bret Clayton, Rio's chief executive for copper and diamonds, said at the investment agreement signing ceremony in Ulaanbaatar that Oyu Tolgoi is the ''best undeveloped copper deposit in the world" and is consistent with the company's strategy of investing in large, long-life, low-cost ore projects.
''While the size and grade of the existing Oyu Tolgoi ore reserves and mineral resources are already first-class, we are excited by significant exploration upside that still remains," Clayton said, the Sydney Morning Herald reports. ''We believe that in time, the surrounding region has the potential to become a world-class mining district.''
Chad Blewitt, Ivanhoe's chief financial officer, said the Oyu Tolgoi project will double Mongolia's GDP of $5 billion. The mine deposit, he said, "will become one of the five largest mines in the world," the Australian reports.
''The mine is a country changer and I feel that I am witnessing economic history," Blewitt said.
Mongolia's economy stands to benefit from the Oyu Tolgoi project. Jim Dwyer, a former Wall Street mergers and acquisitions specialist who now represents the Business Council of Mongolia, believes it will attract other foreign investors to the country, thus generating service and infrastructure opportunities, the Australian reports.