Mongolia owns a significant stake in one of the world’s largest copper projects, yet it is unlikely to receive any dividends for at least another decade. Recent protests calling for Rio Tinto to halt operations have once again highlighted a long-standing issue: the government acquired its ownership stake without the funds to pay for it and has been servicing that debt ever since.
In late June, protesters temporarily blocked the road used to transport Oyu Tolgoi copper concentrate to China. Shipments resumed within days, but the demonstrations renewed political debate over the project’s ownership structure.
On paper, Mongolia owns 34% of the mine, while the remaining 66% belongs to an investor consortium led by Rio Tinto. However, when the project was launched in 2009, the Mongolian government lacked the capital needed to finance its equity share. Its contribution was funded through a shareholder loan, and as construction costs increased, so did the country’s debt to its project partners.
The underground mine encountered numerous geological and engineering challenges. Total project costs rose from $5.3 billion to $6.75 billion, while commercial production was delayed by nearly two years. Initial projections suggested Mongolia could begin receiving dividends as early as 2017. Today, the earliest realistic estimate is 2037.
That does not mean the project has failed to benefit the country. Since 2010, Mongolia has collected approximately $6.1 billion in taxes, royalties, and other mandatory payments from the mine. However, these revenues accrue to the state budget rather than representing returns on its equity investment. As a shareholder, the government has yet to receive any dividend income.
Some progress has been made. In 2022, Rio Tinto wrote off $2.4 billion of Mongolia’s shareholder debt. Earlier this June, the parties also agreed to reduce the interest rate on the remaining loan by 2.5 percentage points, a move expected to accelerate the project’s path toward generating shareholder returns. Nevertheless, the broader debate over the fairness of the original financing structure remains unresolved.
Oyu Tolgoi has become a textbook example of how financing an equity stake through debt can postpone shareholder returns for decades. While taxes and royalties have flowed steadily into Mongolia’s treasury, the dividends associated with ownership remain years away.
Source: @metalsesgtrends
Image: @metalsesgtrends
