Mongolia should seek to raise its stake in the giant Oyu Tolgoi copper and gold project, the country"s new mining minister said, adding weight to concerns among foreign investors about rising resource nationalism following a June election.
That election resulted in the formation of a coalition government, during whose administration the major risk for mining firms -- the engines of economic growth in Mongolia -- will be the influence of lawmakers who want Mongolia to have greater control of its resources.

Davajav Ganhuyag, speaking to the Odriin Sonin (Daily News) newspaper on Thursday, said he hoped his government would implement "Resolution 57" passed by parliament, which states that Mongolia should acquire 50 percent of Oyu Tolgoi once the principal investors -- Rio Tinto and Turquoise Hill Resources have recouped their start-up investment. Ganhuyag was not available to comment when contacted by Reuters, but his office confirmed the accuracy of the newspaper report.

Oyu Tolgoi, located 80 km north of Mongolia"s Chinese border, is expected to become one of the world"s three largest copper and gold mines when it reaches full production in 2018. The mine is expected to begin commercial production in the first half of 2013. The deposit contains an estimated 41 billion pounds of copper and 21 million ounces of gold. It is anticipated that revenue from the mine could boost Mongolia"s GDP by one third. By the end of the first quarter of 2012, total capital invested in Oyu Tolgoi stood at approximately $4.6 billion, according to Ivanhoe Mines, which is now known as Turquoise Hill.According to the 2009 Investment Agreement the government can increase its current stake of 34 percent to 50 percent only after an initial period of 30 years Of commercial production.

"The 57th Resolution of Parliament related to the Oyu Tolgoi agreement is a law of Mongolia but its implementation is weak," Ganhuyag told the newspaper.Analysts said a move to increase the government"s stake in the project could be viewed favorably by the country"s lawmakers. "We believe there is a likelihood that a number of MPs from all parties could be sympathetic to this position," Ulan Bator-based private equity firm Origo Partners said in a note to investors.

"As a result there is risk of a further attempt by these MPs and possibly the government to renegotiate (the) Oyu Tolgoi investment agreement." In 2011, Ganhuyag was one of several lawmakers to sign a letter urging Rio Tinto and Turquoise Hills Resources -- then known as Ivanhoe Mines -- to renegotiate the 2009 agreement. Ivanhoe refused the request and said it expected all parties to honor the existing deal.
Reuters