Mongolia confident of resolving Oyu Tolgoi battle by Dec 31

Reuters

* Concerns over financing terms, cost overruns to beresolved

* Progress made in building trust with Rio Tinto - officialsays

By Terrence Edwards

ULAN BATOR, Oct 1 (Reuters) - The Mongolian government isconfident it can resolve disputes with Rio Tinto over a$5 billion expansion of the Oyu Tolgoi copper and gold mine byDec. 31, the deadline for sealing financing for the project, anofficial said on Tuesday.

"I am very confident," the mining ministry's directorgeneral of strategic policy and planning, OtgochuluuChuluuntseren, told reporters, when asked whether Mongolia wouldbe able to resolve issues ahead of the deadline.

Rio Tinto started exporting from a $6.2 billion open pitmine at Oyu Tolgoi in July but halted work on Phase 2, anunderground mine, in August and threatened to cut up to 1,700jobs as the government refused to approve financing terms forthe project.

The expansion is vital to Mongolia as it is expected toboost the economy by a third by 2020 and is key to Rio's effortto ease its dependence on iron ore. Rio's Turquoise HillResources Ltd unit owns a 66 percent stake in the mine.

The Oyu Tolgoi board, including three new Mongoliandirectors, met in London last weekend to try to resolve about 15concerns that the Mongolian government has raised.

Mongolia has yet to be satisfied on three major issues:terms for project financing, an analysis of cost overruns at OyuTolgoi and feasibility studies for the mine's expansion,Otgochuluu said.

The government hopes to see a feasibility study for Phase 2by early 2014, he said, and wants a detailed breakdown of costsfor each phase of the mine's development, rather than accepting a figure of more than $14 billion for the whole development.

"The Mongolian government has equity so we have to closelyfollow the costs," Otgochuluu said.

Mongolia has a 34 percent stake in Oyu Tolgoi, but will notreceive any share of the profit from it until Turquoise Hillrecovers all the costs of the project, which it has funded withRio's support.

While key issues remain to be resolved, Otgochuluu saidprogress had been made in last weekend's talks, and thegovernment would be willing to tackle some of its minor concernsafter work resumes on the underground mine.

"We made good progress for the sustainability of mutualtrust," he said. "I don't want to jeopardise trust because ofminor technical issues."

Uncertainty over Oyu Tolgoi, as well as changing foreigninvestment rules, have led to a 43 percent drop in foreigndirect investment in Mongolia this year and rocked shares insmaller companies with projects in the country.

Rio Tinto had no immediate comment on the Oyu Tolgoi talks.

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