Julie Bishop lauds Mongolia as superior to Australia in encouraging mining investment. Too bad she didn’t check the business pages, write Glenn Dyer and Bernard Keane.
Do Foreign Minister Julie Bishop’s advisers ever bother reading the business pages? Does the Department of Foreign Affairs and Trade, the department paid to advise her?
That they don’t is the only explanation for a truly bizarre moment in question time yesterday when Bishop was asked a Dorothy Dixer about the attractions of investing of mining in Mongolia. Here’s some of what she had to say:
“I give the example of Rio Tinto, which is now in a joint venture with the Mongolian government in a gold and copper mine. A number of other Australian mining companies are investing. And why wouldn’t they? Because, as the foreign minister of Mongolia said today, ‘Our new model for foreign direct investment is very much designed for Australian businesses — we’re offering stability, openness and lower tax.’ That is not something that the Labor government could ever offer Australian businesses. They could not offer them stability, openness or lower taxes … So Mongolia understands what the Australian government understands, what internationally competitive economies understand and what the Labor Party refuses to understand, and that is: unnecessary mining taxes are bad for jobs, bad for the Western Australian economy and bad for internationally competitive economies.”
But far from being a haven for mining investment and for Rio Tinto, Mongolia has proven another addition to the company’s long list of dud offshore investments — specifically, its big mine called Oyu Tolgoi.
Rio got the open-cut part of the mine built and producing last year, but it has yet to reach agreement for finance for a huge underground expansion of the mine. The finance deadline (the latest of at least four) is March 31 — otherwise, the project will lapse. The underground phase will cost $5.5 billion or more. As Fairfax’s Peter Ker pointed out today, Australian taxpayers are (inexplicably) contributing to the finance package via our bizarre, secretive business welfare agency, Export Finance and Insurance Corporation.
As Crikey has reported before, the Mongolian government twice deliberately stopped the open-cut mine from starting to export copper and gold last year because of the dispute with Rio Tinto. The project is split 66/34 between Turquoise Hill Resources Ltd, a Canadian outfit 50.8% owned by Rio, and the Mongolian government. According to the mining agreement, Mongolia will not see a cent of Oyu Tolgoi’s profit until Turquoise Hill recovers its costs. The Mongolians were thus deeply unhappy when the underground mine costs rose by an $US2 billion without satisfactory explanation, delaying the point at which the mine will provide a return for Mongolia. The government’s opposition forced Rio to put the underground expansion on hold last July.
However, the underground expansion is vital because 80% of the mine’s value lays in ore than can only be exploited this way. Last month Turquoise Hill warned that further delays were likely to occur “if outstanding shareholder issues, including project finance, are not resolved before the expiration of lender commitments on existing project finance arrangements”. The Mongolians have demanded assurances from Rio that what it calls “investment inflation” won’t appear in the costs once the underground expansion phase is underway.
Remember all that whining from the miners and the Coalition here about “sovereign risk”? In Mongolia, Rio Tinto has been experiencing the real thing. The company warned that if the latest financing deadline is missed, then it will have to cop a write-down of nearly $900 million.
Around this time last year, US mining investment analyst Behre Dohlbear released its annual assessment of the best places to invest in mining around the world. How did Mongolia fare? It was 19th, having fallen 5 points since 2012. Why? Uncertainty, Behre Dohlbear said. Specifically:
“The past delays at the Oyu Tolgoi copper project in Mongolia present a clear example of how such uncertainty delays mining developments.”
Oh, and Australia was ranked first, despite the mining tax. But maybe Bishop is hoping when Beare Dohlbear releases its 2014 rankings in the next few days, Australia will have fallen 18 places.