Rio Tinto proposes dropping the $1.6bn royalty from Oyu Tolgoi in Mongolia

26 January 2015 (Last Updated January 26th, 2015 18:30)

Rio Tinto has offered to forgo the $1.6bn royalty it would earn from the Oyu Tolgoi copper-gold mine in Mongolia, in an attempt to resolve its dispute with the government.

Rio Tinto has offered to forgo the $1.6bn royalty it would earn from the Oyu Tolgoi copper-gold mine in Mongolia, in an attempt to resolve its dispute with the government.

The mining major is still awaiting clearance for the $5.4bn underground phase expansion of the Oyu Tolgoi mine.

According to the Australian, Rio Tinto believes that the expansion will unlock the mine's value.

The mining company reportedly posted part of its offer on a Twitter account, saying that the Mongolian Government will receive more than half the cashflow from the project under the proposed deal, the paper added.

"Rio Tinto is already operating the $6.5bn open pit mine but said that around 80% of the value is unobtainable without the expansion."

With the second stage of the project delayed, the company is facing writedowns on delayed construction, as the expansion work stopped 17 months ago following a disagreement with the government.

Rio Tinto is already operating the $6.5bn open pit mine but said that around 80% of the value is unobtainable without the expansion.

The company is thought to have made an additional $1.3bn investment and is now seeking permission to proceed with the $5.4bn underground phase.

Disagreements over costs and taxes are continuing between the two parties, delaying a $4.2bn financing package from 15 global banks, which had been secured for the Oyu Tolgoi project.

Rio Tinto's offer to release the royalty includes a 2% net smelter return, which could amount to $1.6bn during the mine life.