Эрдсийг эрдэнэст
Ирээдүйг өндөр хөгжилд
Ирээдүйг өндөр хөгжилд
Mining The Resources
Minding the future
Minding the future
The Mongolian Mining Journal - May edition
By B. Tugsbilegt
Mongolians are hopeful that Prime Minister N. Uchral and his team will bring the Oyu Tolgoi negotiations to a successful conclusion.
Acknowledging this public expectation, he stated immediately upon taking office that he would continue the negotiations in strict adherence to the policy of Prime Minister G. Zandanshatar's government, which aims to increase Mongolia's share of benefits from the Oyu Tolgoi project to 53%.
He subsequently replaced the Minister of Finance, who had been leading the negotiations on reducing interest rates, while reappointing the Minister of Industry and Mineral Resources, who heads the working group tasked with cutting management costs. These decisions further clarified the likely direction of the Oyu Tolgoi negotiations going forward.
After keeping the public waiting for some time for updates on the outcome of the negotiations, Minister N. Uchral finally delivered positive news on May 19, 2026. He announced that management fees charged by Rio Tinto to Oyu Tolgoi would be halved, a development that signaled the negotiations had begun to move in a more constructive direction.
Before this, the working group led by Minister of Industry and Mineral Resources G. Damdinnyam had repeatedly stated that it was taking a firm stance in negotiations aimed at reducing management costs. As a result, some welcomed the outcome as an easy victory over Rio Tinto in the "first round" of negotiations, while others cautioned against celebrating too early.
Nevertheless, it is undeniably good news. Specifically, Minister N. Uchral announced that the negotiations had resulted in a 50% reduction in Oyu Tolgoi's management fees. According to the estimates he presented, this would reduce costs by $2.2 billion and increase Mongolia's returns from the project by $1.5 billion.
He stated: "The Government of Mongolia has achieved its first breakthrough and tangible results in the Oyu Tolgoi negotiations. The working group led by the Minister of Industry and Mineral Resources has succeeded, through negotiations with Rio Tinto Group, in reducing management fees by half. We have reached an agreement to eliminate duplicate charges. This is not only good news in terms of a $2.2 billion reduction in costs, but also good news in that Mongolia's returns will increase by $1.5 billion. This is also good news for investors. It demonstrates that Mongolians are able to protect their interests and negotiate with investors on an equal footing.
Going forward, the Government will continue to work hard to achieve progress in negotiations on the Entrée investment agreement and on reducing the interest rate on Oyu Tolgoi-related loans."
In other words, this signaled that while the first hurdle had been successfully cleared, even more difficult challenges still lie ahead.
The primary objective of these negotiations is fundamentally to increase Mongolia's share of benefits from the Oyu Tolgoi project.
In March, former Prime Minister G. Zandanshatar held a meeting with officials led by Katie Jackson, Head of the Copper Division at Rio Tinto, during which he set out several clear demands. This helped provide the public with a clearer picture of the government's objectives in the negotiations and the outcomes it is seeking to achieve.
Specifically, he set out and explained the rationale for the following demands:
Thus, if the negotiations manage to move toward the implementation of these provisions, Mongolia would be in a position to declare victory.
On the other hand, Oyu Tolgoi has repeatedly stated that the majority of benefits from the project are expected to accrue not to Rio Tinto, but to Mongolia. In particular, the company has included in its annual report a projection of Oyu Tolgoi's value distribution that reflects this outlook.
If everything proceeds according to projections, Mongolia is expected to receive the majority of benefits from the Oyu Tolgoi project - around 61% - according to the company's 2025 annual report. In addition, a more detailed report on the project's benefits has been compiled by the research firm Ergo Strategy Group. That report also estimates that Mongolia's share of total benefits would amount to a majority, at around 53%.
In the case of Minister N. Uchral, unlike his predecessor, he has stated that he intends to assess benefit ratios in a more detailed and granular manner. Accordingly, there is hope that he has a clear understanding of how the 53% and 61% benefit estimates presented by Rio Tinto and Oyu Tolgoi can be broken down in detail, and how mutual understanding can ultimately be reached.
In the case of Minister N. Uchral, he has experience of successfully securing economic benefits in the Orano negotiations. However, entering into and concluding negotiations with Rio Tinto is undoubtedly more complex.
This is because Oyu Tolgoi is a far larger project, with extremely high costs, a complex financing structure, and protections under stabilization agreements.
Sharp increases in global copper, gold, and silver prices, along with expectations of continued growth, signal the approach of a "major revenue boom" for the Oyu Tolgoi mine. In this context, Member of Parliament O. Batnairamdal warned that if the Mongolian government remains passive and ends up empty-handed, there would be no reason to continue waiting for anything else.
Indeed, the Oyu Tolgoi project is a mining mega-project built on substantial debt financing. According to the Ergo Strategy report, Oyu Tolgoi has been described as a $14 billion project.
This figure, of course, reflects the investment costs of the project's initial phase-namely the open-pit mine and the expansion stage involving underground mine development. Meanwhile, it was confirmed at Oyu Tolgoi's public hearing held last December that total project financing had reached $22 billion. Oyu Tolgoi is responsible for repaying this amount.
As the mine enters its peak copper concentrate production phase, it generated approximately $5 billion in revenue from copper concentrate sales alone last year. Notably, this level of income was, according to earlier projections, expected only during the peak production period.
Going forward, this figure is expected to reach $7.3-$7.6 billion, while the company's positive cash flow is projected to average around $4 billion per year, according to former Oyu Tolgoi LLC Board member E. Bayasgalan (May 29, 2026). Under more optimistic projections, annual sales revenue is projected to reach $10 billion. She also presented several detailed figures on Mongolia's share of benefits from the project, based on underlying financial assumptions.
Specifically, she stated that if copper prices reach $13,000 per ton and gold prices reach $4,500 per ounce, Oyu Tolgoi would fully repay its loans by 2035, while Mongolia would begin receiving its first dividends from 2033. However, the most disappointing point she highlighted was that Mongolia's total share of benefits between 2026 and 2035 would amount to $10.1 billion, while Rio Tinto's share in cash flow terms would reach $34.3 billion.
More specifically, E.Bayasgalan explained through baseline calculations that even after deducting the loans Rio Tinto has provided to the project, the company would still retain a larger share in net cash inflows. This prompts a closer examination of where the majority of project benefits are actually going.
She also noted that, as Oyu Tolgoi enters its most profitable years, there is a possibility of receiving dividends corresponding to the 34% stake earlier than scheduled, potentially starting this year. This could be achieved through amendments to the shareholders' agreement, which currently provides that all profits are first allocated to the repayment of outstanding loans.
As a result, Mongolia is projected to receive $1.3-$1.4 billion per year solely in the form of dividends. This is clearly more beneficial than the alternative of replacing the 34% equity stake with additional royalty payments.
The conditions for this arrangement were effectively fully in place in January 2022, when the $2.4 billion debt attributable to the Government of Mongolia's 34% stake in Oyu Tolgoi was written off.
E.Bayasgalan served on the Board of Directors of Oyu Tolgoi LLC for five years (2020-2025), and before that, she worked at JPMorgan. Given this background, it is evident that she has a stronger-than-average ability to understand the detailed financial figures of the Oyu Tolgoi project.
Accordingly, her presentation of these baseline calculations-figures that are not easily accessible or readily understandable to most of us has provided particularly valuable information at a time when negotiations are actively underway.
The government is seeking to bring forward dividend payments, potentially starting this year, but it remains uncertain whether this can be achieved. This is because Rio Tinto has secured provisions in the agreement requiring all positive cash flow to be used primarily for debt repayment.
However, former Board member E. Bayasgalan emphasized that rather than focusing solely on marginal reductions in interest rates, it would be more effective for the government to pursue a debt restructuring of the project. Given that a significant portion of Oyu Tolgoi's total loans were provided by Rio Tinto itself, such restructuring is, in principle, feasible.
For Oyu Tolgoi, operations are planned to continue until 2051. Within this timeline, the high-production phase is expected to end around 2040. After that, mining activity will gradually shift away from underground operations and rely more heavily on open-pit mining. This also implies that marginal tax revenues would come to an end during this later stage.
Recently published reports and data presented to the public have increasingly focused on the claim that the majority of benefits from the project would be allocated to Mongolia. Against this backdrop, unless the project partners - the Government of Mongolia and Rio Tinto - reach a clear and unified understanding of the project's benefits, the current practice of engaging in meaningless promotion of these benefits could, over time, lead to serious consequences.
The reputation of the Government of Mongolia - both domestically and on the international stage - risks being undermined. On the other hand, Rio Tinto's globally established reputation could also be damaged in connection with perceptions of the returns from the Oyu Tolgoi project.
In other words, as copper and gold prices rise and Oyu Tolgoi's revenues increase, it is becoming ever clearer that Mongolia's 5% royalty may not appear to be a sufficiently significant benefit. Meanwhile, Rio Tinto risks being perceived as capturing the majority of the benefits from a project in a developing country.
At present, the government still has pending initiatives aimed at improving project returns through negotiations to reduce the loan interest rate, as well as the establishment of a new investment agreement for the area covered by Entrée Resources' mining licenses.
Beyond reducing the interest rate through the loan negotiations, it is also possible to address demands such as ensuring that the quarterly compounding interest calculation method is no longer used and fully resetting amounts previously accrued under compound interest.
However, there is very limited room to significantly reduce the interest rate. This is because the average interest rate on loans that Rio Tinto itself obtains from commercial banks tends to be relatively high. As a result, it may be difficult for the government to push the interest rate down by around 3% or more.
In the case of negotiations regarding the investment agreement for the Entrée Resources project, the situation is likely to be even more complex. The Government maintains that the areas covered by Entrée's exploration licenses fall outside the scope of the 2009 Investment Agreement.
Furthermore, Parliamentary Resolution No. 120, aimed at ensuring Mongolia's interests in the development of the Oyu Tolgoi deposit, stipulates that, if necessary, measures may be taken, including the cancellation of the mining licenses "Javkhlant" and "Shivee Tolgoi" held by Entrée Resources.
Entrée Resources presented its first-quarter report for this year on 14 May 2026. In it, the company reported that on 25 March it had submitted a proposal to the Government of Mongolia offering to pay a specified royalty in lieu of a 34% equity stake. The company also announced that its current President and CEO, Stephen Scott, is expected to step down in mid-year.
The Entrée license area covers some of the highest-grade copper and gold sections of the Oyu Tolgoi underground mine, and experts have noted that further exploration could increase the resource base. Therefore, if agreement can be reached on a new investment framework, it would undoubtedly be highly beneficial for Mongolia.
The Government expects to reach a positive outcome from the Oyu Tolgoi negotiations in the near term. However, if the two sides fail to reach a shared understanding on whether project benefits for Mongolia have truly been increased to 53% or possibly even 60%, there is a risk that uncertainty will re-emerge in the end.
On the positive side, it is becoming clear that the timeline for dividend payments is being brought forward, supported by rising copper and gold prices. Both parties also appear to accept the principle that the majority of benefits should accrue to Mongolia. However, whether the majority of benefits can in fact be delivered to Mongolia remains an open question, as the available financial data suggests.