Ivanhoe inching towards construction of Oyu Tolgoi

Ivanhoe Mines (IVN-T, IVN-N, IVN-Q) has moved a step forward on its way to developing the massive Oyu Tolgoi copper and gold project in Mongolias south Gobi desert.

The company announced the Mongolian government has finished a draft of the key investment agreement it needs to begin construction of the mine. The draft must still go before the national parliament, which should be the final step in the approval process.

While there is no word on when the agreement will be presented, the current parliament session sits until mid-July.

The news sent Ivanhoe shares up 4% or 59 to $15.12 on 1.4 million shares

To reach the current stage, the draft had to make its way through a cabinet review after being introduced by finance Minister Nadmid Bayartsaihan.

A government press release struck a tone of relief over the progress.

“after five years of discussions and enormous effort, the release read, the government completed the draft investment agreement that will be presented to the parliament.”

Ivanhoe Mines and partner Rio Tinto (RTP-N, RIO-L) must approve the agreement as well.

In October of last year Rio Tinto signed on to the project, but most of its possible US$1.5 billion investment is contingent upon the securing of the investment agreement.

At the time of the Rio Tinto deal analysts predicted that having a heavy-weight like Rio Tinto at the negotiating table would help move the process forward.

In a release John Macken, Ivanhoes president and chief executive, said negotiations between the three parties created a blueprint for an effective partnership of corporate and state interests.

Macken went on to say the agreement includes the provision from the revised mineral act that the government would take a 34% interest in project.

There was, however, no word on how the government would earn in to its share of the project.

“We have agreed that this partnership would own, finance, build and operate the Oyu Tolgoi project and its associated infrastructure to deliver a new era of resource-investment benefits for generations of Mongolians, Macken said in the release.

The agreement is for a 30 year term, thus giving the companies security on the long term investment environment.

In related news, Rio Tinto increased its stake in Entre Gold (EGI-T, EGI-X) to 16.3%. Entre holds the land around Oyu Tolgoi, which includes the northern mineral-rich extension of massive Hugo Dummett deposit, which makes up the bulk of mineralization at Oyu Tolgoi.

Rio Tinto increased its stake by exercising its warrants to purchase roughly 6.3 million common shares of Entre.