Oyu Tolgoi Agreement Makes Headway In Mongolia

Ivanhoe Mines (IVN-T, IVN-Q) says that Mongolia’s cabinet has completed its second review of the draft investment agreement for the massive Oyu Tolgoi project and has said it will present the draft to the national parliament for approval.

The endorsement in principle of the draft agreement by Mongolia’s cabinet and the country’s National Security Council for the copper-gold mining complex is welcome news for Ivanhoe and its partner Rio Tinto (RTP-N, RIO-L), which have been waiting for years for an official go-ahead.

To take effect, the investment agreement for Oyu Tolgoi requires the approval of the national parliament. The cabinet has authorized Finance Minister S. Bayartsogt, Minerals and Energy Minister D. Zorigt, and Environment and Tourism Minister L. Gansukh, to initial the agreement to be concluded between the government and Ivanhoe.

It is unclear when the national parliament will consider the draft investment agreement. Currently, parliament is meeting in a special session to address budgetary and other national issues arising from the global financial crisis.

The two companies submitted a draft investment agreement to the government in 2007. But the wait has actually been much longer — discussions around an investment agreement started more than four years ago and have now spanned four different administrations.

Also known as Turquoise Hill, the Oyu Tolgoi gold and copper project is in the south Gobi region of Mongolia, about 550 km south of Ulaanbaatar and 80 km north of the Chinese- Mongolian border.

As of March 2007, Oyu Tolgoi had measured and indicated resources at a 0.6% copper-equivalent cutoff grade of 1.4 billion tonnes grading 1.33% copper, and 0.47 gram gold per tonne for total contained copper of 40.7 million lbs. and 20.97 million oz. gold.

The deposit has an inferred resource of 1.4 billion tonnes grading 0.98% copper and 0.24 gram gold per tonne for total contained copper of 30.19 million lbs. and 10.78 million oz. gold.

Ivanhoe has a 52-week trading range of $2.06-13.10 per share and 378.1 million shares outstanding. On the news, it closed down 5% or 28¢ to $5.60 apiece.