Source: Frontier Securities                             Date: 29 September, 2011

An invitation from the cabinet to Rio Tinto and Ivanhoe Mines to renegotiate its investor agreements has created concern among investors. Ivanhoe Mines has a 66 percent stake in the Oyu Tolgoi copper and gold project while Rio Tinto, the project chief, has an indirect stake in the project with a 48.5 percent stake in Ivanhoe Mines.A faction within Parliament would like to see the government's stake in Oyu Tolgoi rose to 50 percent from its now standing 34 percent stake. Currently the government is unable to increase its stake until after 30 years have passed.“I think there is an opportunity to say to investors, the people of Mongolia don't want to change the agreement as a whole, but to discuss two issues: Mongolia's stake and additional payment for use of our reserves,” said Elbegdorj.Rio Tinto Country Director and Oyu Tolgoi head of operations Cameron McRae warned the government against altering the deal at the “Discover Mongolia” mining forum. Reversing the deal would tarnish Mongolia's reputation as a fair climate for investment and risk the livelihood of Mongolian workers, he said. Both Ivanhoe Mines and Rio Tinto insist the deal is fair.“The investors agreement is a great deal for Mongolia,” said a representative from the Oyu Tolgoi Company. “The government gets more than 50 percent of pre-tax profits when you include equity, dividends, taxes, royalties, and VAT. That's more than five tugrugs out of every 10 going directly to Mongolia before you even think about what the mine will do for jobs, local suppliers, and technology improvements.”The uncertainty from the Mongolian government's involvement in the project will likely create some volatility in Ivanhoe’s stock, said Dale Choi, chief investment strategist at Frontier Securities. Based on the companies' experience with the government, he was confident an agreement could be reach to satisfy the public before this year's elections.