Will Mongolia Seal Rio Tinto’s $295M Oyu Tolgoi Tax Deal?

With the PDAC 2025 conference in Toronto approaching in March, Ulaanbaatar aims to finalize a settlement that balances investor confidence with domestic priorities.

Rio Tinto has proposed a $295 million settlement to resolve its tax dispute with the Mongolian government over the Oyu Tolgoi copper mine. According to Deputy Prime Minister Dorjkhand, who was at the Davos Economic Forum, the government is in talks to settle tax claims.

Rio Tinto’s offer arrives at a critical moment when Mongolia’s approach to foreign investment faces heightened scrutiny, especially following its recent uranium deal with France’s Orano, which is seen as more favorable to Mongolian interests.

The government’s decision on this settlement will provide insight into its broader stance on resource nationalism and foreign investment. While previous official statements suggested a hardline position, the ultimate choice will likely depend on balancing economic pragmatism with domestic political pressures.

Some still view Mongolia’s tax code complicate the situation by prohibiting negotiated settlements during ongoing disputes, raising questions about the legality of Rio Tinto’s offer. Others argue that a properly structured agreement, free from undue influence, could still align with the law. If obstacles persist, an amendment to the tax code may be necessary—though such a move would require careful political navigation to avoid public backlash.

The political environment has shifted significantly since the 2024 elections. The current coalition government, comprising major political actors, mirrors the 2008-2009 period when Prime Minister Sanjaagiin Bayar’s coalition secured the original Oyu Tolgoi investment agreement.

Bayar recently emphasized that achieving consensus within his party and across the coalition was crucial for reassuring foreign investors. Today’s coalition appears similarly positioned to resolve the tax dispute while maintaining political stability.

Mongolia is working against the clock. The PDAC 2025 mining conference in Toronto, scheduled for early March, presents a critical opportunity to showcase its resource sector. Securing a settlement with Rio Tinto ahead of this event could strengthen Mongolia’s narrative as an attractive investment destination. Speculation suggests that high-ranking officials, possibly the Prime Minister or President, may lead the delegation, underlining the event’s significance.

Accepting Rio Tinto’s offer could stabilize relations and facilitate the continued expansion of Oyu Tolgoi’s underground operations, boosting Mongolia’s economy.

However, critics argue that the $295 million settlement undervalues Mongolia’s claim. Comparisons to the recent Orano uranium deal, which reportedly secures higher royalties, amplify these concerns. A tougher stance could pressure Rio Tinto to improve its offer but risks prolonging the dispute and escalating arbitration costs.

Proponents of rejecting the settlement believe Mongolia could secure a better deal by maintaining a firm stance. Prolonged negotiations or arbitration might compel Rio Tinto to offer more to avoid uncertainty. However, this approach carries significant risks, including the potential for a protracted legal battle, strained investor relations, and the possibility of an unfavorable arbitration outcome for Mongolia.

Advocates for a tougher strategy may argue that the long-term benefits—including a stronger global negotiating position and securing a fairer share of resource revenues—outweigh the short-term risks. Nonetheless, the economic and reputational costs of such a strategy should not be underestimated.

The tax dispute stems from differing interpretations of the 2009 Oyu Tolgoi investment agreement, which stabilized taxes for 30 years. Subsequent changes to Mongolia’s tax laws, including the cancellation of a double taxation treaty with the Netherlands, have fueled disagreements over Rio Tinto’s obligations. The dispute has dragged on in international arbitration, with both sides eager to avoid a potentially damaging all-or-nothing ruling.

A negotiated settlement is the most practical path forward, particularly with the advantages of resolving the dispute ahead of PDAC 2025.

The government must carefully navigate economic priorities, legal obligations, and public sentiment. Its response to Rio Tinto's latest offer will be a defining moment.