Mongolia’s Future Benefits Set to Increase Under New Oyu Tolgoi Agreement

The Government of Mongolia and Rio Tinto have agreed to amend the agreement governing the relationship between the shareholders of the Oyu Tolgoi project, with the changes expected to reduce project costs while increasing the benefits Mongolia will receive in the future.

At a joint briefing held in Ulaanbaatar on September 11, Mongolian Prime Minister N. Uchral and Rio Tinto Chief Executive Officer Simon Trott announced details of the agreement. The changes represent one of the major amendments to the Oyu Tolgoi agreement 17 years after the original arrangements were established. The Oyu Tolgoi Investment Agreement was signed in 2009, while the amended Shareholders' Agreement was signed in 2011.

According to the Mongolian government's estimates, the new arrangements could reduce the Oyu Tolgoi project's total costs by approximately 30 trillion MNT, or US$8.4 billion. At the same time, the government said Mongolia's future benefits over the life of the project could increase by approximately 13 trillion MNT, or US$4 billion. These are projected future benefits and do not represent a one-time cash payment to Mongolia.

The cost reduction is expected to come from measures including lower management service fees, the elimination of duplicated costs, and changes to reduce the interest on shareholder loans to Oyu Tolgoi. According to the Mongolian side, approximately 8 trillion MNT of the projected savings is related to management costs, while 22 trillion MNT is related to interest expenses.

Meanwhile, the question of when Mongolia will begin receiving dividends from Oyu Tolgoi remains a key issue. Under a previous agreement reached on June 30, the parties agreed to work together to bring forward the distribution of dividends, and the Mongolian government had indicated at the time that Mongolia could potentially receive dividends in 2026. Following the new September agreement, however, the parties agreed to work toward beginning dividend distributions in 2027.

The exact amount of dividends and the detailed terms of their distribution have not yet been finalized. In an interview on September 22, B. Telmuun, CEO of Erdenes Oyu Tolgoi, said that a joint working group between the two sides is working on the dividend issue and that the Mongolian side is expressing its position on receiving dividends based on the 2026 financial results. He also emphasized that the detailed arrangements still need to be negotiated.

How future Oyu Tolgoi dividends will be used is also being discussed alongside the 2027 national budget. The government has included an estimate of 3 trillion MNT in dividend revenue from Oyu Tolgoi in next year's budget. In addition, the government is considering using a portion of the dividends for heating plants in the provinces and for heating and energy infrastructure projects in Ulaanbaatar.

However, this revenue would not be large enough to fully resolve the fiscal pressures facing the government. The 2027 draft budget projects 41.3 trillion MNT in adjusted revenue and 43.6 trillion MNT in expenditure, with a projected budget deficit of 2.306 trillion MNT.

Oyu Tolgoi's production outlook also remains a key factor in determining the project's future benefits. According to Rio Tinto, the mine is expected to reach an average production level of approximately 500,000 tonnes of copper per year between 2028 and 2036. This is a production target calculated on a 100-percent project basis, while actual production, copper prices, project costs, and other factors will affect the amount of future dividends received by Mongolia.

Oyu Tolgoi is a joint project in which the Government of Mongolia holds a 34-percent stake and Rio Tinto holds 66 percent. Rio Tinto operates the project, and according to the company, Oyu Tolgoi has paid a total of US$6.1 billion to Mongolia in taxes, fees, and other forms of payments since 2010.

The new agreement does not mean that the long-running debate over the benefits Oyu Tolgoi provides to Mongolia's economy has been fully resolved. Rather, the agreement advances several issues related to interest expenses, management costs, and the timing of dividends, while the parties move into the next stage of finalizing the detailed terms for future dividend distributions.