Turquoise Hill’s Copper-Gold Mine in Mongolia Giving Investors Rollercoaster Ride

Wednesday, 06 Feb 2013 01:38 PM

By Glenn Kalinoski

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Mining stocks can easily give investors a rollercoaster ride even when companies own significant resources of the gold, silver, copper and coal, as disputes with governments can lead to a decline in the price of equities.

Turquoise Hill Resources, which is majority owned by Rio Tinto Group, provides a recent example of this risk.

Turquoise Hill shares fell about 1.3 percent Monday amid reports of a dispute with the Mongolian government over its flagship Oyu Tolgoi copper-gold mine, The Canadian Press reports. The disagreement stems from control and profits from what is expected to be the world’s biggest copper mine, according to published reports.

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Bloomberg notes that Mongolian President Tsakhia Elbegdorj said the country should have more control over the Oyu Tolgoi project after what the government said was a dramatic increase in the cost of the mine.

Turquoise Hill’s share price had soared 35 percent in two weeks after the ore concentrator was commissioned in late December; however, the gains all but disappeared on news that Mongolia was seeking additional royalties. In addition, investors were “underwhelmed” by production of the first ore concentrate Jan. 30, according to Seeking Alpha.

As prices plunged, exchanges halted trading on Jan. 30 as the world’s second-largest miner, Rio Tinto, denied a Bloomberg report detailing contract disputes at the mine and the company affirmed that its agreement with the country was solid.

Turquoise Hill owns 66 percent of the copper, gold, silver and coal mine at Oyu Tolgoi, while Mongolia owns 34 percent, according to Seeping Alpha, which describes the project as the largest construction site in the world.

Mongolia needs Rio Tinto and Turquoise Hill to be profitable with the mine, as the nation of 2.8 million people has considerable mineral resources that require substantial investment by to unearth, according to Seeking Alpha. This investment need will increase if politicians and governments, including those of neighboring China and Russia, do not “mess things up.” The companies have invested $6.5 billion apart from their charitable contributions.

According to the Financial Post, while a large proportion of Mongolia’s population is extremely poor, Mongolia is enduring the biggest gold rush of the 21st century.

This has turned unemployed herdsmen among those who are giving gold mining a chance in order to earn a living. Skyrocketing demand from China has many locals thinking they could make a fortune mining gold.

These miners are known as “ninja miners” because they often work in the dark of night and because the green pans they use to mine resemble the shells of the Teenage Mutant Ninja Turtles. Approximately 100,000 miners are estimated to work in these unregulated mines.

As contradictory reports accumulate regarding Oyu Tolgoi, Morgan Stanley estimates that this will be the fourth straight year in which copper demand exceeds supply.

Editor's Note: Get David Skarica's Gold Stock Adviser — Click Here Now!

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