On June 30, the Government of Mongolia and Rio Tinto announced that they had reached a mutual agreement concerning the Oyu Tolgoi project, one of the world's largest copper-gold mining developments and arguably Mongolia's most enduring political and economic issue.
For more than a decade, successive Mongolian governments and Rio Tinto have negotiated, renegotiated and disputed over the allocation of risks, costs and returns arising from the Oyu Tolgoi project. Discussions over financing costs, management fees, taxation and shareholder returns have become a recurring feature of Mongolia's political economy, reflecting a broader question: how should the benefits of a strategically important natural resource project be shared between the host state and foreign investors?
The latest agreement announced this week between the Government of Mongolia and Rio Tinto may not resolve all outstanding issues. Yet it arguably represents one of the most important adjustments to the economics of the Oyu Tolgoi project since its original financing structure was established.
The official statements issued by the parties reveal both a shared understanding and differing priorities.
The Mongolian government announced that it had reached an agreement “on terms favourable to Mongolia”, highlighting a reduction in shareholder loan interest costs, an earlier agreement to reduce management fees, a shorter review period for financing arrangements and the prospect of Mongolia receiving dividends sooner than previously expected.
According to the Government of Mongolia, the parties agreed to: (i) reduce the shareholder loan interest rate from 10.5 percent to 7.9 percent; (ii) build upon the agreement reached in May, under which management fees were reduced by 2.2 billion USD and Mongolia's expected economic benefit increased by approximately 1.5 billion USD; (iii) shorten the review period for shareholder loan interest rates from once every seven years to once every three years; and (iv) reach an agreement in principle for Mongolia to begin receiving dividends from the Oyu Tolgoi project starting this year.
Rio Tinto, by contrast, adopted a more restrained tone. Rio Tinto’s statement, meanwhile, noted that the parties had agreed to adjust the shareholder loan interest rate in accordance with provisions in the shareholder agreement requiring periodic reviews of the appropriateness of the applicable interest rate. It also confirmed that “Rio Tinto and the Government of Mongolia have also agreed to work together to resolve matters relating to the Entree mine lease areas in a timely manner and bring forward distributions to shareholders.”
Rio Tinto Copper Chief Executive Katie Jackson further said that “This agreement, along with the agreement in principle on management fees reached in May, demonstrates Rio Tinto’s ongoing commitment to the long-term success of Oyu Tolgoi and our partnership with the Government of Mongolia.”
According to Jackson, “the adjusted rate reflects a forward-looking assessment of Oyu Tolgoi’s risk profile as the project matures to a lower risk, steady state operation that will achieve its full potential for the benefit of all parties.”
The divergence in messaging is understandable. Governments naturally seek to emphasise national gains, while publicly listed companies tend to frame agreements in terms of commercial and contractual logic.
Taken together, these statements suggest that the principal concessions benefiting Mongolia involve the reduction of shareholder loan interest costs and management fees. At the same time, the agreement appears to impose corresponding obligations on the Mongolian government, including cooperation in resolving long-standing issues relating to the Entree mine lease areas.
According to the Government of Mongolia, the shareholder loan interest rate has been reduced from 10.5 percent to 7.9 percent. However, this widely reported figure warrants closer examination.
A review of the relevant provisions of the Oyu Tolgoi Shareholders' Agreement indicates that some aspects of the announced deal could indeed be implemented through amendments to the existing contractual framework. However, the widely circulated interpretation that the shareholder loan interest rate has simply been reduced from one fixed percentage to another appears to oversimplify the underlying contractual mechanism.
More importantly, the agreement does not establish a single fixed interest rate applicable indefinitely. Rather, Article 11.3(d)(i) defines the financing interest rate through a formula. Before the Conversion Date, the rate corresponded to an effective annual rate of 9.9 percent. After the Conversion Date, however, the applicable quarterly financing rate is calculated as LIBOR plus 6.5 percent, with the resulting figure constituting the effective annual interest rate.
This distinction is not merely technical. Since the discontinuation of LIBOR in global financial markets, benchmark rates have generally been replaced by alternative reference rates such as SOFR. Because the London Interbank Offered Rate (LIBOR) was discontinued after 2023 following global benchmark manipulation controversies, market participants have generally replaced LIBOR with the Secured Overnight Financing Rate (SOFR), adjusted by an appropriate spread.
Consequently, the applicable shareholder loan interest rate must be calculated periodically in accordance with the contractual formula, rather than being represented by a permanent fixed percentage.
Indeed, according to information publicly disclosed by Member of Parliament O.Batnairamdal in October 2025, “… The loan carries a quarterly compounding interest rate of 3-month SOFR + 6.5 percent (plus a 26 bps credit adjustment), effectively around 11.1 percent today …”
Viewed in this context, while the parties have undoubtedly agreed to reduce the shareholder loan interest burden, it would be inaccurate to conclude that the interest rate has simply been reduced from one fixed number to another. The actual economic effect of the agreement will depend on how the revised interest rate mechanism is implemented in practice.
Nevertheless, the broader economic implications of the agreement appear clear. According to Oyu Tolgoi's 2025 annual report, reductions in management fees and shareholder loan interest expenses will reduce overall project costs. Lower costs should, in turn, increase distributable returns available to both shareholders, potentially accelerating the timeline for dividend payments.
In practical terms, this means that both Mongolia's 34 percent interest and the investors' 66 percent interest could begin generating distributable returns sooner than previously anticipated.
The latest agreement also provides for periodic reviews of the appropriateness of the financing rate, subject to agreement among the parties. Article 11.3(g) reads: “Every seven years following the Conversion Date the Parties will consider the appropriateness of the Carry Rate and the rates referred to in clause 13.1(d)(ii) and in the definition of Existing Shareholder Loans in clause 25 and these rates may be changed with the agreement of all Parties.”
Viewed in this context, the latest agreement appears to involve not merely a reduction in the applicable interest burden but also a revision of the review framework itself, reducing the review cycle from seven years to three years.
Yet despite the positive developments announced this week, one major issue remains unresolved: taxation.
Oyu Tolgoi LLC and the Government of Mongolia continue to litigate a 155 million USD tax assessment relating to the 2013–2015 tax years before an international arbitration tribunal in London. Although the proceedings commenced in 2020, no final resolution has yet been reached nor announced as of today.
In addition, Mongolian tax authorities issued a further assessment earlier this year relating to the 2021–2022 tax years. According to Oyu Tolgoi, the disputed amount, including taxes, penalties and interest, totals approximately 440 million USD, and the company has challenged the assessment through domestic dispute resolution procedures.
At the centre of these disputes lies a longstanding disagreement regarding the scope of the tax stabilisation provisions contained in the Oyu Tolgoi Investment Agreement. Specifically, the parties differ on whether the stabilisation provisions protect only applicable tax rates or whether they also preserve the methodologies used to calculate those taxes.
Neither the Government of Mongolia nor Rio Tinto addressed these disputes in their latest statements. That omission suggests either that the issues were not part of the recent negotiations or that no agreement was reached.
For now, the latest agreement should nevertheless be viewed as a positive development. By reducing financing costs and improving the timing of returns, the parties appear to have moved closer to a shared understanding that the long-term success of Oyu Tolgoi depends not only on operational performance, but also on maintaining a sustainable economic balance between investors and the Mongolian state.
Whether this agreement ultimately proves transformational will depend on details that have yet to emerge. But after years characterised by disputes, delays and periodic crises of confidence, the fact that Mongolia and Rio Tinto have again chosen negotiation over confrontation should itself be regarded as a significant achievement.
