The share price of diversified mining giant Rio Tinto Ltd [ASX:RIO] has come under pressure today. At the time of writing, Rio was down $3.01 to trade at $103.26, a loss of 2.83%.
Rio’s share price has showed a lot of upward momentum since the beginning of the year, climbing 31.63%. But this trend looks like it could be cooling off.
What happened to Rio Tinto’s share price today?
Rio’s share price has managed to reverse the gains made yesterday after the announcement that non-executive director Moya Greene would be stepping down immediately. Greene cites that her commitment to the board was more time intensive than she had imagined.
With criticisms now circling the board’s governance standards, the hunt for a new director is likely already underway.
Though the market responded positively to the departure of Moya Greene yesterday, it is another high-profile individual causing grief for the company today.
A senior Mongolian law maker was reported today suggesting the developing nation would not honour a 2015 agreement that underpins a US$5.3 billion expansion of the Oyu Tolgoi copper mine.
Minister for Mining and Heavy Industry Sumiyabazar Dolgorsuren, was quoted in local media claiming the government would no longer accept the 2015 legal agreement that laid out the terms for the mine’s expansion.
Given the Mongolian government’s history of making hollow threats, it’s difficult to determine whether or not this is all just political grand standing.
According to the Australian Financial Review, the Mongolian Parliament is currently controlled by the political rivals of the party that struck the original 2015 deal.
Regardless of the likelihood of the threats coming to fruition, the rumours come at a fragile time for Rio given a Mongolian parliamentary working group continues to analyse Oyu Tolgoi from a range of perspectives.
The AFR have reported in recent months that the parliamentary working group will seek revisions to the 2015 deal, with the country’s anti-corruption agency investing some of the politicians involved in the 2009 investment agreement.
What happens next?
Given the size of the Oyu Tolgoi agreement, investors are right to be cautious. But any threats are likely to be hot air.
Foreign investment in Mongolia slumped in the years prior to the 2015 deal, with Rio demonstrating Mongolia’s viability for investment. Despite the ongoing political rivalry, the government will not want to scare off future potential investments.
Though this might give Rio the upper hand in propping up the deal, the relationship could be strained further when Rio confirms the scale of cost and schedule blow outs on the project in coming months.
The Mongolian Government owns 34% of the mine and is desperate for the rare earther to boost its revenues. However, it has been unable to fund its share of the development costs on the project; a situation that has further complicated the relationship.
Volatility will likely be a common theme moving forward.
For Money Morning
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