Oyu Tolgoi: Mongolia’s High-Stakes Clash With Rio Tinto

15 years of tensions over the massive copper mine boiled over in December 2025. Can Mongolia and the mining giant reach a resolution?

Located in Mongolia’s South Gobi Desert, the Oyu Tolgoi copper-gold mine has long stood as a paradox. The project hailed as the cornerstone of Mongolia’s economic modernization has simultaneously festered into a decades-long battle over sovereignty, fairness, and shared prosperity.

For 15 years, the mine – one of the world’s largest undeveloped copper deposits – has pitted the Mongolian state against Rio Tinto, the Anglo-Australian mining giant that holds a 66 percent stake in, and operational control over, the site. The tension reached a boiling point in December 2025, when two seismic developments reshaped the landscape: a Russian court ordered Rio Tinto to pay $1.32 billion in damages, and Mongolia’s State Great Khural unanimously adopted a resolution mandating sweeping changes to protect national interests in the project.

These events have reignited fundamental questions about a partnership forged in the aftermath of the global financial crisis, when Mongolia lacked bargaining power. Rather than a simplistic case of corporate exploitation or nationalist overreach, Oyu Tolgoi should be viewed as the messy reality of an “obsolescing bargain” – a dynamic where host nations gain leverage as investments mature, while multinationals cling to contractual certainty. 

For Mongolia, the stakes are existential: Oyu Tolgoi accounts for 30 percent of its exports and billions in state revenue in the near future. For Rio Tinto, the mine is similarly irreplaceable: a linchpin in its strategy to supply copper for the global energy transition. The conflict, then, is not a zero-sum game, but a test of whether two interdependent parties can recalibrate a flawed framework to serve both sovereign dignity and commercial viability.

The Origins of an Uneven Bargain

The legal and financial architecture of Oyu Tolgoi was cemented in two agreements: the 2009 Investment Agreement and the 2011 Shareholders’ Agreement. Negotiated amid Mongolia’s post-financial crisis vulnerability, the deals granted Rio Tinto extraordinary concessions: tax stability for decades, priority in recovering capital costs, and near-total operational autonomy. Mongolia secured a 34 percent stake through its state-owned enterprise Erdenes Oyu Tolgoi LLC, but the terms deferred meaningful dividends until Rio Tinto recouped its investments – an arrangement that has left the country waiting for its fair share as the mine’s value soars.

Surface mining began in 2013, but the deposit’s true wealth – 31 million tons of copper and 13 million ounces of gold – lies underground. After years of delays and disputes, underground production finally launched in 2023, following a 2022 settlement between Ulaanbaatar and Rio Tinto. By 2025, the project’s total capital expenditure had surpassed $26 billion, with output surging. Copper production rose 61 percent year-on-year, and gold 121 percent. 

For Mongolia, the mine provided $660 million in taxes and fees in 2025 alone. That adds up to cumulative state revenue of $5.5 billion since 2010, plus some $2.4 billion in domestic procurement. Yet these gains are overshadowed by a lopsided debt structure: $16.3 billion of Oyu Tolgoi’s $20.2 billion in debt consists of shareholder loans from Rio Tinto, with interest rates that Mongolian policymakers and civil society have long criticized as above market norms.

Rio Tinto defends the terms, framing shareholder loans as a standard financing tool for megaprojects that carry “full financial risk” during exploration and construction. In a December 2025 submission to Mongolia’s parliamentary oversight committee, Oyu Tolgoi LLC emphasized that such loans are “long-term, unsecured, and provided without collateral,” arguing that direct comparisons to Mongolia’s sovereign debt or short-term international bonds are “inconsistent with international standards.” 

The company also claims that Mongolia’s total share of benefits – including taxes, royalties, and dividends – already stands at 61 percent, far higher than the 37 percent cited by parliamentary experts. But for many Mongolians, these figures ring hollow. The state has yet to receive significant dividends, while Rio Tinto’s cumulative negative cash flow of $11 billion (as of September 2025) masks the long-term value it stands to gain from an 80-year productive asset.

The 2025 Turning Points: Legal Risk and Sovereign Assertion

December 2025 marked a pivotal shift in the debate, driven by two unrelated but mutually reinforcing events. On December 10, Russia’s Kaliningrad Arbitration Court ordered Rio Tinto to pay 104.75 billion rubles ($1.32 billion) to RUSAL, the Russian aluminum giant, over Rio’s 2022 seizure of RUSAL’s 20 percent stake in Queensland Alumina Limited (QAL) amid Australian sanctions on Russia. While the case does not involve Oyu Tolgoi directly, it named Rio Tinto subsidiaries that own the Oyu Tolgoi stake, casting a legal cloud over the mine’s ownership structure.

Rio Tinto swiftly rejected the ruling, stating it “will vigorously defend against it” and noting that Australian courts had already upheld its compliance with sanctions. In a December 15 statement shared with this author, the company emphasized that the Russian judgment “relates to Australian sanctions and has no bearing on Oyu Tolgoi’s operations.” 

Yet the ruling has eroded Rio’s narrative of legal invincibility – a particularly sensitive point as Mongolia scrutinizes the company’s adherence to local laws. For Ulaanbaatar, the decision underscored a broader concern: that multinational corporations may prioritize geopolitical compliance with Western sanctions over their obligations to host nations.

More than two weeks later, on December 26, Mongolia’s State Great Khural adopted Resolution No. 120 with an 81.2 percent majority (69 votes in favor). The landmark piece of legislation mandates sweeping reforms to Oyu Tolgoi’s governance. The resolution, born from months of public hearings and a special parliamentary inspection, reflects deep public frustration – a big portion of Mongolians surveyed in December 2025 believe the country receives an unfair share of Oyu Tolgoi’s benefits. 

The new resolution calls for reviewing (and potentially revoking) two contested mining licenses at the larger Oyu Tolgoi site (Shivee Tolgoi and Javkhlant) held by Rio Tinto partner Entrée Gold. It also demands renegotiations of the 2011 Shareholders’ Agreement to lower Rio’s loan interest rates and guarantee Mongolia a 53 percent benefit share (the original 2010 target), while channeling Oyu Tolgoi’s export revenue through Mongolia’s central bank and commercial banks for transparency. Finally, the resolution calls for investigating corruption allegations against Oyu Tolgoi and Rio Tinto (suspicions that the firm says are “unfounded”) and boosting geological exploration to expand Oyu Tolgoi’s reserves.

The resolution is a bold assertion of sovereign will, but it comes with risks. Rio Tinto has historically resisted unilateral changes to agreements, warning that they could deter foreign investment or trigger arbitration at the International Center for Settlement of Investment Disputes (ICSID). In a January 2026 statement provided to this author, Oyu Tolgoi LLC acknowledged the importance of “constructive engagement” but emphasized that public hearings had included “inaccuracies” that it had not been given time to address.

The company’s December 17 submission to parliament further argued that the Investment Agreement already covers the Javkhlant and Shivee Tolgoi licenses, and that its feasibility studies have been updated in compliance with Mongolian law – contradicting parliamentary claims that the project has operated “without an approved feasibility study for the past 10 years.”

The Core Fault Lines: Law, Finance, and Trust

The Oyu Tolgoi dispute hinges on four interconnected tensions, each amplified by the December 2025 developments: legal compliance, financing fairness, resource sovereignty, and transparency.

First, legal alignment remains a flashpoint. Parliamentary experts have accused the Investment and Shareholders’ Agreements of violating Mongolian law – including provisions on board voting rights, share transfer rules, and the primacy of the company charter. 

Oyu Tolgoi LLC vehemently disputes this, arguing the agreements were negotiated “under public and parliamentary oversight” and comply with the laws in force at the time. The company noted that Mongolia’s 2006 Minerals Law explicitly permitted investment agreements to “maintain stable conditions for investors,” and that board provisions were agreed upon under the Civil Code’s “principle of freedom of contract.” For Mongolia, however, the issue is not just past compliance but present relevance. As its legal framework evolves (including the 2019 constitutional amendment defining “benefits” for resource projects), Mongolia thinks past agreements must adapt to reflect current sovereign priorities.

Second, financing terms are a visceral grievance. Mongolia’s parliament and civil society argue that Rio Tinto’s shareholder loan interest rates – reportedly 3-6 percentage points above market rates – unfairly delay dividends and shift risk to the joint venture. Oyu Tolgoi LLC counters that such rates reflect “project-specific and country-specific risks,” including Mongolia’s credit rating, political uncertainty, and the mining sector’s long payback periods. Negotiations between the shareholders to reduce rates are ongoing, but progress has been glacial – highlighting the imbalance of power that persists despite Mongolia’s growing leverage.

Third, the Oyu Tolgoi mine has become a symbol of resource sovereignty, which  in turn lies at the heart of national identity. Mongolia’s ambition to raise its stake to 51 percent or more is rooted in a belief that its natural resources should serve its people first. 

The Javkhlant and Shivee Tolgoi licenses have become a symbol of this fight: parliament views Entrée Resources’ control as a barrier to full development, while Oyu Tolgoi LLC insists the licenses are geologically inseparable from the main mine and can only be developed using existing infrastructure. The company warns that delaying their integration “adversely affects the mine plan and cost projections,” but Mongolians see this as yet another example of foreign corporations dictating terms over their sovereign assets.

Fourth, transparency deficits have eroded public trust. While Oyu Tolgoi LLC publishes tax and fee payments, civil society and parliament have raised concerns about transfer pricing, cost allowances, and the lack of clarity on how “benefits” are calculated. The company’s claim that Mongolia’s share of the benefits stands at 61 percent clashes with parliamentary estimates of 37 percent, reflecting differing definitions of what constitutes “benefits” (e.g., whether VAT paid through suppliers or social insurance contributions should be included). 

The new resolution’s transparency mandates aim to bridge this gap, but success will depend on independent verification – something Rio Tinto has not always embraced.

The Silence of Stakeholders: What Non-Responses Reveal

The aftermath of December’s developments has been marked by striking contrasts in stakeholder engagement. Rio Tinto and Oyu Tolgoi LLC responded promptly to inquiries, providing formal statements and referencing their submissions to parliament. But other key actors – including Mongolia’s government, parliamentarians, and Russia’s Kaliningrad Arbitration Court – have remained silent. This silence speaks volumes. For Mongolia’s leaders, it may reflect a desire to avoid escalating tensions before negotiations with Rio Tinto begin in earnest. For the Russian court, it underscores the case’s geopolitical sensitivity: a ruling targeting a Western multinational, even over an Australian asset, risks complicating Russia’s relations with Mongolia, a country it seeks to maintain as a strategic partner.

The lack of response from Mongolia’s government is particularly notable given the resolution’s mandate to implement reforms within months. Prime Minister Zandanshatar Gombojavyn’s administration faces a delicate balancing act: asserting national interests without triggering a backlash from Rio Tinto, which could halt funding or pursue arbitration. The government’s recent moves to secure loan and financial cooperation with the European Bank for Reconstruction and Development (EBRD) and the Asian Development Bank (ADB) – efforts that were approved alongside the Oyu Tolgoi resolution – suggest it is preparing for a potential showdown, diversifying its financial partnerships to reduce reliance on Rio Tinto.

Toward a Shared Victory: The Path Forward

This is a battle that neither side can “win” at the expense of the other. Mongolia cannot afford to alienate Rio Tinto entirely: the company’s technical expertise and capital are still needed to maximize the mine’s value, and arbitration could drain state resources for years. Rio Tinto, meanwhile, cannot afford to ignore Mongolia’s demands: public anger is at a fever pitch, and the Russian court ruling has exposed its vulnerability to legal risks in geopolitically complex regions. The company’s future in the energy transition – dependent on securing stable supplies of copper – depends on its ability to rebuild trust with host nations.

A sustainable solution must address three core needs: fairer financing, enhanced sovereignty, and transparency and accountability. 

First, a modest reduction in shareholder loan interest rates, aligned with current market conditions, would accelerate dividend payments to Mongolia without undermining Rio Tinto’s returns. This is a compromise both sides can accept – Mongolia gains faster access to revenue, while Rio Tinto preserves the project’s viability.

Second, both sides could work out a phased pathway for Mongolia to increase its stake to 51 percent as capital costs are recovered, coupled with joint control over key decisions (e.g., license integration, exploration plans). This would honor Mongolia’s desire for ownership while giving Rio Tinto certainty over the transition.

Finally, there should be independent audits of benefit calculations, public disclosure of cost allowances and transfer pricing, and a joint committee with equal representation from Mongolia and Rio Tinto to oversee compliance. This would rebuild public trust and reduce the risk of future disputes.

Such a compromise would not satisfy hardliners on either side. Nationalists in Mongolia will demand full control, while Rio Tinto shareholders may resist concessions that reduce short-term profits. But it is the only path to a “win-win” outcome: Mongolia secures its sovereign right to a fair share of its resources, and Rio Tinto gains the stability it needs to operate the mine for decades to come.

Conclusion

Oyu Tolgoi is more than a mine – it is a test case for how resource-dependent democracies can assert their interests in an era of global capital. Mongolia’s December resolution is a milestone in this journey, proving that small nations can rewrite the rules of engagement with multinational corporations. Rio Tinto’s willingness to negotiate (albeit reluctantly) shows that even the largest firms must adapt to changing expectations of corporate responsibility.

The Russian court ruling, while tangential to Oyu Tolgoi’s operations, has added a geopolitical wildcard: it reminds Rio Tinto that its actions in one part of the world can have consequences elsewhere, and that Western sanctions cannot insulate it from legal risks in non-Western jurisdictions. For Mongolia, this is a strategic opportunity to leverage Rio Tinto’s vulnerability to secure better terms.

In the end, the real winner will not be Mongolia or Rio Tinto alone, but the principle that resource partnerships must be based on equity, transparency, and mutual respect. If Oyu Tolgoi can evolve into such a model, it will provide a blueprint for other nations grappling with similar conflicts – from Zambia’s copper mines to Peru’s lithium projects. If not, it will remain a cautionary tale of missed opportunities, where short-term greed and nationalist pride overshadowed the shared prosperity that should be the goal of every resource project.

As negotiations begin in 2026, the eyes of the world will be on the South Gobi. For Mongolia, this is a chance to turn a legacy of unfair deals into a future of sovereign economic empowerment. For Rio Tinto, it is an opportunity to prove that profitability and responsibility can coexist. The stakes could not be higher – and the outcome will define the future of resource governance for decades to come.

thediplomat.com