Shares of Turquoise Hill Resources (TRQ) had tumbled more than 20% by 10:30 p.m. EST on Monday. Weighing on the mining stock was an update on tax arbitration, its discussions with the Government of Mongolia, and a proposed class action against the company.
On Dec. 23, Turquoise Hill said that it had received a tax assessment from the Mongolian Tax Authority for $228 million in cash tax relating to an audit on taxes imposed on and paid by its Oyu Tolgoi mining subsidiary between 2016 and 2018. After evaluating the claim, the company intends to apply for arbitration. It believes that it has paid all the taxes and charges required under current Mongolian law.
Turquoise Hill also noted that investors had initiated a legal proceeding in Canada against the company and some of its current and former officers. The class action alleges that they made "material misstatements and material omissions with respect to, among other things, the schedule, cost and progress to completion of the development of Oyu Tolgoi." The company says it doesn't believe these claims have any merit.
And the company said that Mongolia had advised its majority shareholder, Rio Tinto Group (RIO 0.01%), that it's dissatisfied with the definitive estimate for the Oyu Tolgoi development costs, which have increased significantly. The government is concerned that this has eroded the economic benefits of the project. Because of that, it needs to reevaluate whether it wants to proceed. The company plans to work with the government and Rio Tinto to address the issues.
Turquoise Hill Resources faces an uphill battle to develop the Oyu Tolgoi mine in Mongolia since it has a significant funding gap along with tax and legal issues. While the mine holds vast copper and gold resources, it's unclear whether the company will develop the mine. Because of that, it's a high-risk mining stock.