Rio Tinto seeks to build goodwill for huge Mongolian copper mine

DALANZADGAD, Mongolia, April 22 (Reuters) - Rio Tinto (Xetra: 855018 - news) committed on Wednesday to spending $5 million a year to help resolve conflicts with nomadic herders and water problems that have stoked political opposition to the expansion of a huge copper mine in Mongolia's South Gobi desert.

The 30-year agreement, signed with the province of South Gobi and local towns, is a strong sign the company remains committed to the next stage of the Oyu Tolgoi project, put on hold nearly two years ago amid disputes with the government.

"It's a longer life issue," said Oyu Tolgoi Chief Executive Andrew Woodley. "That means you set up long-term plans, and that's what this cooperation agreement is about."

Disputes with the government over tax and construction costs and long-running nationalistic concerns have prevented the construction of an underground mine that Rio says will unlock 80 percent of the copper wealth at the project.

Rio owns 66 percent of the mine indirectly through its Turquoise Hill Resources (Toronto: IVN.TO - news) subsidiary and the government has the other 34 percent.

The first, open-cut phase of the mine is already in operation. Turquoise Hill reported $1.6 billion in revenue for 2014 from the sale of 733,700 tonnes of concentrate from the mine.

The cooperation deal fulfils one of the requirements of Rio Tinto's Oyu Tolgoi investment agreement, signed in 2009, and could help address concerns raised by Mongolian politicians and environmentalists that the project was failing to help the local community, damaging herding patterns and wasting water.

Rio Tinto, operator of the mine, defended the offer of an annual fixed sum of $5 million, with distributions to start this year, as a practical move.

"It's difficult to fix something to profitability because what you find is that in years when the company is losing money the contributions would dry up," Woodley told reporters after the signing of the agreement in Dalanzadgad, 220 km (138 miles) from the mine.

A recent poll by the Sant Maral Foundation found that two of the three most popular politicians in Mongolia were strong critics of Oyu Tolgoi.

One local opponent, Sukhgerel Dugersuren, has said plans to resettle herders whose grazing areas had been taken by the mine failed to account for all the herders who were affected over a wider area and that there should have been more consultation.

"Only herder communities themselves understand how land is used, where seasonal camps are located, and when springs freeze," she said in a posting on her website in February. (http://en.minewatch.mn/)

(Reporting by Terrence Edwards; Editing by Sonali Paul and Alan Raybould)