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What: Shares of mineral explorer Turquoise Hill Resources (TSX: TRQ) sank 12% today after receiving notification from the Government of Mongolia that project financing for Oyu Tolgoi will now require approval by the Mongolian Parliament.
So what: Unfortunately for Turquoise and parent company Rio Tinto, The Mongolian Parliament is currently in summer recess and the approval process will take plenty of time even after that, so all work on the underground development will be put on hold indefinitely. Given that Oyu Tolgoi is Turquoise’s primary operation — total capital invested in the mine to March 31, 2013 was about $6 billion — the delay represents a huge setback for management and raises plenty of uncertainty for shareholders.
Now what: Management will naturally do what it can in the meantime. “Operations of the open-pit mine, commissioning of the concentrator, and the ongoing export of concentrate from Oyu Tolgoi will continue,” wrote Turquoise Hill in a statement. Of course, when you couple the Mongolian government’s seemingly unstable policies with Turquoise’s sector-average P/E, the risk/reward tradeoff at this point looks particularly unfavorable.
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Fool contributor Brian Pacampara owns no position in any of the companies mentioned.