Friday, October 3, 2008


While Western companies, particularly energy ones, have taken a pummeling recently in the former Soviet space, one country remains a possible el Dorado for foreign investment.

Mining companies eyeing Mongolia as one of the world's last largely untapped frontiers have watched for years as the government has wrestled with drafting definitive amendments to the country's Mining Law, setting parameters on such essential issues as government taxation and ownership. The amendments were still under discussion on June 29 when Mongolia held its fifth round of elections for the Ulsyn Ikh Khural (State Great Hural, or parliament). The opposition cried foul, and two days later Ulaan Baatar erupted in rioting, causing President Nambaryn Enkhbayar to declare martial law when the ruling Mongolian People's Revolutionary Party (Mongol Ardyn Khuv'sgalt Nam, MPRP), the former Communist Party, won 47 of the contested 76 seats, while the opposition Democratic Party (the Ardchilsan Nam, or DP) took 26 seats. The DP legislators subsequently boycotted the July 23 opening of Parliament; but after protracted negotiations, the MPRP finally decided to establish a coalition government with the DP. The DP representatives subsequently returned to take their seats on August 28 and were sworn in (Olloo News Agency, August 26). On September 12 the leaders of the two opposing political parties, MPRP Chairman and Prime Minister Sanjaagiin Bayar and the DP head Norovyn Altankhuyag agreed to share power until the 2012 parliamentary elections.

No foreign company watched the electoral donnybrook with more interest than Canada's Ivanhoe Mines, Ltd., which is seeking to develop its proposed Oyu Tolgoi ("Turquoise Hill") copper and gold project in the Gobi, which the company asserts could alone boost Mongolia's economy by 33 percent, as the company estimates that over the mine’s projected life span of 35 years, it could produce an average of a billion pounds of copper and 320,000 ounces of gold annually.

Such figures have played on the minds of Mongolian politicians. On October 1 President Nambaryn Enkhbayar stated that, in order to secure the annual 12 percent economic growth rate needed to lift 30 percent of the population into the middle class by 2012, the government should start mining exploration work as soon as possible. In news that undoubtedly gladdened the hearts of Ivanhoe executives, Enkhbayar added that legislators would also discuss the interminable Mining Law revisions during its autumn session, as well as adopt guidelines for economic development (Xinhua, October 1).

Nor are the changes solely an executive initiative. Adding to foreign investor optimism, on September 17 the bipartisan parliament approved its new, restructured coalition government of 15 ministries and 11 ministers including the newly created position of Minister of Mining and Energy (Mineweb, September 19).

Another foreign mining firm, Canada's Centerra Gold, is so confident of its mining possibilities in Mongolia that it has hired new executives, including a vice president for business development. Centerra Gold President and CEO Steve Lang said that top Mongolian officials, including Prime Minister Bayar, have stressed to Centerra that "mining law reform would be their top priority," with both the MPRP and DP parties "very supportive of mining law reform” (Mineweb, September 10). Lang highlighted Central Asia's exploration potential, calling the region "one of the least explored areas" of the world. Centerra Gold's projected developments include its Gatsuurt gold mining site, estimated to have a reserve of 986,000 ounces, with 565,000 ounces of gold reserves already identified.

In a further sign of increased investor confidence in the new Mongolian government's ability to resolve outstanding investor concerns, over 500 people attended Euromoney Magazine's third economic conference in Ulaan Baatar in early September. Addressing the audience on recent political events, Khan Bank CEO Peter Morrow said, "There's a very high level of optimism that the two parties will work together" and that the government will soon "pass mining law amendments; they'll approve some of these big projects, and things will get going." With regard to investors' lingering fears about some government officials supporting 51 percent state ownership of new mining projects and high taxes, Mongolian Central Bank Deputy Governor M. Gambolt stated that his agency opposed both state-owned enterprises and high taxes (UB Post, September 18).

Despite the cautious optimism, the shock waves emanating from Wall Street have had their affect. On September 29 Ivanhoe Mines, Ltd., plunged 29 percent in trading on the Toronto, New York, and NASDAQ exchanges, an event for which Ivanhoe President and CEO John Macken had no explanation (Montsame news agency, October 1; COMTEX, September 30).

Other foreign mining companies are not so sanguine about Ulaan Baatar 's prospects for change. On October 2 Tinpo Holdings Industrial Company, Ltd., withdrew its $72.4 million cash offer to buy Vancouver-based Western Prospector Group, Ltd., which owns the Gurvanbulag uranium deposit. Tinpo said that it had cancelled the deal, because it had learned of an "unpublished document indicating that the Government of Mongolia might be considering the nationalization of the uranium industry in Mongolia." Tinpo said in a separate announcement that on September 29 it learned that Mongolia's National Security Council (NSC) had passed an unpublished resolution "some months before the offer, instructing the government to explore the full nationalization of the uranium industry in Mongolia” (Montsame news agency, October 2). As the NSC is composed of President Enkhbayar, Prime Minister Bayar, and Parliament Chairman Damdin Demberel, the deal seemed to generate uncertainty about the Mongolian government's intentions.

In an indication that Mongolia may yet have other cards to play, as Tinpo was considering canceling its deal, Prime Minister Bayar was in Washington on September 26, meeting with Vice President Dick Cheney at the White House and members of Congress to review bilateral relations (Olloo news agency, October 2;

Given the disarray in Washington and Wall Street at present, perhaps Bayar's time could be better spent hammering out a final draft of the country's Mining Law with Altankhuyag, as it seems likely for the moment that Washington or corporate America are too preoccupied to tout the advantages of the free market.

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