Russia-Mongolia Deal Could Leave Khan Out In The Cold

A visit to Ulaanbaatar by Russian President Dmitri Medvedev has sealed a deal between Russia and Mongolia on uranium mining, leaving the status of Torontobased Khan Resources (KRI-T, KHRIF-O) up in the air.

While rumours about a Russian and Mongolian union on uranium have been in the ether for some time, a US$150-million debt Mongolia owed to Russia had been a stumbling block in negotiations.

That has been set aside, and while details of repayment are scarce, the countries did announce that Russia was granting Mongolia a US$300-million loan to put towards agriculture and railroad construction.

In return, Russia will likely see a significant stake in some of Mongolia’s best uranium deposits, most notably Dornod, where Khan currently has a majority interest.

Khan holds a 58% interest in Dornod. Along with the only other significant Western-based company with uranium assets in the country, Western Prospector Group, it received a warning sign back in July when it had its uranium licences suspended for supposed infractions.

The nature of those infractions was never made clear.

For Western Prospector, however, the headache of trying to discern the government’s intentions ended early this month when its shareholders eagerly approved a takeover of the company by China National Nuclear Corp.

That leaves Khan alone in trying to figure out how Mongolia’s new law on nuclear energy will affect its investment in the country.

Khan said in a release that the law, which was passed by Mongolia’s parliament on July 17 and reportedly took effect on Aug. 15, came as a surprise and that no details have officially been released. The company said it would be meeting with its current joint-venture partners — which are entities of the Russian and Mongolian states — to discuss the situation.

In Toronto on Aug. 26 — the day after the news was released — Khan shares were off 8% or 3¢ at 37¢ on 115,000 shares traded. Its shares closed at a high of $5.21 in April 2007.

Russia’s deal with Mongolia signals that the country is keen to extend its global heft in the resource sector into uranium as more countries turn to nuclear power.

As for Mongolia, the country’s legislature passed a law in July that gave it the right to 51% of any strategic uranium deposit.

While that worried Khan at the time, it further cemented inroads the Russians had made just months before. In March, Russian state-owned Rosatom — which runs all of Russia’s nuclear assets — and Mongolia’s Atomic Energy Agency signed an agreement that any joint ventures would be split 50/50.

Russia is the first country with which Mongolia has signed a joint uranium contract.

The head of Rosatom, Sergey Kirienko, said the new joint venture would target Dornod as its first deposit to be exploited.

Rosatom already has assets just 200 km away from Dornod, making the possibility of synergies appetizing.

No numbers were given as to how much capital Russia would be putting into Dornod at this point, but media outlets in Russia report that Kirienko put the number in the hundreds of millions.

With that kind of investment, it might be imagined that Russia is following the Chinese model of trying to secure resources for its own economy.

But according to Kirienko, that isn’t the case. He is reported as saying that Russia already has enough uranium reserves to last it for “a hundred years” and that instead, uranium mined in Mongolia would be exported to other countries.

The return of the Russians represents a full circle for Dornod.

Uranium mineralization was first discovered at the property by Russian geologists back in 1972. Open-pit mining followed more than 15 years later in 1988 and continued until 1995, with ore being hauled across the border into Russia for processing. In all, the mine produced 590,000 tonnes of ore grading 0.1% U₃O₈.

Khan finished its feasibility study on the project in March of this year.

It pegged production at 3.5 million lbs. U₃O₈ annually over a mine life of more than 15 years and put probable mineral reserves at 18 million tonnes grading 0.133% U₃O₈ for 52.9 million lbs. U₃O₈.

Khan is currently joint ventured at Dornod through the Central Asia Uranium Corp. (CAUC), which is made up of Khan (58%), Russian state-controlled Priargunsky (21%), and the government of Mongolia (21%).

Priargunsky is 80% held by state-controlled TVEL Corp., which manufactures 17% of the world’s nuclear fuel.