Russian and Mongolian uranium deal leaves Khan in limbo

A visit from Russian President Dmitri Medvedev has sealed a deal between Russia and Mongolia on uranium mining, leaving the status of Toronto-based Khan Resources (KRI-T) 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 owed by Mongolia 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.

Going the other way will likely be 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. It, along with the only other significant Western-based company with uranium assets in the country was Western Prospector, were given a warning sign back in July when they had their uranium licences suspended for supposed infractions.

What exactly those infractions were 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 Cooperation.

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

The company said it was meeting with its current joint venture partners – which are entities of the Russian and Mongolian state — to discuss the situation.

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

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 that the Russians had made back in March of this year. That’s when Russian state-owned Rosatom – which runs all of Russian’s nuclear assets — and Mongolia’s Atomic Energy Agency signed an agreement that any joint ventures would be split 50/50.

Russia is the fist country that Mongolia has signed a joint uranium contract with.

The head of Rosatom, Sergey Kirienko, said the new joint venture will 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 was 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 will be for export 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 over 15 years later in 1988 and continued until 1995, with ore being hauled 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 of U3O8 annually over a mine life of over 15 years and put probable mineral reserves at 18 million tonnes grading 0.133% U3O8 for 52.9 million lbs of U3O8 .

Khan is currently joint-ventured at Dornod through the Central Asia Uranium Corporation (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 Corporation which manufactures 17% of the world’s nuclear fuel.