Mongolia Sends Positive Signal To Foreign Miners

Mongolia’s parliament has voted to set a February 2009 deadline for completing a long-awaited draft investment agreement for Ivanhoe Mines (IVN-T, IVN-n) and Rio Tinto’s (RTP-N, RIO-L) massive Oyu Tolgoi copper-gold project.

Forty-two of 50 members of Mongolia’s parliament, or 84% of those present from the country’s two political parties, agreed to adopt a resolution that authorizes the government to negotiate a draft investment agreement and present it to parliament before Feb. 1.

The parliamentary resolution also proposes that the government, led by Prime Minister Sanjaa Bayar, consult internationally recognized experts in concluding the agreement.

The resolution is the clearest signal yet that the Mongolian government may be getting serious about advancing mining projects in the country. Earlier this year, Mongolia created a new Ministry of Mines and Energy — mining previously having been a division of the Ministry of Industry and Trade.

It also suggests that the government seems to have resolved its internal differences after deadly riots broke out in the streets of Ulaanbaatar in July, following allegations of fraudulent elections.

The Mongolian People’s Revolutionary Party (MPRP) won the majority of seats in the June 29 elections but the opposition Democratic Party called the vote corrupt, leading to violence and protests at MPRP’s headquarters. At least five people were killed in the violence and President Nambaryn Enkhbayar declared a four-day state of emergency on July 2.

Since then, the MPRP has worked successfully to create a coalition and govern the country with the Democratic Party, according to Martin Quick, president and chief executive of Khan Resources (KRI-T, KHRIF-o), which has a uranium project in the country.

Quick, like a number of other mining executives with projects in Mongolia, believes the world financial crisis may be starting to have an impact on the way politicians in the country view foreign mining companies and the need for their investment.

“I think the Mongolians have received a huge reality check with the new knowledge that the price of natural resources is extremely cyclical and they have missed a huge opportunity to capitalize on those higher prices,” he concludes.

Quick’s views are echoed by those of Brian Thornton, chairman of Xanadu Mines, an unlisted Australian company exploring for coal, uranium and copper-gold deposits in Mongolia. Declining commodity prices (copper in particular), as well as the realization that the appetite for risk — whether for exploration or mine development — has shrunk enormously over the last three to six months, has started to eat away at politicians in Ulaanbaatar, Thornton argues.

There’s been a change in attitude, “albeit grudgingly with some,” and a realization that the country needs to put in place realistic and commercially sustainable investment agreements and incentives if it is to attract both exploration money and actual mine development funding, he says.

“I think the president, the prime minister and smart MPs now see that it is imperative to approve the Oyu Tolgoi (copper-gold) and the Tavan Tolgoi (coal) projects as standalone investment agreements, separate and independent of a currently unworkable and evolving minerals law,” Thornton told The NorthernMiner. “That way, everyone can get on with the job of getting these two giant projects into production and getting Mongolia out of the budget hole in which it now finds itself.”

Not everyone is as optimistic about what the new resolution on Oyu Tolgoi means, or whether the timeframe is possible. Although it is encouraging in that it shows the coalition Prime Minister Bayar has put together can vote in favour of a bill supported by the prime minis-ter’s party, MPRP, the path forward is still likely fraught with delays and protracted negotiation, said one mining executive who requested anonymity.

“Parliament has just spent six weeks debating the budget and micromanaging the price of copper in the budget as it kept sliding during their process,” said the executive, who works for a company that has exploration projects in Mongolia, in an email exchange. “Most parliamentarians now have some idea of the real world but I still do not believe that more than the senior ministers have a real understanding. The president is still talking about 12 per cent growth next year, yet the Asian Development Bank is predicting 3.4 per cent. So there are still a lot of dreamers.”

He also noted that the significance of the global financial crisis has only filtered down through the bureaucracy to the extent that bureaucrats are failing to get their share of fees and taxes that are meant to be distributed to all three levels of the administration.

The news sent Ivanhoe’s shares up 8¢ or 3.5% to $2.34 per share in mid-day trading. At presstime, Ivanhoe was trading at $2.89 per share.