Mongolia sends positive signal to miners

Mongolia’s parliament has voted to set a February 2009 deadline for completing a long-awaited draft investment agreement for the massive Oyu Tolgoi copper-gold project, Ivanhoe Mines (IVN-T, IVN-Q) announced today.

The news sent Ivanhoe’s shares up 8¢ or 3.5% to $2.34 per share. Ivanhoe has been trading in a $2.06-$13.54 range over the last year.

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 government plans to get serious about advancing mining projects in the country. Earlier this year Mongolia created a new Ministry of Mines and Energy. (Previously mining had been a division of the Ministry of Industry and Trade.)

It also underscores 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 elections 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 govern the country with the Democratic Party, according to Martin Quick, president and chief executive of Khan Resources (KRI-T).

The world financial crisis has made Mongolian officials realize that they must get their mining sector in order to take advantage of the next commodities boom.

“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,” Quick concluded.

Khan Resources announced today that it had signed a letter of intent with Marubeni Corp. of Japan on uranium exploration and mining. Marubeni’s energy division is interested in working with Khan Resources on its Mongolian Dornod uranium project.

“They’re very interested in the Dornod project and like what they see and would like to work closer with us,” Quick said.

While he was reluctant to say what sort of long-term involvement Marubeni might take in Dornod, Quick did say the possibilities might include an investment of some kind or perhaps an off-take agreement.

Quick also noted that the influential trading house works in step with the Japanese government, which has a close and cooperative relationship with the Mongolian government.

“Marubeni will work with us to try to and get the project moving forward through the political hoops and once they see some forward momentum then who knows what they might do,” Quick explained.

“Obviously they are interested in the yellow cake but this is a first major step in a long and hopefully cooperative venture with them…and [it] indicates to a lot of people that the Japanese [government] and in particular Marubeni are very interested in our project.”

In the meantime, Khan is pushing ahead with its Dornod development project. On Sept. 18, the company launched a US$5 million project to  

build a power line and a sedimentation pond for Dornod.

Dornod has a National Instrument 43-101 compliant indicated mineral resource of 64.3 million lbs U3O8 and Khan has an overall 69% interest in the resource, or about 44.4 million lbs U3O8.

At press-time Khan was trading at 19¢ a share. The junior has a 52-week trading range of 14.5¢-$1.80 per share and 54.1 million shares outstanding.