Mongolian gov’t looks to end dispute with miners

VANCOUVER — Reports have surfaced that discussions within the Mongolian parliament may end a stalemate between the central government and international mining companies active in the country.

The latest dispute arose last year and includes negotiations over a proposed underground expansion at Rio Tinto’s (NYSE: RIO; LSE: RIO) large-scale Oyu Tolgoi copper–gold mine, which it controls through subsidiary Turquoise Hill Resources (TSE: TRQ; NYSE: TRQ). Another 11 foreign licence holders were affected when the Mongolian government invalidated 106 mineral-exploration licences.

Mongolian officials announced earlier this month that the government would submit a pair of bills to parliament to reignite the nation’s mining sector. One would repeal a law enacted in 2010 that suspended issuing new exploration licences, while a second would open up areas that were previously closed due to environmental restrictions relating to rivers and forests.

On May 7 BMO Capital Markets analyst Tony Robson noted that renewed positive investor sentiment had driven Turquoise Hill’s share price to his previous target of $4.25 per share. Robson kept his stock “outperform” rating and adjusted his target to $5.50 per share, which assumes the impasse with the Mongolian government will be resolved.

In March Turquoise Hill requested an extension to Oyu Tolgoi’s project-financing deadline through September 2014.

“BMO Research notes that there have been a number of positive comments coming out of the ongoing parliamentary discussions leading to positive sentiment driving up [Turquoise Hill’s] share price,” Robson wrote. “These discussions could potentially remedy the standoff with Turquoise Hill and Rio Tinto that is delaying development of the Oyu Tolgoi phase-two underground. Some initial positive reports appear to have moved the stock higher, suggesting that investors are now willing to buy into the idea that a resolution is possible.”

The US$6.7-billion expansion at Oyu Tolgoi would bump mill capacity to 160,000 tonnes per day by 2023, and crank out 725,000 tonnes of copper and 850,000 oz. gold annually during peak production years. The government holds a 34% stake in the project, which accounts for 20% of the country’s gross domestic product (GDP) and employs 7,080 Mongolians. If the underground expansion goes through, Oyu Tolgoi’s GDP contribution would rise to 30%.

Turquoise Hill shares have advanced 13% over the past four weeks to a $4.14-per-share close at press time. The company has 2 billion shares outstanding for an $8.3-billion market capitalization.

On the exploration side, junior Kincora Copper (TSXV: KCC; US-OTC: BZDLF) said in April that it was optimistic after what it said was a “win-win solution” from the Mongolian Ministry of Mining.

In September Kincora wrote off $7 million relating to its Tourmaline Hills and North Fox licences after the government stripped the company’s permits. According to Kincora, a resolution will be put forth to parliament that includes a mechanism to compensate for time lost due to the judicial process.

“The proposed resolution of the [licence issue] is probably the most transparent and tangible recent example of the [government] working with investors to revive private-sector activities, learn and move on from past mistakes, and acknowledge security of tenure,” president and CEO Sam Spring noted in the release. “While parliamentary approval is still required, a timely approval of the resolution, and its implementation, could support compliant former licence holders undertaking field-season activities this year.”

Kincora is advancing its 223 sq. km Bronze Fox copper–gold asset in southeastern Mongolia, located along the Oyu Tolgoi South Gobi porphyry belt. 

The company raised $5 million via a non-brokered private placement in early March wherein it issued 100 million units at 5¢ per unit. 

Kincora has traded within a 52-week window of 2¢ and 9¢, and closed at 6¢ per share at press time. The company has 297 million shares outstanding for an $18-million market capitalization.