Mining Journal > Production and Markets > Mongolia seeks new mining law

Production and Markets

Mongolian President-elect Tsakhiagiin Elbegdorj wants to change a proposed gold and copper mining deal with Rio Tinto and Ivanhoe Mines Ltd that would allow the government to buy an equity stake in the project.
     

“I am not in favour of that,” Mr Elbegdorj said in an interview with Bloomberg News in the capital Ulan Bator, suggesting instead that the government take 50% of the profit. Mr Elbegdorj defeated incumbent Nambaryn Enkhbayar in the May 24 presidential election, and will be sworn in on Thursday.
    
Mongolia has struggled to create a framework for foreign investment in its gold, copper and coal deposits, leaving projects in limbo. Copper’s 40% slump in the past year has hurt state finances, increasing the urgency of opening more mines as economic growth slows.
    

Ivanhoe has been trying for more than five years to complete an investment agreement with Mongolia to develop the Oyu Tolgoi copper and gold deposit, about 80km (50 miles) north of the border with China. London-based Rio Tinto , the world’s third largest mining company, agreed to buy 10% of Ivanhoe in October 2007, calling the deposit “the world’s largest undeveloped copper-gold resource”.
    
“I think now we are approaching the final moments to get a good agreement,” Mr Elbegdorj said. “I would like to say to the foreign investors, do not close the door, there are still opportunities.”
    
                    
Mr Elbegdorj called reaching an agreement his “first priority” on the economic front, though he gave no more specific time frame for a deal than the next three years.
    
“This agreement is the first agreement,” he said. “If we make a good agreement, this will be an example for exploiting other big deposits and there is no space to make mistakes.”
    
Vancouver-based Ivanhoe in March 2008 estimated the copper resources in the project at 78.9Mlb and the gold resources at 45.2Moz.
    
Investors are also awaiting news on a government decision on who will win rights to develop Tavan Tolgoi, a metallurgical coal deposit.
    
While on the one hand a corporate tax instead of a government stake may be good news for investors, the possibility that a final deal could take years more to reach is “not so good”, according to Masa Igata, chief executive of Frontier Securities in Ulan Bator.

                        
“No miner wants to wait three years,” he said. “If I were management of Ivanhoe or Rio Tinto, I might want to sell the stake to someone else.”
    

Mongolia’s budget deficit expanded to about 5% of gross domestic product in 2008, compared with three years of surplus before that, and a group of international donors including the World Bank, the Asian Development Bank, Japan and Russia are providing “multimillion” US-dollar loans for a financial rescue package, according to an April report from the Singapore-based investment bank Eurasia Capital.