Ivanhoe Mines

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Mongolian Government Ready for Mining Deals

Written by Ch.Sumiyabazar

Thursday, December 11, 2008.

After several years of negotiations over Mongolia’s lucrative mining deposits, Parliament has now the power to make multi-billion dollar deals with international mining investors. Last Thursday, a total of 42 of 50 members of Parliament, representing both political parties in Mongolia’s coalition government, voted to adopt a “main guidance” resolution that authorized the Government to negotiate a draft Investment Agreement for Oyu Tolgoi and Tavan Tolgoi deposits.
This draft must be presented to Parliament before February 1, 2009, the deadline for completion of the agreement. However, Mongolia has for now deferred consideration of revisions to its minerals law, which the governing political party MPRP had sought to revise to give the state a majority stake in strategically important mineral deposits.

On December 5, President N. Enkhbayar called an urgent assembly of Parliament and assigned Finance Minister S.Bayartsogt, Minerals and Energy Minister D.Zorigt, and Nature Environment and Tourism Minister L.Gansukh to sit down with investors of Oyu Tolgoi and discuss the resolution. The government officials were also ordered to submit the draft investment agreement for the cabinet discussion before January 20, 2009.

John Macken, Chief Executive of Ivanhoe Mines, license holder of Oyu Tolgoi deposit, “welcomed” the Oyu Tolgoi Investment Agreement, which will be based on provisions of Mongolia’s existing 2006 Minerals Law.

Parliament also authorized beginning negotiations for the huge Tavan Tolgoi coal project. The majority of rights to that project have already been acquired by the state-owned Erdenes MGL Corporation. The resolution also proposed that the government may seek assistance from internationally recognized consulting firms and experts in concluding both agreements. Already mining industry experts say that certain aspects of the resolution contradict each other. For instance, the resolution states that Parliament must “develop the Agreement in conformity with laws of Mongolia currently in effect”, roughly translated to mean the Government has the rights to own up to 34 percent of the Oyu Tolgoi project under the current existing law. But the document later instructs the Government to study the possibility of increasing its stake to 50 percent after the initial investment is recouped.

But international investors are concerned with the Government’s participation in Oyu Tolgoi and Tavan Tolgoi as well. Ivanhoe Mines has continued to resist the Government’s efforts to own a minimum of 50 percent of the project, which has an estimated worth of up to US$3 billion and is expected to produce an average of 440,000 tonnes of copper and 320,000 ounces of gold a year over a 35 year lifespan.

Lawmakers may consider revising the 2006 Windfall Profits Tax Law on copper and gold in order to attract more investors, as the increasing threshold of the windfall tax is currently in discussion.

Negotiators may consider designing a production-sharing contract to develop Oyu Tolgoi. Any agreement reached is also likely to address the infrastructure needs of the deposit, which lies in the Omnogobi aimag.