Mongolian voters re-elect president Elbegdorj

The re-election in Mongolia in late June of incumbent President Tsakhia Elbegdorj of the Democratic Party has elicited a lot of commentary on just what the result may mean for foreign mining companies in this enormous country of mountains, lakes, deserts and grasslands that since 1990 has been transitioning into a parliamentary democracy.

Making it even more challenging is that Elbegdorj’s victory was a narrow one in which he won just 53–54% of the vote with a coalition government.

BMO Capital Markets’ mining analyst Tony Robson argued in a research note that the result is “a slight positive” for Turquoise Hill Resources (TSE: TRQ; NYSE: TRQ) and the Oyu Tolgoi copper-gold mine, because Elbegdorj was seen as the “most pro-foreign investment and most pro-OT, compared with candidates Mr. B. Bat-Erdene from the Mongolian People’s Party and Ms. N. Udval from the Mongolian People’s Revolutionary Party.”

Robson says that the outcome, “whilst largely expected,” is seen by BMO as a “positive catalyst for concluding the differences over economic benefits of the Oyu Tolgoi mine,” which along with Turquoise Hill’s share price “has been overshadowed in recent months by the potential for a change in political support for the mine post-election, and has been exacerbated by delays to OT’s first commercial concentrate shipments.”

The London-based analyst also speculated that it is “reasonable to assume that commercial shipments commence soon, with either the government giving ground on its stance that foreign currency generated is to be kept in Mongolia, or
for Rio Tinto and Turquoise Hill
to accept and keep the money in the country.”

Either way, he continues, once commercial shipments start, he expects the “US$4 billion of project finance debt to be finalized shortly thereafter.”

Meanwhile at Salman Partners in Toronto, mining analysts Raymond Goldie and Mike Plaster have a different take, arguing that the status quo is “disquieting” and that Elbegdorj “heads a coalition government keen to regulate foreign investments . . . and [that also] aims to rework a landmark 2009 investment pact to develop the massive Oyu Tolgoi copper-gold mine.” They also point out that launching Oyu Tolgoi has been delayed twice this month.

The truth probably lies somewhere in between. Julian Dierkes of the University of British Colombia’s Institute of Asian Research writes in an email response to questions that the main consequence of Elbegdorj’s re-election is stability.

“Elbegdorj has long experience in government and his focus on foreign relations has given him a much more nuanced understanding of the relationship that the government wants to be building with Rio Tinto,” he reasons. “That’s not to say Elbegdorj is particularly pro-foreign investment, but simply that his experience will lend some stability.”

On the flip side, however, Dierkes points out that “it’s not clear how long cabinet and the current Prime Minister Altankhuyag will remain in place, and that will add some uncertainty.”

He says the Democratic Party “now at least has the ability to champion legislation such as a new foreign investment law, though details remain vague and the likelihood of a new investment law being passed will depend on details of the draft and relations within the governing coalition.”

Brian Thornton — who for the last 25 years has acted as an advisor to the mining sector in Australia, Indonesia, Papua New Guinea and the Asia Pacific Rim, and is a keen observer of Mongolian politics and an investor in the country — concedes that it’s hard to know what lies ahead. But he believes that the government is pragmatic and understands that without foreign investment and an acceptable solution to the Oyu Tolgoi imbroglio, the party is over and their future less assured. “These two factors are inextricably linked, as all of the other investments in the country are at the margin in terms of impact and wealth generation,” he says.

Oyu Tolgoi is the “sentiment barometer” for all other foreign investment in the country, he adds, and a reworking of its investment agreement would be a big negative at a time of continuing global uncertainty and investor fragility.

And to become the next north Asia tiger, he says, “which is within their grasp,” they need discipline, which in his view they lack, and a visionary leader who is “not afraid to take on local vested interests and the powerful elites who seek political patronage to ensure their commercial success.”

He says that “whether Elbegdorj has the stomach for this is not clear given his slim margin, and that his party still requires minority support to remain in government. By contrast, his opponent Bat-Erdene is a tougher, more disciplined politician, who I think could have taken on the elites and brought a more disciplined approach to government, albeit with a nationalist tinge.”