Mongolia suspends Western Prospector’s Gurvanbulag licence

Navigating Mongolia’s political minefield often requires pulling out the heavy artillery.

Which is probably one of the main reasons why the board of Western Prospector Group (WNP-V) threw its weight so strongly behind a takeover bid by China’s CNNC International in March.

The Hong Kong-listed company has links to China National Nuclear Corp. – China’s former Ministry of Nuclear Industry – and the country’s largest nuclear power plant builder with more than 100 subsidiaries and institutes. CNNC Overseas Uranium Holding, a wholly owned unit of China National Nuclear Corp. (CNNC), holds 74% of CNNC International.

CNNC International’s robust financial positionbut perhaps more importantly its strong political ties with Mongolia were to make it an ideal strategic partner for the uranium junior.

Having Chinese backing is important given that China is Mongolia’s biggest foreign aid donor. Beijing has also been its largest investor and trade partner for years and so wields considerable economic and political clout in the country.

But executives close to the mercurial world of Mongolian politics are beginning to wonder whether even that logic is sound.

Just three weeks after CNNC International’s takeover bid for Western Prospector was announced, Mongolia’s Mineral Resources Authority said it was suspending Western’s exploration licenses 7685X and 4969X, which are the primary licenses for Western’s Gurvanbulag deposit. Gurvanbulag is Western Prospector’s flagship uranium project in eastern Mongolia.

The licences were suspended on April 14 for three months due to violations cited by inspectors from Mongolia’s Atomic Energy Agency.

Western has not yet received the English translation of the inspector’s report, but says if it cannot satisfy inspectors that the violations have been corrected, its licenses 7685X and 4969X could be revoked.

Eric Bohren, Western Prospector’s president and chief executive, declined to comment on the suspension.

What is interesting is that the suspension of the licences on April 14 coincided with the first day of a five-day visit to China by Mongolian Prime Minister Sanj Bayar. The trip is Bayar’s first visit to China and marks the 60th anniversary of diplomatic relations between the two countries.

According to Xinhua, China’s national news agency, Bayar said he intended to exchange views with Chinese leaders on a wide range of issues including economic, political and cultural cooperation and China’s investment projects in Mongolia.

He also told Xinhua that the two countries had agreed that infrastructure construction and mineral resources exploitation would be the major areas of economic cooperation.

In terms of specific projects, Xinhua said that Bayarindicated thatMongolia and China could carry out coal-to-oil conversion projects in Mongolia, build electricity joint-ventures, update Mongolia’s railway system and utilize the free trade port in the Binhai new area of Tianjin in northern China.

The news of the suspended licences sent Western Prospector’s shares down 16, or 29.6%, to 38 per share in afternoon trading in Toronto.

The company has traded within a 52-week range of 10-$1.34 per share, and has 54.3 million shares outstanding.