Mongolian murmurs miff miners

Recent reports of proposed amendments to Mongolia’s minerals and mining policy have hammered the shares of many foreign explorers active in the central-Asian country.

Investor trepidation stemmed from a story in Mongolia’s English language weekly, The UB Post, titled “Mining and mineral law may multiply costs.” The article, based on draft proposals released to the newspaper, reported that the Ministry of Trade and Industry (and purportedly Prime Minister Tsahiagiin Elbegdorj) had introduced draft amendments of the Mineral Resources Law to be presented to parliament.

In actuality, no amendments have yet made their way to cabinet or parliament, though both will review and discuss proposed amendments in mid-December following input from mining industry representatives.

Most mining companies active in the country were well aware of the bulk of the proposals before the article hit the streets. However, the story did drop one unexpected bombshell: new government-ownership entitlements.

The draft proposed that the state would hold rights to own up to 30% of any “strategic” mineral deposits, including copper, gold, silver, zinc, lead, coal and uranium. There were no specifics as to whether the government would buy or simply take this interest, nor whether or not it would be participatory.

However, the state would reportedly determine its interest level on a case-by-case basis, after analyzing factors including infrastructure, reserves, geology and mineral valuation. For instance, coal deposits of at least 500 million tonnes, copper deposits of at least 1 million tonnes (2.2 billion lbs.) of contained metal and gold deposits greater than 1 million oz. were reportedly tabled as minimum “threshold levels” in the proposal.

Such levels appear tailored to apply only to a few key mineral projects in Mongolia, most notably Ivanhoe Mines’ Oyu Tolgoi copper-gold deposit and the massive Tavan Tolgoi coal deposit, currently held by a domestic consortium but eyed by a number of multinationals.

Quick to respond to the article, a united front of exploration companies have queried the Mongolian ministry seeking clarification.

Ministry officials, obviously aware of the draft proposal’s effects, moved swiftly to dispel concerns: the proposed 30% ownership option has now been “clarified” as applicable only towards strategic deposits discovered by government-funded exploration. While deposits discovered by private companies may be subject to a 15% ownership option by the state, this option would not be retroactive and would apply only to future discoveries.

It certainly sounds like more discussion and negotiation are needed between industry players as Mongolia continues to develop a sound mining and taxation policy.

If Mongolia’s Ministry of Trade and Industry wanted to get the attention of exploration companies, it’s mission accomplished. As news of the draft amendments spread through North America’s equity markets, the effect was immediately felt in the share values of Mongolia’s foreign explorers and developers. Almost across the board, shares of Ivanhoe Mines, QGX, Western Prospector Group, Entre Gold and International Uranium fell between 4% to 18% on heavy volume.

Since 1994, Canadian mining and exploration companies have played a leading, positive role in Mongolia’s resource industry, having cumulatively invested over $400 million in mines, advanced-scale projects and many grassroots exploration programs.

In addition, Western explorers active in Mongolia recruit and employ a large number of locals. From labourers to geologists and engineers, the country reaps employment benefits that will no doubt snowball as Mongolia’s mineral industry grows.

Following the collapse of the Soviet social safety net in the early 1990s, Mongolia’s best opportunity for economic prosperity is the development of its vast mineral potential. Only a sensible mining policy attractive to foreign capital will allow Mongolia to fully reap all the benefits from the riches in its ground. Rational heads should prevail.