Abstract
Mongolia’s mining industry has great potential. Its mineral resources
are largely unexplored and
unexploited. That said, the exploration that
has been carried out to date has found sizable reserves of
coal, copper,
fluorspar and gold. Full scale extraction of these resources has occurred at a
number of
mines. In total, about 80 types of minerals have been discovered
in Mongolia. However, the biggest
drawback to foreign investment remains
regulatory issues. In May 2009, the Mongolian government
was forced to
defend itself in the Frankfurt Court of International Arbitration, after it
was sued for
US$1bn by Russian mining company Altan Dornod Mongol. As
reported by Mongol News, the
company accuses the Mongolian authorities of
taking excessive taxation from Russian investments,
claiming that the 68%
windfall tax is against international law as Mongolia and Russia have signed
a
bilateral agreement to avoid double taxation for companies operating
between the territories. The
Mongolian Taxation Authority claims that
Altan Dornod Mongol owes MNT56bn (US$39.6mn) and
has subsequently shutdown
the company’s bank accounts and is threatening to confiscate its
mining
licenses.
Meanwhile, BMI remains concerned about ongoing delays
to the finalization of what will be a
landmark agreement over drilling
rights at the Oyu Tolgoi gold and copper mine, although we expect
the deal
to be finalised in H109, with a resultant surge in FDI inflows through the
remainder of 2009
and 2010. Indeed, the importance which Oyu Tolgoi, and
the underlying legal contract between the
government and Anglo-Australian
Rio Tinto and Canada’s Ivanhoe will play for Mongolia’s growth
dynamics cannot be downplayed. As the biggest foreign investment project in
Mongolia’s history, we
expect the benchmark mining agreement to not
only increase investment inflows in the short term, but
also serve as the
framework upon which future projects will be based.
Yet, in late April the
Democratic Party, which is a partner in Mongolia’s coalition
government,
announced its reservations about the draft investment
agreement governing the project. Though most
legislators in Ulan Bator
remain keen on finalising the landmark mining deal, ongoing disagreements
within parliament continue to obstruct conclusion of the agreement.
Key
participants in the mining sector include: Centerra Gold, Erdene Gold, Ivanhoe
Mines, QGX,
Solomon Resources, and South Gobi Energy Resources (a
subsidiary of Ivanhoe Mines). Key export
markets include China, Canada,
Japan, South Korea and the US.
| 
View Cart
