Mongolia President-Elect Wants to Change Rio Accord
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Mongolian President-elect Tsakhiagiin Elbegdorj wants to change a proposed gold and copper mining deal with Rio Tinto Group and Ivanhoe Mines Ltd. that would allow the government to buy an equity stake in the project.
“I think an equity share is not a good proposal,” Elbegdorj said yesterday in an interview with Bloomberg News in the capital Ulan Bator, suggesting instead that the government take 50 percent of the profit. Elbegdorj defeated incumbent Nambaryn Enkhbayar in the May 24 presidential election, and will be sworn in today.
Mongolia has struggled to create a framework for foreign investment in its gold, copper and coal deposits, leaving projects in limbo. Copper’s 39 percent slump in the past year has hurt state finances, increasing the urgency of opening more mines as economic growth slows.
Ivanhoe has been trying for more than five years to complete an investment agreement with Mongolia to develop the Oyu Tolgoi copper and gold deposit, about 80 kilometers (50 miles) north of the border with China. London-based Rio, the world’s third largest mining company, agreed to buy 10 percent of Ivanhoe in October 2007, calling the deposit “the world’s largest undeveloped copper-gold resource.”
‘The Final Moments’
“I think now we are approaching the final moments to get a good agreement,” Elbegdorj said. “I would like to say to the foreign investors, do not close the door, there are still opportunities.”
Ivanhoe fell 60 cents, or 8.7 percent, to C$6.28 at 4:15 p.m. in June 17 trading on the Toronto Stock Exchange, the biggest daily decline since May 25. Rio closed 7.8 percent lower at 2,154 pence on the London Stock Exchange. Its Sydney traded shares were 6.7 percent lower at 10:24 a.m. on the Australian stock exchange.
Nick Cobban, a London-based Rio spokesman, said yesterday he couldn’t immediately comment. Bob Williamson, a Vancouver based media contact for Ivanhoe, declined to comment.
Elbegdorj called reaching an agreement his “first priority” on the economic front, though he gave no more specific time frame for a deal than the next three years.
“This agreement is the first agreement,” he said. “If we make a good agreement, this will be an example for exploiting other big deposits and there is no space to make mistakes.”
Vancouver-based Ivanhoe in March 2008 estimated the copper resources in the project at 78.9 billion pounds and the gold resources at 45.2 million ounces.
Investors are also waiting for news on a government decision on who will win rights to develop Tavan Tolgoi, a metallurgical coal deposit.
Waiting Period
While a profit-sharing arrangement, rather than a government stake, may be good news for investors, the possibility that a final deal could take years more to reach is “not so good,” according to Masa Igata, chief executive officer of Frontier Securities in Ulan Bator.
“No miner wants to wait three years,” he said yesterday. “If I were management of Ivanhoe or Rio Tinto, I might want to sell the stake to someone else.”
Mongolia’s budget deficit expanded to about 5 percent of gross domestic product in 2008 compared with three years of surplus before that, and a group of international donors including the World Bank, the Asian Development Bank, Japan and Russia are providing “multimillion” U.S.-dollar loans for a financial rescue package, according to an April report from the Singapore-based investment bank Eurasia Capital.
The nation’s economic output may rise 3 percent this year, down from 8.9 percent last year and 10.2 percent in 2007, according to a March estimate from the Asian Development Bank. The country has a population of 2.6 million people.
Proposed Tax Change
The president-elect also proposed that the government consider changing a 2006 windfall profit tax that imposes a rate of 68 percent on revenue when copper prices exceed a certain amount per ton. Instead he suggested a graduated system, for example a rate of 40 percent when copper prices reach $8,000 per ton and 60 percent when they reach $10,000 per ton.
“I think one big high rate is not very wise,” he said.
The new president will have to “balance” the foreign- investment interests of China, Russia, Europe and the U.S. with the public interest of Mongolian citizens, said Ganzorig Ulziibayar, president of ACI Mongolia Financial Markets Association, an industry body aimed at promoting the country’s financial markets.
China and Russia, Mongolia’s two biggest trading partners, sandwich the land-locked nation and control its ability to export metals and energy deposits to the international market.
To contact the reporter on this story: Dune Lawrence in Beijing at dlawrence6@bloomberg.net.
Last Updated: June 17, 2009 21:22 EDT
