BCM Mongolia: Minister hints at Rio Tinto’s withdrawal

Fri, 2009-07-24 05:20

000-bcm-headlines Minister of Mineral Resources and Energy D.Zorigt feels the entire situation has been made uncertain by Parliament’s refusal to approve amendments to the general tax and other related laws to facilitate reaching an agreement on Oyu Tolgoi and its insistence that any agreement has to be within the framework of existing laws. Negotiations have to be started afresh, and it is difficult to say how long they would continue and “whether the parties at the table would remain the same”. Rio Tinto has repeatedly expressed its unhappiness at the continued protraction of the negotiations and, “therefore, when negotiations resume, we may expect some other investor talking to us”.

Impractical demands will be counterproductive
Foreign investors prefer a stable regulatory framework to just a low tax regime. They are watching carefully every step in the progress to an agreement. Mongolia would never get an agreement if it puts too tough conditions and impractical proposals before the investors. If mining giant Rio Tinto leaves Mongolia, it would be difficult to find a reliable partner to develop our resources. There is thus no other way but to accept some of the investors’ proposals.

Parliament passed the buck, says dissenting mp
Mr. Kh.Temuujin, a Democratic Party MP, was among the 13 in Parliament on July 16 who voted against the resolution authorizing the Government to negotiate with the investors on the Oyu Tolgoi agreement. He says he did this as he did not think it proper of Parliament to direct the Government to do something, at the same time retaining impossible conditions in the agreement. Asking the Government to achieve something while making sure that it had little room to maneuver was unfair.
Signing an agreement without delay is one of the guaranteed ways to lay hands on the money to implement the action plan for economic recovery. The conditions which Parliament has imposed will hamstring the process of negotiation, may even make it impossible to reach an agreement. There will then be a case for the Government to resign because of its failure to fulfill Parliament’s direction. He said MPs “understood two weeks ago they could not deal with the issue and so passed the buck to the Government”.

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Archived Comments

Investor

2009-07-24 09:17:30

I have just watched President Obama stating he is setting deadlines to get things done, since politicians in Washington are scared to make a decision, so they do nothing but keep talking. The same can most certainly be said of the Mongolian parliament who have taken almost six years to NOT negotiate a stability agreement then have passed the togrok to avoid making any decision. How does a sensible government expect any business to want to be in Mongolia, when since 2005 they have turned 180 degrees from encouraging companies with incentives to one year later putting in place a windfall profits tax, then every year since have changed mineral laws or taxes at a whim, and on top of that have recently suspended companies' mining licences. Not what any sane investor wants to see. As I have stated before does PM Bayar actually believe he can entice $25 billion from foreign investors with such an unstable tax and title regime. I repeat again what Dr. Juan Jose Daboub, the World Bank�s managing director for operations in 74 countries, recently stated about Mongolia, �With the global economy in recession and credit flows still tight, small countries like Mongolia MORE THAN EVER need to ensure that they maintain transparent, efficient and COMPETITIVE business environments to attract PRIVATE INVESTMENT". Apparently Mongolian politicians just simply do not recognise or understand this simple truth.

batbaatar

2009-07-25 06:27:26

I support the decision of our parliament. Rio Tinto is engaged in a robbery of natural resources of the poor countries. We should not give any tax privileges. Why Erdenet pays all taxes and Rio Tinto will not pay very important 4 taxes?

tjspowpow

2009-07-25 16:14:14

Ha, What a joke. There's more to an investment agreement than how much tax you are going to pay. How about the fact that the Mongolian government gets XX% of the deal, and hence revenue but puts up 0% of the capital investment. Because it has no money. Pay the salaries, social insurance of 1000's of workers is not important? Pays import taxes on hundreds of millions of dollars worth of machinary imports is insignificant?. No that's not important. Rio Tinto back out ! Let the Russians take it, you know what happened when you tried to put prices up on the Russians, they put your petrol prices up, so just give it to the Chinese, oh when you let the Dalai Lama in they closed the railway crossing and hence 70% of your imports for four days. Or maybe you could drag out negotiations for 6 years and hope something better will come along. ooops tried that one. Wake up. This deal WILL NOT HAPPPEN, this is not a consensus building society, neither is it a dictatorship like Russia or China that gets things done. It's a bunch of people who are all scared that someone other than them will make some money and hence they'll never agree to anything.

Justice

2009-07-26 00:19:27

Oh my freaking god! Get it done already. I will never live to see the day when Oyu Tolgoi actually ouputs minerals....

ericahls

2009-07-26 11:55:00

Apparently 5 years of negotiations is nothing compared to what Canada is capable of doing. " the never-ending debate over Oyu Tolgoi does not surpass �ber mining promoter Robert Friedland�s all time record of governmental delays and fits and starts in finally securing project approval. It reportedly took a decade to get the Voisey's Bay nickel mine approved by a maze of local, provincial, national and First Nations Government in that First World, pro-mining nation of Canada." http://www.mineweb.net/mineweb/view/mineweb/en/page72068?oid=86370&sn=Detail

tjspowpow

2009-07-26 14:40:52

Eric, Your missing the point. Mongolians do not really want this deal. They are flirting, nothing more, they do not want foreigners here digging up thier stuff. It has been elevated above and beyond a "simple deal" to be negotiated and is something of national importance/ national security/ national pride for Mongolia. When you get into those realms then any country in the world starts to get a bit irrational. e.g. 1. Australian government blocked a US$1.8 billion deal involving the proposed takeover by China Minmetals Group of Oz Minerals Ltd e.g. 2. Canadian government blocked the proposed acquisition in 2008 of a Canadian company by a U.S. investor because of concerns about the impact it would have on Canada�s ability to assert sovereignty over territories in the Arctic. This kind of deal blocking goes on all the time all over the place. Even if this deal gets signed, it will not produce anything as it's not worth the paper it's written on. They will back out, try to grab it back the first time the price of copper/ gold goes high, the President will veto it. I wouldn't bank on this deal to bring Mongolia back from the recession.

segi

2009-07-26 15:52:07

Well actually waiting or delaying the negotiation is not as bad as we think. Natural resource is a depletable source which means mining is like emptying your pocket. World economy will not be in recession for long. Mongolia is a wide country we can live abundantly with our surface capabilities without mining underearth. Mongolia needs to develop by it's people's pure labour instead of scratch of it's own mineral resources thrown by foreigners. Foreign investment is very necessary I agree. But cornering a poor country by saying there is no other choice while they have so much profits is not fair.

IVNtrader

2009-07-26 16:44:34

I would trade Ivanhoe (IVN) stock shares for Mongolians who couldn't trade IVN and want to. Not sure about all the legal implications. Easy to implement though.

guest

2009-07-26 19:49:55

Who is Daboub?

guest

2009-07-26 19:50:35

Who is Dr. Daboub?

guest

2009-07-26 20:01:45

this time the depression will leave deep impressions. it will leave the market speculators out and with no further perspectives. when markets will not be effective, then who will need a financial analyst, for example? it is a challenge for civilization, western civilization with its urban lifestyle. i can bet the markets are heading for slow and gradual dive, so slow and so gradual that nobody is going to notice it. but it will. insatiable desire to get rich and now is after the bursts. Mongols have been living in this part of the world and they continue with no problem, they're one of the most resourceful people on our planet. but it is the westerners, that are used to cheap resources that will have to coup with the coming effects they created. shto poseyal, to i pojinai.

Billy

2009-07-26 23:11:27

If it is so good, why do so many countries keep giving Mongolia hand-outs? Why do you keep borrowing ? Why don't you extract your minerals on your own? Why do you rely on foreign doctors, engineers, developers and experts?

tjspowpow

2009-07-27 13:04:14

I think we are getting off track with the debate on how great Mongolia is. Especially when people start making claims with no facts. Is Mongolia a resourceful country. Yes it is. It received in 2008 over 211 million dollars in aid from foreign nations. That's pretty resourceful. With a population of just 3 million that means everyone's income for 2008 was over 70 million dollars each. But they obviously are not. Why? Because some "resourceful Mongolian people" have stollen most of it. Will people on this site please stop making sweaping statements with no facts. Other make yourself look stpid comments 1. Capitalism is going down the pan. We'll it's got a pretty good track record, of at least 500 years. It goes through cycles, which if your country is 10 years old you will probably not have seen before. 2. "we can live abundantly with our surface capabilities without mining underearth" Ergh no you can't. Even when you are digging stuff out the ground, you borrow more money than you earn. That means your government is broowing more money from foreigners than it can make for itself by digging stuff up. Hence if you stop digging it up you will go bankrupt. It's not rocket science guys.

Attila

2009-07-27 19:01:17

About making claims with no facts: 1. Check again your math: 211 million / 3 million = 70 (not 70 million) 2. "resourceful Mongolian people" have stolen most of it -- quite possible, that's happening all over the world (including US and Europe) 3. Discussion about capitalism is tough one, hope you will travel the world (I am not counting in 2 week vacations only), and be able to compare. There are both good and bad sides. 4. "If you stop digging it up you will go bankrupt" -- If they let everyone digging and earning huge $ without profit sharing (with Mongolian people), they will remain being poor. Addition, about the article: 5. "If mining giant Rio Tinto leaves Mongolia, it would be difficult to find a reliable partner to develop our resources." -- Try China. They have all that's needed for the deal. And they already started negotiating with IVN to get a share. They would love if IVN leaves negotiations, they would sure take over all.

Chris Sumpter

2009-07-28 03:16:34

"the World Bank�s managing director for operations in 74 countries"

Chris Sumpter

2009-07-28 03:19:03

" It received in 2008 over 211 million dollars in aid from foreign nations. That's pretty resourceful. With a population of just 3 million that means everyone's income for 2008 was over 70 million dollars each." You need to check your math. That would be $70 each, not $70 million.

shagai

2009-07-28 09:24:36

Poor tjspowpow, can not even make simple arithmetic!! Funny guy...

tjspowpow

2009-07-28 15:04:32

ergh, it's called a typo. Writting something that should not be there. Calculation is correct. Just have to minus the "million" typo that was written after 70. Glad that after everything I have written there are no comments about the content, but only about the typo error. Argh he made a mistake. Big deal. If you replied regarding the typo you are incapable of thinking further than the most obvious in your face comments. Dig up some facts yourself, do some research, think rather than sitting around like some loser waiting for others "to fail" Also the only facts that appeared in the other comments were "mine" a re-hash of my numbers and my calculation. No new data. Well where is the data? If you have no data and make a comment, then if I provide data to show your comment is wrong you look stupid. e.g. Somebody, says that apparently corruption happens the same in the US and Europe as it does in Mongolia. According to transparency intl corruption index Mongolia is 99th, UK is 12th and US is 20th. DOES NOT SOUND LIKE THE SAME THING TO ME. I need to travel apparently. Broaden my horizons. Not two weeks vacation though. If it was me I'd ask someone's background before making a comment like that. Why? Because I have lived for 20 years in Asia. 20 years in Europe. I have lived/ run businesses in Japan, Hong Kong, China, Mongolia, UK, Monaco, Spain, Seychelles and a few others. Telling someone like that you need to travel only makes you look uneducated China is a reliable partner to dig up all your minerals. Well Australia, the UK, canada & the US have all blocked deals involving Chinese companies because they are not reliable, not open, they are state run and used as a tool to fullfil the political aims of China's leaders. Meaning if the Dalai Lama came to Mongolia whilst the Chinese's were digging up your minerals everything would close down for four days like the railways crossing to China last time he came. I really don't care who digs up the minerals here. But I know your leaders are not stupid enough to want China or Russia to want to dig them up because they know what will happen ever if you readers do not.

Marka

2009-07-29 02:07:40

One important point that many commentators have missed entirely is that the construction and operation of the underground is very technically challenging. This can only be economical as a cave block operation. The extraction levels are below 1.5 km and there are large, directional horizontal stresses in the ore zone. The only operators currently capable of the technology required (because they are doing it in other parts of the world) are from the Western world. Russians do not have operations in this type of environment, and Chinese technology is not even close to the challenge. All that would therefore be accessible is a small, low grade open pit zone if Western technology and resource are not involved.

passer by

2009-07-29 16:39:55

marka, any links that you could add which give some greater detail of this technology and it's implementation? interesting...

no expert

2009-07-30 04:29:16

it's very simple. as marka points out the main ore reserve is quite deep and due to the stresses to be found at those depths a mining method called block caving is needed. (google block caving...) this mining method demands the BEST equipment, the BEST engineers and the BEST miners in the world. it needs a lot of development work and only when using the best of the best will it be possible to extract any ore. the way the mongolian public are being told, that mongolia can do this all by themselves, or the russians or perhaps even the chinese can do this is absolutely ridiculous. but its understandable that the public believes what they are being told, as the are no mining engineers or experts. (by the way, nor are any of the MPS!) as marka also correctly points out, not many mining houses in the world use this method. Rio Tinto on the other hand is on the forefront of using this extraction method. if OT were only an open pit mine, no one would be interested. not even mongolia itself!

no expert

2009-07-30 04:44:59

tried to add some links but this page wouldnt allow me. so just google block caving method or block cave.

Investor

2009-07-30 12:06:19

For block caving try - underground bulk mining methods And 'No Expert' and Marka are both quite right. At 500 million tonnes and 6% copper it is likely the OT open pit would NOT be mined by it self. It is the higher grade and larger underground portion of the deposit, which for the most part is over 1,600 metres deep. which makes the open pit economically feasible. The mining method and production shafts at OT will require expertise, not in China nor Russia, to produce over 140,000 tonnes of ore per day. Rio Tinto has a large bulk mining underground operation in Arizona. Palbora currently has the highest producing shafts in the world at over 30,000 tonnes per day. Guess who owns Palbora? I understand the production shafts planned for OT will be even greater capacity........not an easy thing. Who would I want as my partner to make sure it gets done? Not from any group immediately north or south of Mongolia that is certain.

Expert

2009-07-31 08:27:28

Uh Oh another typo.......Shagai did not pick up on. For the open pit OT grade it should read 0.6% copper. Just to elucidate in a new area remote from infrastructure most companies would be looking for a stand-alone grade open pit grade of about 0.8% to 1% copper and a bare minimum of 500 million tonnes, but would be a certainty with 1 billion tonnes of +/- 1 % copper. So, the OT open pit by itself just would not make it.

Bayarma

2009-08-28 01:13:29

Hey Batbaatar! Rio was never involved in a robbery of poor nations. This is exact feeling of people who are not educated, just live listening to rumors, believing in rumors, etc. So uneducated people usually are scared and have constant suspicion of somebody will cheat or steal from them. Wake up!! No one will cheat if you are smart, educated, balanced, capable of evaluating things. It is not cheating at all. Why bad projects happen because one of the sides enters to a business contract without knoweledge, experience, etc. The person is being irresponsible. We blaim that person not the other side. Other side was benefitted because the mongolian side allows due to their lack of knowledge, greedyness, etc. Batbaatar! Before blaming somebody, first, blame yourself, ourselves. Why we allow anything that turned out to be bad for us. Because we allowed, it is our mistake, fault! Let's be more educated and evaluate the cases not by rumours and scare, but by real calculation and assessment of the situation in a most professional way! Cheers!

BCM Mongolia: Minister hints at Rio Tinto’s withdrawal

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