BCM Mongolia Newswire: Don't Go!! Miners Might Desert, Parliament Urges Haste. Tugrug falls, deficit

Friday, 05 December 2008 08:18 Last Updated on Saturday, 06 December 2008 03:10

BCM Mongolia Newswire Highlights: Both Minerals Agreements by Feb 1; Risks High of Miners Deserting; Tugrug Falls Against USD; Budget Deficit 6% of GDP

Friday, December 5, 2008

NEWS HIGHLIGHTS:

Business: Parliament asks Government to prepare both mining agreements by February 1; Risk of miners deserting Mongolia “high”, says World Bank specialist; “We must be fast and flexible,” says President in Hong Kong; Draft caps foreign share in strategic deposits at 49%; Oyu Tolgoi workforce slashed 40%; Erdenet to follow Ivanhoe in retrenching staff; Khan Bank denies lay-off plans; MP wants pragmatism, not populism; Choosing the best for Tavan Tolgoi; MEC to supply Xinjiang 3 million tons of coking coal a year; Denison Mines to spend more on uranium site; Executive search firm opens office in Ulaanbaatar; Strike at Aero Mongolia continues; MIAT will fly to London from July.

Economy: Budget with deficit of 6 percent of GDP approved; Run of USD jacks up prices, for no clear reason; Mongolia seeks investors in Hong Kong; Call to boost Turkey-Mongolia trade to USD50 million; New idea on Development Fund money for banks; Copper price shows sudden rise; EBRD says Mongolia will grow no more than 3.4% in 2009; Chinese coal import crosses 3 million tons; World Bank feels China’s imports from Mongolia will not fall; Petrol prices may fall again; Spring meat stock being prepared; Workshop on finer points of foreign trade.

Politics: MPRP wins 36 seats in City assembly, DP 9; M. Enkhbold meets leaders in Doha on cooperation; State asked to reduce number of employees; Environment Ministry chooses NGO partners; Projects asked to meet deadline; President’s Office gets a chief after one year; Polish President abandons plane frozen in Ulaanbaatar.

PARLIAMENT ASKS GOVERNMENT TO PREPARE BOTH MINING AGREEMENTS BY FEBRUARY 1

Parliament approved on Thursday the draft resolution prepared by the MPs’ working group on the Oyu Tolgoi and Tavan Tolgoi deposits and instructed the Government to finalize the draft of the two separate agreements before February 1. Earlier, when the draft was discussed on Wednesday by the Standing Committee on the Economy, many MPs had asked for quick Parliamentary approval as delay in finalizing the agreements was losing Mongolia money.
Parliament thus agreed with the working group that amendments to the 2006 Mining Law could wait, but investment agreements on both Oyu Tolgoi and Tavan Tolgoi can and should be pursued. The Government wants 34% ownership in the former, gradually raising it to 51%, and in the case of the latter, it will have 51% from the beginning.
In Parliament the only dissenting voice was that of Ts.Davaasuren (MPRP) who said, “I have heard that Ivanhoe Mines has raised CAD3.7 billion for these two projects. We are sacrificing our unique wealth because of a financial crisis and because we have no money. Our music will now be played by an orchestra of foreigners.” The man who led the working group, Kh.Badamsuren, told him, “We have heard many stories about how Ivanhoe Mines raised huge sums of money. Our leaders made 286 foreign visits and looked for investors. At the same time the Mongolian state wants to have a share of the mining income. If the state policy and the legal environment are not stable, foreign investors will be confused. So we have to decide once for all. There is no time to lose.”

Source: en.News.mn

RISK OF MINERS DESERTING MONGOLIA “HIGH“, SAYS WORLD BANK SPECIALIST

World Bank mining specialist in Ulaanbaatar, Graeme Hancock, feels the risk of mining companies dumping promising investment projects in Mongolia is "high" as there has been little progress on a workable mining law or tax system. Such risks are particularly high in the copper, gold and uranium sectors, Mr. Hancock said in an interview in Sydney on Monday. "There's no legal framework for uranium mining, and the sector is treading water. The same goes for copper and gold," he said on the sidelines of the Papua New Guinea Mining and Petroleum Investment Conference.
"The Government is aware the windfall tax is an impediment for Oyu Tolgoi. It is looking at an alternative tax arrangement, even though this hasn't been discussed at parliamentary level yet," said Mr. Hancock. "Fundamentally the tax system is quite good, except for the windfall." The decision to implement the windfall tax is rooted in public discontent over a tax holiday granted to Centerra Gold's Borroo gold mine, the first significant foreign investment in Mongolia since the late 1970s, said Mr. Hancock.
"The next twelve months will be a determining time, and I expect the Government to take a look at the exploration sector," he said, and added, "The number of companies saying they are leaving has been low so far. But the economic downturn is hitting them hard."
Governments of resource-rich countries retaining strategic stakes in mines is nothing new, but the size of the state stake and the uncertainty if companies have to relinquish control are of deep concerning to potential investors. On the other hand, the Mongolian Government is worried about foreigners dominating its resources sector. "Mongolia is sandwiched between Russia and China and the Government is worried that its mining sector will end up dominated by China, as has happened with Russia in the petroleum sector," said Mr. Hancock.

Source: www.metalprices.com, DOW JONES NEWSWIRES

BUDGET WITH DEFICIT OF 6 PERCENT OF GDP APPROVED

The 2009 budget adopted by Parliament last week results in a deficit of 6 percent of the national GDP.

Time constraints forced the third and fourth readings to be combined. At the end of the Parliament sitting, Speaker D. Demberel spoke to journalists about the budget and the discussions. He said things had been made difficult this year by the world financial crisis. Parliament “could not expand the scope and areas of state spending very much even though this was essential to economic growth, but instead had to chop and prune much of the projected investment”. Finally, it was decided that next year’s investments will be MNT50 billion more than this year’s.
Some members were worried about the deficit but understood that “in the current world situation it is not possible to have a surplus or even balanced budget”. There was hope that the deficit could be met by foreign loans or investments. There were also suggestions for a cut in social welfare allowances like the children’s money to save MNT60 billion but finally MPs decided to keep them as they are. However there was a general demand for a further 10.2 percent cut in state expenditures.

Budget accounts have been calculated on the basis of estimates that the price of copper will be USD3,400 per ton, and that of zinc USD1,100 per ton. These together mean corporate income taxes would fall by MNT312.6 billion, and fees for minerals exploration by 27.1 billion MNT. Budget revenues from customs duties will fall by MNT8 billion, from VAT by MNT25 billion, and from excise taxes by MNT3 billion. The Mongolian Development Fund is expected to get MNT45.2 billion. All these figures are based on expectations that work will begin in Oyu Tolgoi, Tavan Tolgoi and Shivee Ovoo during the year.

Source: Ardiin Erkh, Montsame

RUN OF USD JACKS UP PRICES, FOR NO CLEAR REASON

The tugrug has fallen sharply against the US dollar in the last few days, with no clearly discernible reason behind the sudden rush to buy USD that has pushed prices up. Commercial banks referred all worried enquiries to the Central Bank. One USD cost MNT1,210 on Monday, rising to MNT1,310 on Wednesday. The Central Bank’s official rate of MNT1,194.90 was of no help for those who wanted to buy USD as commercial banks and currency exchange centers were not selling any.
Trading on Wednesday morning began with the Trade and Development Bank buying USD for Tg1,196 and selling for Tg1,245. The Xac Bank rates were MNT1,200 and MNT1,270 respectively while Golomt Bank bought for MNT1,208 but was not selling. In three hours things changed. TDB stopped dollar sale, and Xac Bank raised the selling rate to MNT1,290. All commercial banks and currency exchange centers stopped selling USD at 4:30 pm, while the latter kept buying for between MNT1,295 and MNT1,310.
Unconfirmed reports say the Central Bank then stepped in and supplied dollars to commercial banks. They resumed buying and selling on Thursday. The following were the MNT rates for one USD at 11 am Thursday:

Buying Selling

Golomt                          1,210                1,298
Xac                               1,210.6               1,290
TDB                              1,211.6               1,295
Anod                           1,207.6               1,250.3
Khan Bank                    1,217                 1,250