Friday, January 11, 2008

Miners could pull out, Emerson warns Mongolia

BEIJING -- Canadian mining companies could begin to pull out of Mongolia if its government keeps delaying its approval of investment agreements for Ivanhoe Mines Ltd. and other Canadian miners, International Trade Minister David Emerson has warned.

More than 20 Canadian mining companies are active in Mongolia, where Canada is the second-biggest foreign investor. Ivanhoe, trying to build a massive copper and gold mine in the Gobi Desert, is the biggest of the Canadian miners in Mongolia.

Ivanhoe has been negotiating its agreement with Mongolia for the past five years, and it has repeatedly claimed that it is close to a final deal. But the agreement is still in limbo, and last month Mongolia withdrew Ivanhoe's latest draft agreement from parliament and set up another committee to review it.

Mr. Emerson, who visited the Mongolian capital of Ulan Bator this week, said he is worried about the "uncertainty" caused by the lack of agreements between Mongolia and Canadian mining companies.

The minister said he warned Mongolian leaders that Canadian mining companies will abandon Mongolia if the delays continue. "I communicated that to them, and they understand that well," he said. "If you get to the point where significant investors are pulling out, it will be very difficult to reverse that."

Mr. Emerson was speaking to reporters in Beijing last night after a two-day visit to Mongolia, the first by a Canadian cabinet minister in more than a decade. He met Mongolia's president, prime minister, and two senior cabinet ministers.

The minister said he is optimistic that some of the stalled Canadian mining projects could be revived. "I think there is a good likelihood that some of the projects caught in this period of debate hopefully will move along, but we'll just have to wait and see," he said.

"Mongolia has, in fact, requested Canada to give them advice on how to put in place a sound regulatory and tax regime dealing with the mineral sector," he added. "They want to move forward, they want to see some significant projects proceed."

A national election set for June is complicating the issue, with many Mongolian politicians taking a more nationalist stance to appeal to voters who suspect that foreign mining companies are reaping excessive profits from the country.

"They have started to retrench a bit," Mr. Emerson said. "There has been some political backsliding, if I can say, and with an election coming up, some of these issues are becoming a bit controversial."

Under the draft agreement with Ivanhoe and its partner Rio Tinto PLC, the Mongolian government would get a 34-per-cent ownership stake in Ivanhoe's huge project at Oyu Tolgoi in southern Mongolia.

Mongolia plans to boost its state ownership in the mining sector, Mr. Emerson said. "They alerted us to the fact that they're going to want more state involvement in mining and uranium going forward, but they have yet to determine what that means."

Ivanhoe and Rio Tinto have pledged to build a copper smelter and invest $2.7-billion (U.S.) to develop the Oyu Tolgoi project within five years of an investment agreement being approved. But after the latest delays last year, Ivanhoe warned that it will have to curtail its investment and suspend much of its planned work at Oyu Tolgoi if the delays continue.

Julian Dierkes, a professor at the University of British Columbia's Institute of Asian Research who has studied the Mongolian mining industry, says the Canadian mining companies are unlikely to pull out of Mongolia entirely. Ivanhoe is heavily committed to Mongolia, so a retreat is not likely, he said.

"I think it is much more realistic to think that new investments will slow down, possibly significantly," he said in an interview. "I know of several companies that were formerly focused on Mongolia who are exploring elsewhere now."


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