Mongolia looks to Russia, China in uranium race

By Lucy Hornby and Rujun Shen

BEIJING, Dec 10 - Big changes in Mongolia's uranium sector mean the country's top assets are now to be divvied up mainly between Russia and China, the giant neighbours whose influence the landlocked country is perennially trying to balance.

The entry of large Chinese and Russian firms has come at the expense of junior miners from Australia and Canada, some of whom were squeezed out when Mongolia passed a uranium law this summer that gave the state 51 percent in the richest uranium deposits.

MonAtom, the recently formed state uranium firm, says it needs the capital and experience of the new state-owned investors to bring Mongolia into the ranks of world producers within the next few years.

It has agreed to develop one deposit, Dornod, with Russian partners and is in negotiations with a state-owned Chinese firm to develop another, Gurvanbulag.

"We are confident that we can compete with the current major producers of uranium," Badamdamdin Ragchaa, chairman and chief executive officer of Monatom, told Reuters through an interpreter on the sidelines of the Mining Asia Congress in Shanghai.

Mongolia should begin uranium mining in about 2013, he said.

Mongolia ranks fifteenth in the world in proven uranium reserves, but hopes it can rise in the ranks. The uranium will be exported, with French firm Areva and Chinese nuclear firms the likely buyers.

The development of Mongolia's uranium mines will be almost entirely by state firms, which are now negotiating their participation through the previous Canadian license holders.

Canadian miner Khan Resources , which holds the rights to Dornod, is now mulling a $33 million buyout offer from Russian state uranium miner ARMZ, or AtomRedMetZoloto. [ID:nGEE5AT12O]

China National Nuclear Corp in March bought Canadian miner Western Prospector, which held a 58 percent share in Gurvanbulag. That leaves it at odds with Mongolia's new uranium law, under which it would be limited to a 49 percent share.

"I think the Chinese and Mongolian governments are likely going to discuss it through government channel," said MonAtom's Badamdamdin.

"We will probably jointly develop the project."


Russia's entry into the Mongolian uranium sector, announced during a visit by Russian president Dmitry Medvedev in August, is in many ways a return to deposits originally developed by Russians, and abandoned when the Soviet Union collapsed.

Mongolia has been a democracy since the 1990s, and forged a close relationship with the United States under the Bush Administration. As China has become more economically powerful, it is exerting more influence over resource-rich Mongolia, which counters by continuing ties with former patron Russia.

Mongolia's balancing act is an attempt to prevent the valuable sector from being dominated by either country, while ensuring the state gets revenues needed for budget commitments.

Mongolia originally viewed the junior miners' prospecting for uranium and other resources as a part of its "third neighbour" policy of reaching out to countries it does not border. However, it decided that Mongolian interests would be vulnerable if those juniors simply sold off deposits that they lacked the capital to develop.

Canadian and Australian prospectors, which had flocked to Mongolia during its extremely liberal mining regime of the late 1990s, were bitterly turned off when the country began to revise mining laws to favour the state.

Those smaller companies that still hold uranium mining licenses are now eager to sell, whether to the state or any other willing buyer, said a Mongolian investment expert.

"It's good to buy now. Because many companies in Australia want to sell... Even non-listed companies, private companies want to sell," said Masa Igata, founder and CEO of Frontier Securities, based in Mongolia.

Source:Reuters News Agency


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