Mongolia seeks to diversify investors

By William MacNamara

Published: January 1 2010 19:30 | Last updated: January 1 2010 19:30

Mongolia is attempting to attract fresh foreign investors to balance China and Russia, its dominant traditional partners and neighbours, as it embarks on privatisations and initial public offerings of its extensive mineral assets.

The democratic country of fewer than 3m people has opened itself up for large-scale mining and mineral development in recent months after years of debate and infighting about its investment regime.


Mongolia’s untapped deposits of coal, copper, and uranium are strategically located near the Chinese border.

Mining companies from China and Russia – the two states that have dominated Mongolia historically – are among those vying for licences to develop Tavan Tolgoi, a state-owned deposit that contains more than 6bn tonnes of coking coal.

By a programme of privatisations during 2010, Mongolia’s government intends to balance applications of Chinese and Russian companies against those from the US, India, South Korea and elsewhere. That is the commercial corollary of its “third neighbour” foreign policy – which aims to recognise importance of its neighbours while inviting third-party interests to prevent Chinese or Russian dominance.

“We welcome investment both from our neighbours and our third neighbours,” said Dashdorj Zorigt, Mongolia’s minister for mineral resources and energy.

“There is the issue of commercial interests,” he added, “and ensuring that any deals we make are in line with our foreign policy. We will not base our decisions purely on political considerations – but they will also not be based purely on business considerations. We will be balanced.”

The government has been expecting an investment boom since October, when it agreed a crucial mining contract with Canada’s Ivanhoe Mines and Rio Tinto, joint venture partners. The Oyu Tolgoi investment agreement, named after the Mongolian copper-gold deposit that Rio calls the world’s best untapped copper resource, had been under negotiation since 2004.

Mongolia, aware that the structure of the Oyu Tolgoi licence would set a precedent for all large-scale mining investment, imposed conditions such as a windfall profits tax. Ivanhoe and Rio called the tax unacceptable and national debate about the agreement intensified. In August, the country repealed the tax policy.

Potential investors sat on the sidelines to watch the resolution of the Ivanhoe-Rio venture. Mr Zorigt declined to say whether the government’s 34 per cent stake in the Oyu Tolgoi project would guide other agreements.

On November 23, Sukhbataar Batbold, prime minister, said the government would prepare state-owned enterprises owning strategic assets for IPOs on international exchanges.

“Next year we hope to see the first IPOs,” Mr Zorigt said. “This is where the focus of my ministry will be over the next year.”

Bidding for licences to develop Tavan Tolgoi – a vast deposit that might be subdivided – are Shenhua of China, Peabody of the US, Jindal of India, and Mitsui and Sojitsu of Japan, among more than 10 interested parties, the government said. A decision on licensing will be announced soon, Mr Zorigt said.

Source:Financial Times newspaper of UK dated Jan 1, 2010