Government wants some changes in Oyutolgoi agreement 34% ownership untouched

Prime Minister S.Batbold, Minister of Finance S.Bayartsogt and Minister of Mineral Resources and Energy D.Zorigt yesterday told media that negotiations are continuing on some changes the Government has suggested in the Oyutolgoi shareholders’ agreement and hoped that the issue will be resolved by the end of the year.

Batbold made it clear at the outset that these changes had nothing to do with the status or percentage of Mongolia’s ownership of the project, categorically dismissing as “baseless rumor” all talk that “Mongolia’s ownership is coming down, or ever will come down from 34%”. He said related Ministries will soon provide explanatory information on the implications of Ivanhoe Mines’ recent sale of new shares.

Minister Bayartsogt explained that there were two different agreements on Oyutolgoi -- an investment agreement and a shareholders’ agreement. The Government is seeking changes in certain provisions of the latter. The interest on the loan it has taken to pay for its share of the investment expenses is 9.9% plus the American consumer price index, and the Government wants this to be reduced. It prefers the London Interbank Offered Rate, currently 0.35% plus 6.5% interest. This would work out to 6.8% in place of the approximately 11.7% in the agreement.

He said the Government would also like the financing mechanism changed because Mongolians “have not understood the present method of selling shares” and have been misled by “some erroneous information”.

The third issue relates to the Government’s approval of any change in the shareholding pattern of Oyutolgoi LLC.

Bayartsogt explained that selling preferential rights shares is not very common as most companies seek to raise money through issue of common shares. However, it is a perfectly legitimate financing mechanism and is aimed at reducing the financing risks of a company. The company pays only interest on the amount invested in these shares, and not any dividends as is being said. Also, these do not give the holder any ownership share in the company and so cannot reduce any other shareholder’s percentage of ownership. The Government wants to replace the sale of preferential shares with a straightforward loan. (Mongolian premier news site)


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