Mongolia set to end dispute with investors over mining licenses

By James Wilson, Mining Correspondent

Mongolia is trying to recover confidence in its mining industry amid a serious downturn, by making conciliatory noises in a stand-off with its biggest investor Rio Tinto and proposing to end a dispute over more than 100 exploration licences suspended during a corruption investigation.

The central Asian country also expects to resolve arguments with Rio Tinto , its largest foreign investor, over a delayed investment to expand the country’s largest copper mine, according to a member of the government.

“Mongolia has learnt a good lesson . . . the important thing for us is to create good jobs and good revenues.” Ochirbat Chuluunbat, the deputy minister for economic development, acknowledged that Mongolia had made mistakes in its dealings with investors. “It is time for us to recover confidence,” he said during an interview in London.

Mongolia is seen as one of the most interesting countries for mining exploration, combining good geology with a strategic location next to China, the world’s largest user of commodities . But investors have been losing confidence in the country amid a series of legal disputes and stalled developments.

Foreign direct investment halved last year and the country’s economic growth, government budget and currency – which has fallen 8 per cent this year against the dollar – have all come under pressure.

Last year some 106 exploration licences held by foreign and local investors were revoked, after their award was called into question amid a corruption case involving former government officials.

Mr Chuluunbat said the government now intended to ask Mongolia’s parliament to approve a return of the licences to holders that had complied with their terms, without requiring new tenders as a court ruling had suggested.

Kincora Copper , a Toronto listed explorer that had two licences revoked, welcomed the proposed resolution. Sam Spring, chief executive, said Mongolia appeared to have made a “step change” in its approach to mining in recent weeks. “This issue has been up there with Oyu Tolgoi as an issue of concern,” Mr Spring said.

Oyu Tolgoi is the large copper mine that Rio Tinto opened in Mongolia last year. An expansion of the project, in which the government is a shareholder, has been delayed amid a dispute between the company and the state over how to share costs and profits.

Mr Chuluunbat acknowledged that the project had become “the main barometer of investment in Mongolia” but said he was confident a deal could be struck by September. “Mongolia is ready to strike a deal,” the deputy minister said.

Rio has sounded a cautious note until it can agree a feasibility study for the mine’s development. The study is expected to be presented to the mine’s partners within the next two months.

Oyu Tolgoi’s investors have already asked banks to extend a project finance deadline until September.

Source:FT