Mongolia mining analyst warns about recent Gov't action on re-tendering mnieral licenses as conflicting and risky

Recent note of the "Independent Mongolian Metals & Mining Research's"  queries the legality of the Mongolian Government approved resolution for the 106-licnese dispute which, if nothing else, is a clear contradiction to the amendment of the Minerals Law recently approved by Parliament providing an environment that led to the 106-licneses being revoked in the first place.

The detailed analysis highlights the previously agreed “win-win” resolution, a voluntary and collaborative solution proposed by the Ministry of Mining, well received internationally, supported by amended Minerals Law, remains neglected. The analysis makes an obvious case for such a resolution to be implemented and replace Resolution #216.

The current proposed solution creates a conflicting and unstable legal and legislative environment failing to protect security of tenure and legal rights, with clear disconnect between Government actions and promises.

Such a predicament illustrates capacity issues and the analysis highlights the following key timelines:
- There are ~15 days left in the 100-day program (plan approved on May 9 and presented to Parliament on May 16)
- There are ~20 days left until the OT tax claim could potentially proceed to international arbitration(~August 25)
- There are <60 days left until the OT project finance deadline by September 31

The note highlights that the status of the 106-licnese dispute implies likely failure relating to more complex issues such Oyu Tolgoi ($130m tax dispute, Stage 2 FS, Stage 2 PF), Khan Resources international arbitration, Standard Bank case etc with more disputes likely to emerge than not.

The failure of a satisfactory resolution in the favor of investors relating to the 106-licenses, such as currently outlined in Resolution #216, in Dale's view is another step towards 2000 USD/MNT & 20% inflation being possible in the near-medium term.

The mining sector is currently responsible for 81% of Mongolia's FDI and this development will significantly impact both mining and other sectors investment, with feedback that the 106-license dispute is one of the key issues “western” investors are currently monitoring.

Such an outcome raises the risk of litigation and concerns that have a significant impact beyond the 106-licenses and the exploration sector/amended Minerals Law, with security of tenure, a transparent and consistent legal and legislative environment being key cornerstones for all private sector activities and will undoubtedly influence investment decisions and negatively impact foreign direct investment in both the natural resources but also other sectors of the Mongolian economy.

Such a situation is likely to also be a further catalyst in the apparent shift from “third” to “immediate” neighbours (also noting the expected delegations from China and Russia in the next month).

Source: "Independent Mongolian Metals & Mining Research”


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