Rio Tinto boss Sam Walsh says Oyu Tolgoi talks in Mongolia down to deal breakers

Rio Tinto Group, the world's second-largest mining company, is locked in talks with Mongolia over developing the second stage of the Oyu Tolgoi copper and gold mine, saying only a few matters remain on the table.

"We are down to a few issues and these issues are deal breaker type issues," chief executive Sam Walsh said Saturday in an interview in Ulaanbaatar. "And we are not asking for anything that is out of the ordinary or special to Rio Tinto."

Talks are aimed at resolving a stalled $US5.4 billion expansion of the Oyu Tolgoi project, Rio-controlled Turquoise Hill Resources said. Mongolia's Prime Minister Saikhanbileg Chimed said in December that resolving wrangles with Rio over taxes and cost overruns was a priority.

While commitments from lenders for $US4.2 billion needed to help fund the development expired after a September 30 deadline a "suitable financing package will be available once we have successfully resolved the outstanding matters," Turquoise Hill CEO Jeff Tygesen said in an earnings call.

Oyu Tolgoi, located about 80 kilometers (50 miles) north of the Chinese border, will contribute about a third of Mongolia's economy when in full production and will be the world's third- biggest copper mine, according to Turquoise Hill.

Walsh said he is very "patient and hopeful" that an agreement can be reached, adding that the Rio has no plans to exit the project.

A senior Mongolian government group recently visited the mine, said Walsh, in order "to understand more about how it operates and what are the complexities and issues associated with running a project of such huge scale and operations."

"I am hopeful that a solution is more a matter of transparency, awareness (and) communication," said Walsh, who planned to visit the mine on Sunday to participate in an event to mark 1 million tons of copper concentrate exports.

A sticking point in the talks has been a claim of around $US30 million in taxes that Mongolia says it is owed by Oyu Tolgoi. Rio denies the charge.

"We do not believe that amount is due and we will continue to discuss with the Mongolian government and if necessary we will go to international arbitration," said Walsh. Any possible writedown of the underground project is an issue for auditors and accountants, he said. "At this stage by not spending the dollars you actually push out the point where you would consider the carrying value for the project."

A reorganisation of Rio's business units which brought coal assets under the managements of the producer's copper chief Jean-Sebastien Jacques isn't a signal toward a potential exit from the commodity, Walsh said.

Walsh declared coal "a major part" of Rio's portfolio, in the interview Saturday, adding that "carrying the overhead of a standalone product group is something we couldn't support going forward."

Around $US800 billion in annual costs had been taken out of Rio's coal business, he added.

The overhaul, which saw energy unit CEO Harry Kenyon-Slaney leave the company, could be seen as the first step in a longer term exit from coal, Jefferies analyst Chris LaFemina wrote in a report dated February 26. Jefferies estimates Rio's coal business is worth about $US3.6 billion.

Walsh reinforced his rejection of a proposal last week by Fortescue Metals Group chairmanAndrew Forrest for big iron ore producers to cap output to help support prices. Forrest's call prompted Australia's competition watchdog to seek an explanation.

The proposal "is against international law, that is why I said it was absolute nonsense and of course that is why Rio Tinto would not consider such a proposal," Walsh said in clarifying statements on Saturday.

The outcry missed the "elephant in the room," Forrest said in an interview on the sidelines of the Boao Forum for Asia with Bloomberg Television on Saturday, adding that Fortescue will behave responsibly.

""There's a national interest issue here," Forrest said. "China's national interest, Australia's national interest, isn't helped by companies dumping iron ore into a foreign market."

Iron ore slumped 47 per cent in 2014 and has extended losses this year, touching the lowest since at least May 2009.

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Rio Tinto CEO says Nov plan to restart Oyu Tolgoi was "best and final offer

(Repeats story published on Saturday; no changes to text)

* Rio in talks with Mongolia on "detail" of Oyu Tolgoi restart

* Financing for second phase needs renegotiating

* Timing for completion of second phase still unclear

By Terrence Edwards

ULAN BATOR, March 28 (Reuters) - Proposals made to the Mongolian government by global mining giant Rio Tinto last November to restart the long-delayed Oyu Tolgoi copper mine were the firm's "best and final offer" and won't be changed, Rio's chief executive said.

Rio submitted the proposals to resolve some outstanding issues, including a $127 million tax claim that has already been cut to $30 million as well as the approval of a $4 billion project financing package to pay for phase-two construction.

"This is the best and final offer and we believe this a very reasonable approach to resolving the outstanding issues," said Sam Walsh in an interview with Reuters on Saturday ahead of a visit to the mine.

"Clearly, in terms of reaching a final conclusion there's a lot of detail that needs to be resolved, so negotiations were continuing last week," he said, adding that Rio was "not looking for special treatment" but wanted more certainty and clarity from Mongolia.

Walsh said the firm would be willing to go to international arbitration to resolve the tax dispute, but said it was not expected to affect current phase-one production at the mine.

Rio Tinto's Turquoise Hill Resources owns 66 percent of the $6.5 billion Oyu Tolgoi, with the Mongolian government holding the remainder. Rio is also in charge of running and developing the project, which is located in the Gobi desert close to Mongolia's border withChina.

The first, open-cut phase of the mine is already in operation. Turquoise Hill reported $1.6 billion in revenue for 2014 from the sale of 733,700 tonnes of concentrate from the mine.

Walsh said financing for the second phase of the project, which will extend the mine underground, will have to be renegotiated, especially in light of volatile copper prices.

"There have been a number of lenders who rolled over their offers. Once we've resolved all of the negotiations, we need to go back to lenders to confirm the availability of the funding," he said.

He didn't have a specific timeframe for when the second phase could finally begin operations, saying Rio would first have to finalise negotiations with the government and also remobilise its workforce.

"There are a lot of moving parts there that would need to be taken into account before you can specify when it would start," he said. (Writing by David Stanway; Editing by Kim Coghill)

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‘Mongolians in China are not free’

In December, a Chinese Mongolian teenager was exonerated from a crime he had committed in 1996. But it was a little too late: Huugjilt had been executed for the crime — the rape and murder of a woman in a public toilet — the same year. China’s state-controlled newspapers and news agencies splashed the news for days. Commentaries talking about judicial reproach and the rule of law in China were being written even three months later.

At about the same time last year, another ethnic Mongolian man from Inner Mongolia, Hada (61), was released from detention after spending most of the last 20 years in jail. He was arrested and jailed in 1996 for inciting separatism, spying and supporting the Southern Mongolian Democratic Alliance (SMDA).

But the story about the freeing of Hada, one of China’s longest-jailed political prisoners — whom rights group Amnesty International had called a “prisoner of conscience” — received zero attention from Chinese media. According to Hada, the reason could be the fact that the authorities do not want the Chinese to hear his story.

“The main objective (of the Chinese authorities) during the 19 years I was in prison was to force me through physical and mental torture to admit to the alleged crimes. As a result, I became physically disabled, suffering from multiple complications. All kinds of torture methods, including use of toxic drugs, were applied to break me down mentally — so I would be forced to write some statements of their choosing. On two occasions, I was placed under solitary confinement for 99 days,” Hada told HT in a rare interview.

According to the New York-based Southern Mongolian Human Rights Information Centre (SMHRIC), Hada’s release from jail was more symbolic than anything else. “In fact, Hada was not allowed to go home. He was transferred to a residential-like yet heavily guarded apartment that was owned by the Public Security Bureau on November 17, 2014, from the “black jail” in suburban Hohhot (Inner Mongolia’s capital), where he was placed under extra-judicial detention for four years after completing his 15-year jail term on December 10, 2010,” Enghebatu Togochog, SMHRIC director, told HT.

Ethnic Mongolians, who are now less than 20% of the roughly 24 million population of Inner Mongolia, have long complained about discrimination. They say that their traditional grazing lands, where wild horses would once roam, have been ruined by reckless mining, and that Beijing has been marginalising their culture and language — reducing the locals to a tourism troupe.

Hada, who ran the Mongolian Academic Bookshop in Hohhot before being picked up by the police, was talking about these very issues at the time of his arrest. After the arrest, his family’s tough times began as well.

“Over the past 19 years, my wife was arrested multiple times. The latest arrest resulted in a three-year jail term with five years’ reprieve that has not expired yet. Our bookstore had been shut down numerous times. It is still closed today. My family had no choice but to make ends meet with money borrowed from others. My son was expelled from school under false charges, and was sentenced twice on trumped-up accusations,” Hada said.

Even now, his interaction with his family is sporadic and restricted. “On December 9, 2014, he was allowed to meet his wife Xinna, son Uiles, brother Yushan and sister Yuyue in the apartment. Although brief and sporadic, meetings with family members and relatives are allowed under tight surveillance. However, no true family reunion has yet taken place in their own home,” said Togochog. Physical torture and isolation from his family, according to Hada, were just some of the methods employed by the authorities to break his spirit. Both carrot-and-stick policies were used: sometimes, the authorities would treat him in surprisingly nice ways.

“During my 15 years of imprisonment, (the authorities) repeatedly attempted to force me to change my thoughts and beliefs. They told me over and over that my main goal should be to change what I think and what I believe. In Chinese prisons, there is a song with lyrics that go “the goal of prison is to change thoughts and beliefs.”

Again, during the imprisonment in the “black jail”, they attempted to force me to give up my thoughts and beliefs, to be obedient, to cooperate with them, and to be subservient to the Communist Party of China.”

The situation in Inner Mongolia continues to be bad, Hada said. “The most critical issue the Southern Mongolians (which is how he describes ethnic Mongolians from the province) are facing is how to achieve genuine autonomy. Southern Mongolians have been completely deprived of their political rights and right to autonomy.”

The interview was conducted over email

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Rio Tinto CEO says Nov plan to restart Oyu Tolgoi was "best and final offer"

(Reuters) - Proposals made to the Mongolian government by global mining giant Rio Tinto last November to restart the long-delayed Oyu Tolgoi copper mine were the firm's "best and final offer" and won't be changed, Rio's chief executive said.

Rio submitted the proposals to resolve some outstanding issues, including a $127 million tax claim that has already been cut to $30 million as well as the approval of a $4 billion project financing package to pay for phase-two construction.

Sam Walsh told Reuters in an interview in Ulan Bator on Saturday ahead of his visit to the mine that the firm was "not looking for special treatment" but wanted more certainty and clarity from Mongolia.

Walsh said the firm would be willing to go to international arbitration to resolve the tax dispute, but said it was not expected to affect current phase-one production at the mine.

Rio Tinto's Turquoise Hill Resources owns 66 percent of the $6.5 billion Oyu Tolgoi, with the Mongolian government holding the remainder. Rio is also in charge of running and developing the project, which is located in the Gobi desert close to Mongolia's border withChina. (Reporting by Terrence Edwards; Editing by Kim Coghill)

Source:Reuters

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Investors fear for Mongolia's finances

HONG KONG, March 23 (IFR) - Mongolia will struggle to repay its debts in the next three years, analysts and investors have warned, if it is unable to reverse a drop in economic growth.

Despite the country's vast reserves of gold, copper and coal, weak commodity prices have weighed heavily on Mongolia's finances. GDP growth of 7.8% in 2014 is still outpacing many of its regional neighbours, but it is down substantially from earlier years. Growth fell to 11.3% in 2013 from 17.5% in 2011, according to the World Bank.

Weaker revenue from mining has significantly harmed the government's finances. One of the most glaring examples is in its external liquidity resources, which fell to just over US$1bn this January from US$4bn in January 2013, according to Fitch.

Mongolia has become more reliant on a bilateral swap agreement with China. The People's Bank of China had previously capped this agreement to Rmb10bn (US$1.6bn), but, in July 2014, this was ratcheted up to Rmb15bn.

The Mongolian Government has US$1bn of sovereign bonds due in January 2018 and, in 2017, it will have to repay some of its swap agreements with China. It has also not helped matters that the local currency, the tugrik, has lost 42% of its value against the US dollar in the last two years.

Analysts believe that there is sufficient time to resolve these problems and that much of these obligations can probably be refinanced.

However, the worry is that the situation could worsen before it improves and, as such, Mongolia could struggle to repay debt and face a ratings downgrade. Both will make refinancing more complicated and expensive.

"Mongolia's B2 rating suggests that a default is not imminent," said Anushka Shah, an analyst at Moody's, which cut its sovereign rating from B1 last July. "However, the rating is considered speculative and is subject to high credit risk.

"The government has a window to resolve these vulnerabilities, but, as time goes by, the window closes. Large repayments are due in 2017 and 2018, and that time horizon is not that far away."

The government has also given mixed signals over foreign ownership rights in certain industries. In particular, disputes over the vast Oyu Tolgoi mining project, a joint venture between Mongolia and Rio Tinto , have spooked foreign direct investors.

This uncertainty has rattled FDI, which fell 81% year on year, according to the country's central bank.

The dispute over Oyu Tolgoi has been going on since 2012 and, while observers believe an agreement will eventually be reached, they say some sort of deal is needed soon.

"Activity has certainly slowed," said a Hong Kong-based foreign investor. "There are fewer expats there and less money. There are good-quality companies there, but nothing is really insulated from mining.

"It's also pretty clear to everyone there that the government spends on programmes that don't have much economic impact on the ground. The government's inability to finance those projects is stressing the economy. Then, the concerns over Rio Tinto are there, and investors ask themselves if Rio can't win an argument there, what chance do I have?" (Reporting By Spencer Anderson, editing by Steve Garton, Dharsan Singh and Daniel Stanton)

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Mongolia’s Dubious Merchant Navy

The country risks serious damage to its reputation with its questionable maritime activities.

With more than 250 days of sun a year, Mongolia’s moniker – Land of the Blue Sky – is well deserved; its association with the deep blue sea, though, is less obvious. The nation’s capital, Ulaanbaatar, is located more than 1,300 kilometres from the ocean, and Mongolia is the largest landlocked country in the world. Nevertheless, over the last decade Mongolia has developed a maritime tradition that it rarely speaks of, offering flags of convenience to shipowners since 2003. Although little attention has been given to Mongolia’s merchant fleet, the lack of transparency and scrutiny associated with it risk facilitating illicit activities and causing serious reputational damage to the country.  The material benefit that the Mongolian State derives from its merchant navy is far from clear, making it reasonable to question whether Mongolia’s maritime tradition is worth preserving, or if it would be best abandoned.

With 90 percent of international trade being carried by sea, shipping is one of the most vital industries in the world economy. Its inter- and trans-national nature, however, makes it challenging to regulate and, although the UN attempts to do so under the aegis of the International Maritime Organization (IMO), there is considerable leeway to exploit loopholes and ambiguities in the international regulatory regime. One such practice is that of flying flags of convenience – registering a merchant ship in a sovereign state other than that of the ship’s owner. A country that allows foreign-owned ships to fly its flag is said to have an open registry, and three such registries (Liberia, the Marshall Islands, and Panama) currently account for 40 percent of the entire merchant fleet by tonnage. Indeed the practice is so widespread that some three quarters of the global merchant fleet is registered under a flag of convenience.

Ship owners employ this practice for a number of reasons: It allows them to avoid burdensome regulation, it reduces operating costs and tax bills, it allows shippers to employ cheaper labor and, in some cases, it can offer anonymity to the beneficial owner of a vessel. The more pernicious effects of use of this practice include avoiding safety and environmental standards. The moral ambiguity of flags of convenience has made them atarget of ire for international labor unions, but even more concerning than the degradation of labor standards is the potential for the practice to be used to conceal or facilitate illegal activities, such as trafficking of illegal goods, evasion of international sanctions, or providing support to terrorism. Cambodia, for example, used to be notorious for the lax standards of its registry and in 2002 the MV Winner, a Cambodian flagged vessel, was found to be carrying two tons of cocaine off the Canary Islands. This incident highlighted the flagrant abuse of Cambodia’s registry and the government subsequently announced a wholesale reorganization.

Mongolia, for its part, established its own registry under Prime Minister Nambaryn Enkhbayar in February 2003. The Mongolian Ship Registry’s stated mission was to “provide excellence in registry and marine services.” Over the course of ten years the Mongolian merchant fleet grew rapidly and, according to the UN, reached atotal dry weight tonnage capacity of 643,000 tons in 2013. While this total tonnage is low relative to other countries, it is not insubstantial. For example, Mongolian-flagged vessels have a greater capacity than their Iraqi or Sri Lankan counterparts (110 and 239 tons respectively). The Mongolian fleet now comprises 168 vessels and, in terms of dry weight tonnage, is the largest merchant fleet of any landlocked country except Switzerland (1,144 tons) and Luxembourg (1,601 tons) – both highly developed economies with long traditions of nominal ownership.

All the Wrong Reasons

In spite of its self-professed commitment to excellence, though, it seems that the registry has proved popular for all the wrong reasons – in effect serving as the maritime equivalent of an offshore financial center, allowing beneficial ownership to be hidden, operating costs and taxes to be minimized, reducing transparency, and, in some cases, facilitating illegal activities. These concerns are exacerbated by the fact that Mongolia’s registry isn’t even based in the country. It is run out of Singapore and managed by Sovereign Ventures, a conglomerate owned by Chong Koy Sen. Chong is a Singaporean citizen who serves as the honorary consulate of Tuvalu (another state renowned for its flag of convenience) in Singapore as well as managing director of its Ship Registry. It is in Tuvalu that a number of Iranian Government ships (owned by the National Iranian Tanker Company) implicated in sanctions busting are registered. According to a leaked American diplomatic cable from 2007, Sovereign Ventures has long-standing ties to North Korea and used to manage the Cambodian Shipping registry until its 2002 reorganization. Indeed, it was Sovereign Ventures that had flagged the Winner in Cambodia.

While there is no direct link between Sovereign Ventures and these incidents, it is clear that the comparative advantage of the registries it runs lies in their relatively lax regulatory requirements. When it comes to the Mongolian Ship Registry, for example, an international service provider for shipowners and shipbrokers lists the advantages of registering under a Mongolian flag as including: competitive fees and taxes; no tax on profits or capital gains; recognition of all IMO standards and certificates for crew; quick service and issuance of certificates within the hour; and the fact that ships are not subject to requisition as national resources. In addition, there are no restrictions on the ownership of any ship registered in the Mongolia Ship Registry. With the registration process being outsourced, and with reduced standards being the main appeal of the registry, it should come as no surprise that Mongolia’s merchant fleet ranks poorly when assessed according to international metrics.

The International Chamber of Shipping (ICS) and International Shipping Federation (ISF) release an annual shipping industry flag state performance table that assesses flag states in terms of performance. These metrics include port state control (whether they have been blacklisted by the world’s principal port state control authorities); ratification of major international maritime treaties; use of recognized organizations compliant with IMO resolution A.379 (which requires states to establish controls over organizations carrying out safety inspections and surveys of ships); age of fleet; reporting requirements (submission of compliance and practice reports as required by the International Labour Organization); and attendance at IMO meetings (suggesting increased likelihood of complying with IMO rules). In all but one of these categories (fleet age), Mongolia performs poorly.

Given that many of these metrics are technical in nature, it is sufficient to highlight Mongolia’s performance relating to port state control to give an idea of the issues that blight the Mongolian merchant fleet. Port state control refers to the inspection of foreign ships in ports and is governed globally by three main regional regimes: the Paris Memorandum of Understanding, the Tokyo Memorandum of Understanding, and the United States’ Coast Guard regime.

With most Mongolian-flagged ships operating in the Asia-Pacific region, it is the Tokyo MoU which is most relevant to Mongolia. This agreements binds together 18 Asia-Pacific states and aims to establish an effective regional port state control regime through cooperation and harmonization of activities – the aims of this being to eliminate sub-standard shipping, promote maritime safety, protect the environment, and safeguard working and living conditions on ships. In 2013, the signatories of the Tokyo MoU conducted 142 inspections of Mongolian-flagged vessels. In 131 of these inspections, deficiencies were found (a total of 1,217 separate deficiencies) and 38 of the inspected ships (26.76 percent of the total) had to be detained. This was the second highest of any country and far above the regional average of 4.5 percent. As a result, Mongolia currently finds itself on the blacklist of the Tokyo MoU, with Mongolian-flagged ships subject to increased inspection as a result.

Incidents

Moving from the big picture to individual cases, Mongolian-flagged ships have been (and continue to be) involved in a number of incidents that reflect negatively on the state. These can be broken down into four categories: safety; illicit activity; sanctions busting; and lack of control and oversight. These examples highlight the reputational damage that the practice of maintaining an open registry can cause to Mongolia and the need to carefully consider its continuation.

When it comes to safety, Mongolian ships have been involved in a number of life-threatening and fatal accidents. In November 2003, for example, 13 Russian sailors were rescued from the Fest, a Mongolian-flagged vessel loaded with logs that was sinking in the Sea of Japan after the ship’s engine failed. Since this incident, Mongolia promised to stop registering vessels over 30 years old, but accidents continue to occur. Just last year, two North Korean sailors died aboard a Mongolian-flagged vessel after their cargo ship sunk off the coast of South Korea.

In addition to safety concerns, Mongolian registered ships have also been involved or implicated in illicit activities. In 2003 the MV Unique was searched by Irish police and customs officials as they suspected that it was being used by an international crime gang to carry illegal immigrants. In December 2012 another Mongolian-flagged ship was detained by the Malaysian Maritime Enforcement Agency on suspicion ofsmuggling diesel and selling it in nearby countries. Some 200,000 liters of diesel (which is subsidized in Malaysia) worth $1.2 million was found on board.

More worrying than diesel smuggling is the potential use of Mongolian flags to help states avoid international sanctions. Although no direct evidence has emerged of Mongolian ships being used to this end, Mongolia was forced to cancel the flags of five Iranian owned cargo ships in 2012 following international pressure. North Korea, another state subject to international sanctions, has long used foreign registries to hide its shipping activities with foreign-flagged ships having been used for drugs and arms smuggling amongst other things.  Cambodia was long the registry of preference, until the international pressure that ensued following the MV Winner incident put an end to this practice in 2002, and the apparent replacement for North Korea was none other than Mongolia. The willingness to provide flags to Pyongyang has attracted stern criticism, with the director of the Institute for International Affairs at James Madison University calling on the State Departmentto “investigate Mongolia’s maritime activities and aims,” before asking that its coordinator for counterterrorism should “certify whether they represent a threat to Americans at home and abroad.”

The final example of abuse of Mongolian flags of convenience is perhaps the most surprising, and relates to control and oversight. In the context of the international effort to combat piracy off the coast of Somalia, a number of floating arsenals have sprung up in international waters. These vessels act as storage locations for weapons and personnel, so that ships can quickly and efficiently pick up and deposit security teams as they pass through the Gulf of Aden. With these vessels based out of international waters, regulation of the weapons and material on board falls to the flag state. All weapons aboard U.K. flagged ships, for example, are registered and licensed with the British authorities. If the flag state has limited controls over the storing and transfer of military equipment, then these ships may operate with no oversight. A number of service providers seem to be using Mongolian-flagged ships to this end, and a December 2014 research report by the Remote Control Project(a body that examines developments in warfare) found at least 32 ships that act as such floating armories in and around the area. Of these, eight were found to use Mongolian flags of convenience, while a further two are thought to do so. Given Mongolia’s presence on several blacklists, this means that these weapons are as good as unregistered and these ships are acting without any effective oversight or regulation.

Revenues

It is no surprise, then, that the International Chamber of Shipping included Mongolia on a list of countries that it classified as “conspicuous examples of sub-standard ship registers” in February of this year. Taken together, these metrics and incidents highlight that the Mongolian Ship Registry is open to abuse. But what does the registry bring to Mongolia? Finding precise information about the division of revenues between the Singapore-based company that operates the registry and the Mongolian Marine Administration, which is nominally responsible for it, is almost impossible. Attempts to contact both parties received no reply. However, according to budgetary information from the Mongolian Ministry of Roads and Transportation, the Mongolian Marine Administration was expected to contribute 274.4 million Tugrugs ($140,000) of revenues in 2014. This is a pitifully small amount. It is likely that the registry generates more money than this. The fact that Enkhtuya Nambayar, the sister of the prime minister who founded the registry (who was later jailed for corruption) wasworking there before herself being investigated for corruption (on charges that were later dropped) would suggest that all is not as it seems, but no public information on where, and to whom, the earnings go is available.

Mongolia’s naval tradition is barely ten years old, but its registry has rapidly developed into an example of the risks and failings of poorly controlled open registries and flags of convenience. To date, Mongolia’s willingness to flag foreign vessels has gone relatively unobserved, and there has been little debate within the country about the merits and demerits of this policy. Clearly this needs to change. Mongolian-flagged vessels have been involved in fatal accidents, illegal smuggling, implicated in helping rogue states avoid sanctions regimes, and are currently used to host floating arsenals with no oversight. What is surprising is that these activities have not yet caused significant reputational damage to the country. The longer the government maintains its open registry with little or no oversight, the less likely it is to continue avoiding the spotlight. At a time when Mongolia is already under scrutiny for its rule of law and the behavior of its government, this is reputational damage that it can scarcely afford to sustain. With the registry officially bringing in only $140,000 dollars to the public purse, a cost-benefit analysis of providing flags of convenience makes clear the need to terminate or severely modify the practice. Mongolia is a country replete in tradition, and its ability to retain and protect these traditions is one of its most admirable features. The country’s maritime tradition, however, has a much shorter and more ignominious history, and is one that deserves to be consigned to the deep.

Graham Alexander is a freelance writer currently based in Mongolia.  

Source:http://thediplomat.com/

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Oyu Tolgoi Files Statutory Feasibility Study

Turquoise Hill Resources today announced that Oyu Tolgoi has filed a statutory 2015 Oyu Tolgoi Feasibility Study (OTFS 2015) with the Mongolian Minerals Council (MMC). Under Mongolian law, Oyu Tolgoi is required to submit an update to the feasibility study at least every five years; the 2009 Oyu Tolgoi Feasibility Study was accepted in March 2010.

When outstanding shareholder matters have been resolved, an updated feasibility study will be submitted to replace OTFS 2015 for acceptance by the MMC.

OTFS 2015 is based on the same study as, and is consistent with, the 2014 Oyu Tolgoi Technical Report, which was disclosed by Turquoise Hill in October 2014. However, since the specific commencement date for development of the underground Hugo North block cave is unknown and dependent on resolution of shareholder matters, the OTFS 2015 study reserve case presents the underground without a start date and separate from the open pit.

A life of mine case is also presented in OTFS 2015. In this case, a long-dated nominal start date was assumed for underground development. This date was selected only to deal with the uncertainty of commencement and does not reflect an intended underground restart date.

Turquoise Hill, Rio Tinto and the Government of Mongolia continue to work together to resolve shareholder matters and finalize project finance in order to restart underground mine development at Oyu Tolgoi.

About Turquoise Hill Resources

Turquoise Hill Resources (NYSE: TRQ), (NASDAQ: TRQ) & (TSX: TRQ) is an international mining company focused on copper-gold and coal mines in Mongolia. The Company's primary operation is its 66% interest in the Oyu Tolgoi copper-gold-silver mine in southern Mongolia. Turquoise Hill also holds a 45.8% interest in Mongolian coal miner SouthGobi Resources (TSX: SGQ) (HK: 1878).

Forward-looking statements Certain statements made herein, including statements relating to matters that are not historical facts and statements of the Company's beliefs, intentions and expectations about developments, results and events which will or may occur in the future, constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking information and statements relate to future events or future performance, reflect current expectations or beliefs regarding future events and are typically identified by words such as "anticipate," "could," "should," "expect," "seek," "may," "intend," "likely," "plan," "estimate," "will," "believe" and similar expressions suggesting future outcomes or statements regarding an outlook. These include, but are not limited to, statements respecting anticipated business activities; planned expenditures; corporate strategies; and other statements that are not historical facts.

Forward-looking statements and information are made based upon certain assumptions and other important factors that, if untrue, could cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such statements or information. Such statements and information are based on numerous assumptions regarding present and future business strategies and the environment in which the Company will operate in the future, including the price of copper, gold and silver, anticipated capital and operating costs, anticipated future production and cash flows, the ability to complete the disposition of certain of its non-core assets, the ability and timing to complete project financing and/or secure other financing on acceptable terms, and the evolution of discussions with the Government of Mongolia on a range of matters including the implementation of the Investment Agreement, project development costs, operating budgets, the payment of taxes and taxation matters, management fees and governance and the existence or filing of legal proceedings against the Company and its officers and directors. Certain important factors that could cause actual results, performance or achievements to differ materially from those in the forward-looking statements and information include, among others, copper, gold and silver price volatility, discrepancies between actual and estimated production, mineral reserves and resources and metallurgical recoveries, mining operational and development risks, litigation risks, regulatory restrictions (including environmental regulatory restrictions and liability), activities or assessments by governmental authorities, currency fluctuations, the speculative nature of mineral exploration, the global economic climate, dilution, share price volatility, competition, loss of key employees, additional funding requirements, capital and operating costs for the construction and operation of the Oyu Tolgoi mine and defective title to mineral claims or property. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements and information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. All such forward-looking information and statements are based on certain assumptions and analyses made by the Company's management in light of their experience and perception of historical trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. These statements, however, are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information or statements.

With respect to specific forward-looking information concerning the construction and development of the Oyu Tolgoi mine, the Company has based its assumptions and analyses on certain factors which are inherently uncertain. Uncertainties and assumptions include, among others: the timing and cost of the construction and expansion of mining and processing facilities; the impact of the decision announced by the Company to delay the funding and development of the Oyu Tolgoi underground mine pending resolution of outstanding matters with the Government of Mongolia associated with the development and operation of the Oyu Tolgoi mine and to satisfy all conditions precedent to the availability of Oyu Tolgoi Project Financing; the approval of the underground feasibility study for the Oyu Tolgoi Project by Oyu Tolgoi's shareholders; the impact of changes in, changes in interpretation to or changes in enforcement of, laws, regulations and government practices in Mongolia; the availability and cost of skilled labour and transportation; the availability and cost of appropriate smelting and refining arrangements; the obtaining of (and the terms and timing of obtaining) necessary environmental and other government approvals, consents and permits; the availability of funding on reasonable terms; the timing and availability of a long-term power source for the Oyu Tolgoi mine; delays, and the costs which would result from delays, in the development of the underground mine (which could significantly exceed the costs projected in the Feasibility Study and in the updated technical report); projected copper, gold and silver prices and demand; and production estimates and the anticipated yearly production of copper, gold and silver at the Oyu Tolgoi mine.

The cost, timing and complexities of mine construction and development are increased by the remote location of a property such as the Oyu Tolgoi mine. It is common in new mining operations and in the development or expansion of existing facilities to experience unexpected problems and delays during development, construction and mine start-up. Additionally, although the Oyu Tolgoi mine has achieved commercial production, there is no assurance that future development activities will result in profitable mining operations. In addition, funding and development of the underground component of the Oyu Tolgoi mine have been delayed until matters with the Government of Mongolian can be resolved and a new timetable agreed. These delays can impact project economics.

This press release contains references to estimates of mineral reserves and mineral resources. The estimation of reserves and resources is inherently uncertain and involves subjective judgments about many relevant factors. The mineral resource estimates contained therein are inclusive of mineral reserves. Further, mineral resources that are not mineral reserves do not have demonstrated economic viability. The accuracy of any such estimates is a function of the quantity and quality of available data, and of the assumptions made and judgments used in engineering and geological interpretation (including future production from the Oyu Tolgoi mine, the anticipated tonnages and grades that will be achieved or the indicated level of recovery that will be realized), which may prove to be unreliable. There can be no assurance that these estimates will be accurate or that such mineral reserves and mineral resources can be mined or processed profitably. See the discussion under the headings "Language Regarding Reserves and Resources" and "Note to United States Investors Concerning Estimates of Measured, Indicated and Inferred Resources" in the Company's MD&A filed on SEDAR and EDGAR.

Readers are cautioned not to place undue reliance on forward-looking information or statements. By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predicted outcomes will not occur. Events or circumstances could cause the Company's actual results to differ materially from those estimated or projected and expressed in, or implied by, these forward-looking statements. Important factors that could cause actual results to differ from these forward-looking statements are included in the "Risk Factors" section in the Company's Annual Information Form dated as of March 26, 2014 in respect of the year ended December 31, 2013 (the "AIF").

Readers are further cautioned that the list of factors enumerated in the "Risk Factors" section of the AIF that may affect future results is not exhaustive. When relying on the Company's forward-looking information and statements to make decisions with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Furthermore, the forward-looking information and statements herein are made as of the date hereof and Turquoise Hill does not undertake any obligation to update or to revise any of the included forward-looking information or statements, whether as a result of new information, future events or otherwise, except as required by applicable law. The forward-looking information and statements contained herein are expressly qualified by the cautionary statement.

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Cold comfort in Ulan Bator, world`s chilliest capital

Ulan Bator: Clad in a fox fur hat and dog hair boots, Mongolian merchant Undrakhiin Batulzii says his compatriots have over centuries mastered the art of beating the brutal winters of the steppes.

Ulan Bator is regarded as the world`s coldest national capital and can see bone-chilling winter lows of minus 40 degrees Celsius, tough even for the hardy descendants of Genghis Khan. 

For a newcomer the temperatures can be achingly uncomfortable, especially if stationary. Exposed ears and hands quickly begin to hurt, while standing on frigid concrete overcomes extremities not shod in properly insulated footwear.

"Staying warm is worth 1,000 lan of gold," goes one Mongolian saying, placing a monetary value on avoiding the cold -- with one lan weighing 37 grams, it is the equivalent of $1.4 million.

But Mongolians cope by means of fancy fur hats, hot food and drink, stoic good humour and layers of clothing -- "There are no fashionable people in winter," goes another saying.

"Mongolians` ancestors were nomads," said Batulzii at his traditional garment stall in Ulan Bator`s outdoor Naran Tuul market.

"Everything we eat and wear is designed to overcome the difficulties of the four seasons," he added. "That`s why Mongolians can beat the winter with no trouble."

Ulan Bator lies at a surprisingly benign latitude south of Paris, but is 1,300 kilometres (800 miles) inland, far from the moderating influence of the oceans, and at an altitude of 1,350 metres (4,430 feet).

Known as the land of the "Eternal Blue Sky", high pressures from Siberia give Mongolia cloudless winter nights that allow daytime land warming to escape to the atmosphere, and send temperatures plunging.

According to World Meteorological Organization 30-year figures, Ulan Bator`s average annual temperature is -2.4 degrees C (28 F), well below the 2.7 C of Kazakhstan`s Astana, Reykjavik in Iceland at 4.4 C and Moscow, which enjoys a comparatively balmy 5.0 C.

Byambaagiin Yanjmaa, a retired kindergarten cook, credits traditional food and drink as key for getting through the coldest months.

"Horse and lamb are very good for surviving the winter. Sheep find the best grass from the pastureland," she said in one of Ulan Bator`s "ger" districts, largely poor, hard-scrabble areas where many homes are collapsible, felt-covered herders` dwellings.

"It`s not so bad," said the 69-year-old. "Everyone can adapt to it based on his or her strength and weakness."

Nearby, workers broke up jet black raw coal into pieces to sell as heating fuel, a key contributor to the city`s dire pollution levels.

In Tov province west of the capital, herder Tumursukhiin Altanzaya tends her horses, cows, sheep and goats, including milking the bovines, all out in the cold, but said her lambskin deel -- a long Mongolian tunic -- and wool boots help keep her warm.

"I ride a horse, and herd animals," she said. "When I get back home from the pasture, I drink aarts and eat khuushuur" -- a hot sour curd beverage and meat dumplings.Mongolia is periodically hit by deadly winters known as zud, marked by heavy snow and cold so severe that livestock are unable to graze, lose strength and freeze to death on the open steppe, sometimes destroying herder livelihoods. Millions of livestock died in the last one in 2010.

About 1.3 million people live in Ulan Bator -- more than 40 percent of Mongolia`s population.

The lowest temperature recorded in the city so far this year was -34 Celsius on January 26, according to weather information service Weather Underground, but residents said the winter has been relatively mild.

"This year it`s surprisingly warm," said Begziin Dalai, a spry 86-year-old retired driver and father of eight, warming a bare hand over a meat-hawker`s open fire on a sunny but sub-zero afternoon.

Clyde Goulden, curator emeritus of the Academy of Natural Sciences of Drexel University in the United States, who researches Mongolia`s climate, lists the country`s plateau location and large open expanses as among factors that make it cold.

Still, Mongolia`s average temperature has warmed more than two degrees Celsius, or almost four degrees Fahrenheit, over the past 40-50 years, he said, citing studies.
 

Source:AFP

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Diplomatic Access: Mongolia

Mongolian Ambassador to the U.S. Altangerel Bulgaa discusses Mongolia’s vision for Asia.

Image Credit: Official White House Photo by Lawrence Jackson

In our first interview, His Excellency Altangerel Bulgaa, Ambassador of Mongolia to the U.S., gives The Diplomat an overview of Mongolia’s vision for and role in the Asia-Pacific.

The Diplomat: From Mongolia’s perspective, what are the biggest threats to regional security?

Amb. Altangerel:  The Northeast Asian region is special in many ways. It is a region where the Cold war legacies still remain, where there is the dilemma of divided states, nuclear issues, and a number of territorial disputes. In addition to these underlying security issues, the presence of violent extremism, terrorism, environmental degradation, poverty, widening inequality gap, and rapid urbanization are becoming real challenges to the region’s lasting stability.  These are real issues that if not addressed in a timely manner could pose a real threat to the region.

How can these threats be addressed?

These threats are all manageable. To manage them we need confidence-building and transparency.  We need to stick to the standing international norms and means in dealing with issues. Open and inclusive dialogues must replace forceful actions. Ways to resolve them should be discussed at every level: government, international organization, NGO and academic. The Ulaanbaatar Dialogue is a form of this attempt.

What role will the Ulaanbaatar Dialogue play in Mongolia’s vision for regional security cooperation?

President Ts.Elbegdorj initiated the Ulaanbaatar Dialogue. It is a regional confidence building measure that promotes an open platform for regional and non-regional countries to exchange views and communicate on issues relating to Northeast Asia security, cooperation, and peace.

Since the launch of the initiative, Mongolia has organized a series of events, such as the Northeast Asian Women Parliamentarians meeting in 2013 and the Forum of the Northeast Asian City Mayors in 2014.

The track-two International Conference on the Northeast Asian Security,  held in June 2014, was attended by scholars and academics from many countries including Mongolia, DPRK, Republic of  Korea, China, Russia, Japan, U.S., the Netherlands, Germany and the United Kingdom. Participants discussed various issues of regional security including the Korean Peninsula issue. This conference received a very positive feedback.

How will Mongolia contribute to resolving regional issues, including the standoff over North Korea’s nuclear program?

Mongolia has maintained friendly and close relations with the countries in the Northeast Asian region including the two Koreas. Mongolia and North Korea, other than realizing high level visits,  engage in educational and academic, artistic and athletic exchanges among our scholars, students and youth. There are no border disputes or unsettled issues of any kind, neither with Russia nor with China, the only two neighbors of Mongolia. We enjoy a nuclear-free status, which is formally recognized by the five Permanent Members of the UN Security Council. We hope these circumstances can offer a leverage in resolving the regional issues.

As we all know, the Korean Peninsula denuclearization is the most challenging issue in the region. Mongolia advocates and supports the principles of denuclearization and non-proliferation. These principles have been reflected not only in Mongolia’s foreign policy priorities but in its national legislation. In 1992, Mongolia became the first country in the world to unilaterally proclaim its territory as a nuclear-weapon-free zone. The five permanent members of the UN Security Council pledged in a joint declaration to respect Mongolia’s nuclear free status in 2012.

Mongolia has consistently supported the six-party talks and every effort toward a nuclear-free Korean Peninsula. Mongolia is optimistic that re-starting the six-party talks will contribute significantly to the regional security.

In the past three years, Mongolia has hosted visits from the U.S. Secretary of State and Secretary of Defense. How are Mongolia-U.S. relations progressing under President Obama’s “rebalance to Asia” strategy?

Indeed, high profile visits as well as side meetings at the highest level are frequent between our two countries. Today Mongolia and the United States enjoy sound political and economic relations. Mongolia considers the United States as its most important “third neighbor.” Both countries work toward developing cooperation on the principles of a comprehensive partnership that is based on our common values and shared strategic interests. The U.S. has always extended enduring and unwavering support toward Mongolia in every aspect and for that we are grateful.

We are committed to addressing our shared economic, security and development interests through multilateral institutions in the Asia-Pacific. We stand united in our efforts to protect and promote freedom, democracy, and human rights worldwide. Our troops serve side-by-side in Iraq, and now in Afghanistan. Our peacekeepers are deployed together in conflict prone African countries.

Mongolia and the U.S. signed Trade and Investment Framework Agreement in 2004 and the Transparency Agreement between our countries was ratified by the Mongolian Parliament in 2014. Given this legal foundation, there is a real chance to enhance our trade and economic cooperation with the U.S. and to bring more U.S. investment into Mongolia.

As of today, the U.S. is our fourth largest trading partner with a half billion USD in total trade turnover. However, with a direct investment amount of $300 million, it is only the eighth largest investor in Mongolia. This number needs to be increased.

This brings us to the extent that Mongolia is already an active part to the pivot strategy.

In this regard, expressing interest and joining the Trans-Pacific Partnership agreement could be a good opportunity for Mongolia to enhance its trade and economic relations with the U.S.

What goals does Mongolia have for trilateral talks with Russia and China?

Our foreign policy priorities are to maintain friendly and balanced relations with our neighbors, China and Russia; to expand our partnership through our “third neighbor” policy; to work closely with the countries of the Asia Pacific region, and to play an active role in the international arena.

Mongolia maintains a historic, traditional, comprehensive and at the same time a strategic relation with Russia and China.

Last year President Ts. Elbegdorj proposed the first ever trilateral summit between Mongolia, Russia and China, and it was held in 2014 on sidelines of the 14th Summit of the Shanghai Cooperation Organization (SCO) in Dushanbe.

Both countries are the largest trading partners of Mongolia. In the modern world, Mongolia sees its landlocked location between Russia and China as an opportunity to link them. Also the geographic proximity provides good opportunity for Mongolian products and services to access their markets.

What is the outlook for Mongolia’s bid to join APEC? What would being added to the APEC bloc mean for Mongolia economically?

Being an Asia-Pacific country with a growing economy, Mongolia has an enduring aspiration to become a member of APEC. As a premier forum for facilitating economic cooperation, trade and investment in the Asia-Pacific, APEC’s impact is huge on the Mongolian economy. Let me quote a few numbers for a better picture. The APEC economies account for 90 percent of Mongolia’s foreign trade turnover; China, Canada and Russia make up 96.4  percent of Mongolia’s exports; Russia, China, U.S., Japan and the ROK account for 76.8 percent of Mongolia’s imports. Our neighbors (China and Russia) are the only gateway to sea. The APEC economies also dominate FDI inflows to Mongolia: China, Singapore, Canada, ROK, the U.S, Russia, Hong Kong, Australia, and Japan are among our top 12 investment partners.

Membership in APEC would provide an excellent opportunity to expand and diversify our trade and investment through removing tariff and non-tariff barriers.  For the APEC family, it would be expanded by a country with democratic governance, growing economy, rich natural resources, and a strategic location.

Source:http://thediplomat.com/

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Mongolian Institute for National Strategy interviews Byambasaikhan, CEO of Erdenes Mongol

There are not many examples globally where governments have successfully led “non-service related” businesses profitably and are “leaders in class”.  In the mining sector the keys to success are to have a high quality orebody and world class management approaches, which implies a world class team.

In practice this means to be highly safe, to design your business processes to keep unit operating costs at low levels, to deliver capital projects on time and to budget and to achieve the fair market price for your product.

Investors and financiers look for these attributes from those company’s seeking to raise finance. They also look very closely at the shareholders, their motivations and the support of the government for business and the judicial system that presides over the borrower.

Mr. Byambasaikhan faces challenges both inside his holding company and with his shareholders. Gaining alignment as to the changes required and the rewards that may follow will be his immediate challenge.

————————-

Background:

1. Byambasaikhan is the CEO of Erdenes Mongol LLC, the nation’s largest investment holding company that is comprised of Erdenes Tavan Tolgoi JSC, Oyu Tolgoi LLC, Erdenet Mining Corporation, Shivee Ovoo JSC, and Baganuur JSC. He also chairs the Business Council of Mongolia which represents 260 active companies.

*What is the key difference in your new role from previous roles?

I am now in charge of a portfolio of companies in which the GoM is a shareholder. For SOEs, there are different sets of legislation and rules, which means that I can’t manage Erdenes MGL like a business. These companies currently are not making money for shareholders.

*What is your vison for EMGL?

To transform its value for the shareholders–make it cash positive and leverage the value to help and grow the Mongolian economy. First, we need to make these companies healthier and start contributing to the investment vehicle, so there’s a turnaround, and then implement a growth strategy. And then this Mongolian Investment Company will be able to look at making a contribution to the economy on an ongoing basis.

 *What are your short term plans for EMGL?

To understand the performance of the businesses and areas for improvement, which include transparency, quality of governance, and best business practices.

*What are the problems you need to overcome?

There are problems at 2 levels:

1. Government involvement in business and the negative international perception of this.
2. Raising money and attracting talent to turn these businesses around.

*You have said Mongolians consider themselves poor. Why is this?

This is a prevailing mindset in Mongolia. I disagree with this.  You have people who own their homes, own their own cars, and still think they are poor.

Most never think about mortgaging their home to get more value from such an existing asset. Or the land where the ger areas are located: each family is given a plot of land which can be turned into a mortgageable asset. And the government thinks the same. Then you have Erdenet, Baganuur, Shivee Ovoo, Tavan Tolgoi… all these assets, if properly managed and valued, are worth a lot!

So one reason is tradition – people use their assets but are not leveraging those assets. The legal system also hasn’t supported this practice.

*Is government a good manager of business?

Government’s job is to ensure that proper economic policy is made, and to ensure rule of law for all, not to manage business. It is poor at raising investment capital, poor at shareholder relations, poor at project delivery and at profit generation.

*So why are you taking this job on? Are you doomed to fail?

A lot of people tell me that. Yes, it is a difficult job, and the past approaches must be changed. The past can’t be the future. I will fail if I do not work according to international standards. Literally, I would be wasting my time if I continue to follow the old patterns that have been used up to this point.

*Are there examples of large successful businesses being established in Mongolia?

The correct [better] question is: are there Mongolian businesses being run according to international best practices? The answer is “yes.” but those businesses are not in the majority.

We need to transform all of our locally based businesses into ventures run according to international standards and world best practices.

*What are the Mongolia “positives” that your want to build on?

Our laws are not bad for running a business, and a number of laws have been improved lately. The important thing is that people need the right attitude, transparency, etc. There are challenges but I am in a position where I can be a positive influence.

Whatever way you measure it, Mongolia is still a democracy. Yes, there are many problems, but still I would much rather be in here than Kazakhstan, for example, where the economy is 20 times larger than Mongolia’s current economy. The freedom that I get here is something that people take for granted. Mongolians have property and opportunity, but we take it for granted.

There are concerns regarding government interference in business, the way the judicial system works, and penalizing the business leaders. International business and lenders want to see the rule of law and the sanctity of the contract prevail in Mongolia.

*What are the long term objectives for EMGL?

My main objective is to turn these assets into more profitable and valuable businesses. We need to make them more profitable, expand them, get the earnings, and use them for other purposes. This means to restructure and reform these companies and raise money.

*Can you do it faster than a Temasek?

There are three things that I can do to make this journey shorter:

• Temasek took 40 years, but Mongol Temasek could do it in 10 years thanks to experience,  and technology.

• Proven business model and world-defined standards – the Temasek model is proven.

• Qualified HR base – We live in an international world. Countries that are highly successful capture an international perspective by leveraging the best people from wherever in the world. We are behind in Mongolia so we need to take shortcuts wherever we can. That means leveraging technology, relationships, etc.

What you are doing is basically applying already existing principles and standards into very fertile ground. It took certain economies and countries 30-40 years to transform to this level. We could take great strides over the next 10 years. We have already had property ownership rights for 25 years. Now let us take it to another level.

*What changes do you need from GoM?

Not so much changes in the law, but it is important to have a fair judicial system which protects businesses and helps make them competitive.

Government should help business not hinder. A government-owned business is no different than any other business. The government is just a shareholder. The business needs to be profitable and bring value to its shareholders. Governments don’t have the right to run the businesses badly. Private companies, and all companies for that matter, have to be well-run to survive.

Political stability and a stable business climate is also very important.

Source:http://nationalstrategy.mn/

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