Khan compensated for Mongolian expropriation

03 March 2015
The Mongolian government must pay Khan Resources $100 million in compensation for its 2009 cancellation of the company's uranium licences, an international arbitration tribunal has ruled.
The final and binding ruling, administered by the Permanent Court of Arbitration in the Netherlands, concludes the arbitration process launched by Khan in January 2011. If the Mongolian government and state uranium exploration and mining company Monatom fail to make the settlement as directed by the court, Khan says it will take steps to collect the payment under a multilateral treaty on arbitration awards of which Mongolia is a signatory.
Mongolia has substantial uranium resources, and Russian company Priargunsky Industrial Mining & Chemical Union carried out open-pit mining at the Dornod deposit between 1988 and 1995. No uranium mining has taken place in Mongolia since then. Post-1995, Canadian company Khan Resources and its predecessor companies took up interests in Dornod, and a full definitive feasibility study on the property published by Khan in early 2009 showed the project to be economically sound.
However, later the same year the Mongolian Nuclear Energy Agency and Russia's Rosatom agreed to establish a joint venture company between the then recently established Monatom and Russian uranium mining company ARMZ to develop two Mongolian uranium projects including Dornod.
In July 2009, the Mongolian government passed a nuclear energy law which provided the state with 51% of the Dornod property without compensation to prior owners. The following year, the government refused to reissue Khan with licences for the property, effectively expropriating Dornod from Khan. In response, Khan initiated legal action.
Khan said yesterday that the tribunal had agreed with "virtually all" of the company's arguments and concluded that Mongolia had breached its obligations to Khan under its own foreign investment law.
Khan's arbitration filing had sought a minimum of $200 million in compensation, plus fees and interests, based on net present value. However, the tribunal ruled that this approach was inappropriate, and instead determined damages based on previous offers made for Dornod, notably a February 2010 offer to purchase Khan by the China National Nuclear Corporation (CNNC) which failed to progress after problems obtaining regulatory clearance.
The final damages awarded were therefore based on a July 2009 value of $80 million, plus interest. The tribunal also awarded Khan full arbitration and counsel costs of $9.1 million.
Khan president and CEO Grant Edey said the company was pleased with the ruling. " A former Mongolian government illegally expropriated Khan’s uranium property without any compensation which is contrary to the rule of law," he said.
Khan closed all of its Mongolian subsidiaries in 2013 and shut its Ulaanbaatar office in June 2014.
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