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Mongolia suspends SouthGobi licences
April 16 (Financial Post) In Mongolia, almost anything Chinese is viewed with suspicion — including deals with Canadian mining companies.
A new political debacle in the land-locked Asian nation has thrown a wrench into plans to transfer control of Canadian miner SouthGobi Resources Ltd. to China.
On Monday, the Mongolian government announced it will suspend SouthGobi’s mining and exploration licences on the rich Ovoot Tolgoi coal mine. The announcement came out of nowhere, and SouthGobi maintained that its licenses are in good standing.
According to sources, the move appears to be largely political.
Earlier this month, Ivanhoe Mines Ltd. agreed to sell its 57.6% stake in SouthGobi to state-owned Aluminum Corp. of China Ltd. (Chalco). The move allows Ivanhoe to focus its resources on the US$6-billion Oyu Tolgoi copper-gold project, also in Mongolia.
The deal received some negative reaction in the local press. Mongolians feel overwhelmed by China, their powerful southern neighbour, and are wary of increasing Chinese investment in their country. There was particular concern about this deal because it was struck between Canadian and Chinese firms, and Mongolia got no say in it.
Tensions in Mongolia are also heightened by the current political climate. Elections are coming up in June, and late last week, former president Enkhbayar Nambar was arrested and jailed on corruption charges following a dramatic police raid of a compound. He was planning to run for parliament in the election.
It appears that this conflict might be resolved by simply giving the Mongolian government a chance to review the transaction. SouthGobi said it has already reached out to Ivanhoe and Chalco and asked them to discuss their deal with the government.
“In a best case scenario, in one to two weeks, a foreign review process would be established, Mongolia would review the deal, and the Chalco transaction would close in August as planned,” BMO Capital Markets analyst Meredith Bandy wrote in a note. “The transaction timeline may already be long enough to accommodate some delays in the review process.”
But even if the deal closes as planned, the proposed suspension casts a black cloud over Mongolia, a fledgling democracy that is struggling to prove it is a good destination for foreign investment.
The country appeared to reach a breakthrough in late 2009, when it struck a deal with Ivanhoe to develop Oyu Tolgoi after years of talks. But there have been occasional slip-ups since then.
One of the biggest slip-ups came last fall, when the government attempted to re-open the Oyu Tolgoi negotiations and take a bigger piece for the state. It backed away from that request after getting denounced by the international community.
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"Mogi" Munkhdul Badral
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