CPSI NewsWire brings you market updates on Mongolia, compiled by CPS International, a Mongolian marketing arm of CPS Securities, a Perth, WA based stockbroking and corporate advisory firm, specialising in capital raising for mining and junior stocks.
Mongolia Sets Plan to Cap Investments
May 17 (WSJ) Mongolia's parliament approved a new investment law Thursday that caps future foreign participation in certain strategic industries, reflecting a growing public push to keep profits from the mineral-rich nation's industries inside the country.
When it goes into effect, the law will require foreign investors to obtain government review and parliamentary approval for investments at 49% and above into industries such as resources, finance, telecommunications and media, according to analysts in Ulan Bator. The cap is specific to deals valued above about $75 million.
Foreign investment is critical to Mongolia's future as a commodity powerhouse. But the law reflects anxiety among ordinary Mongolians that foreigners would enjoy the spoils of the country's hoard of coal, copper, gold and other natural resources. Its passage comes weeks before a parliamentary election, the first in four years, for which politicians are expected to campaign on populist promises of ensuring profits are retained in Mongolia.
Dale Choi, chief investment strategist at Frontier Securities in the Mongolian capital, said in a research note Thursday that the legislation would take effect 10 days after its publication unless vetoed by the president.
Previously, Mongolia set few hard limits on foreign investments. In the all-important mining sector, the government had previously wanted about 34% of strategic mineral deposits that were developed privately, and retained stakes of up to 51% on others, including uranium mines, according to the business council.
Mongolia's key mine projects remain in their infancy. The projects are already drawing foreign investment, which has pushed gross domestic product growth rates above 16% in recent quarters. But the nation's increasingly urban and still-poor population so far sees limited trickle down, making it a key issue going into elections.
Specifically spurring momentum for a foreign investment law, according to analysts, was an April 1 deal by Rio Tinto Ltd.-controlled Ivanhoe Mines Ltd. to sell a large stake in a coal company to a state-owned Chinese investor. Under that plan, Aluminum Corp. of China, or Chalco, would pay over $920 million to buy up to 60% in coal producer SouthGobi Resources Ltd., already about 14%-owned by the sovereign-wealth fund of China, China Investment Corp.
SouthGobi, which sits on roughly 800 million metric tons of coal, said some of its mine licenses were suspended by local authorities after the China deal was proposed. Chalco took another step into Mongolia days later, buying control of Winsway Coking Coal Holdings Ltd., another coal miner.
Two other mine projects are worth hundreds of billions of dollars and don't appear immediately impacted by the new legislation, namely a copper and gold project called Oyu Tolgoi, controlled by Rio Tinto and Tavan Tolgoi, which is being privatized with a structure in line with the new legislation.
"Mogi" Munkhdul Badral
Senior Client Manager / Executive Director
CPS International LLC
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