MAC/20: Mines and Communities

Mongolian NGOs appeal to UN over Oyu Tolgoi

Published by MAC on 2010-05-01
Source: The Telegraph (UK), Financial Post and others

The decision by the government of Mongolia to allow Rio Tinto and Ivanhoe Mines Ltd to develop the Oyu Tolgoimine has caused civil unrest in the country because of a number of claimed legal irregularities in the agreement (not least the lack of a full Environmental Impact Assessment and a detailed water study).

The Government proved it is possible to suspend mining licenses, after it did just that to Canadian junior miner Khan Resources.

Meanwhile Mongolia is being touted as the 'Kuwait of Central Asia'. That may refer to the supposed rush to exploit natural resources, or it could be a comparison of their relative governments.

Mongolian NGOs Appeal to the UN's Special Representative of the Secretary-General on Business and Human Rights to Resolve Oyu Tolgoi Mine Dispute

Centre for Human Rights and Development (Mongolia) - OT Watch (Mongolia) - MiningWatch Canada - Rights and Accountability in Development (UK)

23 April 2010

A coalition of Mongolian NGOs appealed today to Professor John Ruggie, the United Nations Special Representative of the Secretary-General on Business and Human Rights, to use his good offices to calm the tension that has erupted in the capital, Ulaanbaatar and other parts of the country, over the decision by the Government of Mongolia to allow Rio Tinto and Ivanhoe Mines Ltd to develop a copper-gold mine in the South Gobi region (the size of Manhattan) without undertaking adequate environmental studies. According to the NGOs there are a number of legal irregularities in relation to the Oyu Tolgoi agreement.

On 4 April 2010 NGOs and 200 representatives from 18 'aimags' (provinces) gathered in Sukhbaatar Square, the main square in Ulaanbaatar, Mongolia's capital, calling on the Government to respect its election promises and accusing it of selling out the country to foreign mining interests. Tension mounted after an unprovoked assault on the demonstrators. On April 5, thousands of protesters marched to the main square to demand dismissal of parliament. The demonstration ended peacefully, but some remained in Sukhbaatar Square waiting for a reply from authorities.

On 8 April a Toyota land cruiser drove into the 'ger' (traditional tent) where the protestors were based injuring eight people. The driver of the vehicle (who was allegedly mentally disturbed) was subsequently arrested by police. Seven demonstrators went on hunger strike demanding inter alia constitutional reforms and a review of the Oyu Tolgoi investment agreement. There are concerns about the situation of the hunger strikers, who were taken away in the middle of the night on 14 April and placed under police guard in hospitals around Ulaanbaatar. A District Health official justified these measures on the grounds that the hunger strikers' blood sugar levels were dangerously low. Police then cordoned off the square, removed the 'ger' and confiscated the hunger strikers' personal belongings and documents. Some of the people on hunger strike, who had come from rural areas, refused treatment and were 'discharged' from hospital on 17 April late at night.

Rio Tinto's participation in the project is supposed to guarantee the world's best mining and environmental practices. But, a major cause of concern is the absence of a full Environmental Impact Assessment and a detailed water study for the Oyu Tolgoi project which is located in the fragile ecosystem of the South Gobi Desert. Increasingly Mongolian civil society fears that the mine licences awarded to foreign companies will reduce both the quality and availability of water, threaten Mongolia's wildlife and biodiversity; and decrease the amount of pasture on which the country's traditional nomadic population depends for their survival.

"The Mongolian Government approved the Oyu Tolgoi Investment Agreement on 31st March 2010 without obtaining the prior consent of Mongolia's parliament (the State Great Hural) and despite the fact that the technical and economic feasibility study submitted by Ivanhoe Mines Mongolia Inc had been rejected by Mongolia's Mineral Expert Council [the technical council that has the responsibility to approve mining projects]" said Ms. Urantsooj of the Centre for Human Rights and Development, a NGO which has made a study of Mongolia's mining and environmental legislation.

On 1 April 2010, the Mongolian NGOs, assisted by MiningWatch Canada and RAID, filed complaints in the UK and Canada against Rio Tinto and Ivanhoe Mines Ltd for alleged breaches of the OECD Guidelines for Multinational Companies.

The Mongolian NGOs are appealing to Professor Ruggie to contact the Government of Mongolia as a matter of urgency and to stress the need for Rio Tinto and Ivanhoe Mines Ltd to undertake a full environmental impact assessment and water study. The NGOs are also asking Professor Ruggie to review the fairness of the benefit sharing arrangements of the Investment Agreement so as to ensure that the project helps eradicate poverty in Mongolia.

"We are hopeful that Professor Ruggie's intervention may help to bring a peaceful solution to the hunger strike and prevent further human rights violations" said Sukgerhel Dugersuren, the Executive Director of OT Watch.

The Speaker of Mongolia's Parliament is trying to negotiate an end to the hunger strike. According to the NGOs nine people remain on hunger strike in Darhan city and in various districts of Ulaanbaatar.

Professor Ruggie is to report to the Human Rights Council in Geneva in June.

"The Special Representative could use his good offices to bring the companies speedily to the negotiating table under the auspices of the Canadian and UK National Contact Points for the OECD Guidelines for Multinational Enterprises" said Patricia Feeney, RAID's Executive Director, an authority on the OECD mechanism.


Notes for Editors

1.    The members of the NGO coalition include Oyu Tolgoi (OT) Watch, Centre for Citizen's Alliance, Centre for Human Rights and Development, Steppes without Borders, Drastic Change Movement and National Soyombo Movement
2.    Rio Tinto plc currently owns 22.4% of Ivanhoe Mines and has an option to increase that interest to 46.6% over the next 19 months.
3.    The Government of Mongolia owns 34% of the Oyu Tolgoi project and Ivanhoe Mines owns a 66% interest in the mine. Oyu Tolgoi LLC is the name of the joint venture company that holds the mine licences.
4.    In 1984, Mongolia embarked on a program to restructure its political and economic system and modernize the country.
5.    In 2005, Professor John Ruggie, the Berthold Beitz Professor in Human Rights and International Affairs, John F. Kennedy School of Government, Harvard University, was appointed the Special Representative on Business and Human Rights (SRSG).

For more information, please contact:
Ulaanbaatar: Sukhgerel Dugersuren OT Watch, tel: 976-11-328823; mobile: 976-99185828
Ulaanbaatar: Ms. Urantsooj, Centre for Human Rights and Development, mobile: 976 99192857
London: Tricia Feeney, (RAID), tel: 44 (0) 1865 436245; mobile: 44 (0) 7796 178 447
Ottawa: Catherine Coumans, MiningWatch Canada, tel: 613-569-3439

Mining hordes invade Mongolia, the 'Kuwait of Central Asia'

By Peter Foster

The Telegraph (UK)

11 April 2010

Ulan Bator - If there was a competition to find the ugliest city on Earth, then the Mongolian capital of Ulan Bator would be the leading contender for the title. The combination of grim, Soviet-style concrete high-rises, rambling slum-shanties and towering coal-fired power plants belching out smoke over the city reeks of the depression and decay that was a legacy of decades of communist rule.

But look more closely and it is clear that change is afoot in this mineral-rich former Soviet acolyte which is on the cusp of a mining boom that has led investors to describe Mongolia as the "Kuwait of Central Asia". The augurs of new wealth are already visible on Ulan Bator's dowdy streets - luxury brands such as Louis Vuitton and Armani have opened branches in the past year, catering to customers in Range Rovers and Porsche Cayennes. And in the city's Grand Khaan Irish Pub the vanguard of the coming investment boom can be found quaffing pints and discussing deals - suited diplomats and investment bankers rubbing shoulders with rough-necked mining engineers and their suspiciously pretty local "girlfriends".

For decades the global resources industry has had its eye on Mongolia's huge mineral deposits - it has world-class reserves of gold, copper, coal, fluorspar, silver, uranium and tungsten - but has been deterred by a combination of corruption and political instability.

That all changed last year, however, with the election of a pro-business Democratic Party government that is now, albeit cautiously, welcoming foreign investors to partake in a boom that the government hopes will triple the nation's GDP in the next decade.

The catalyst for investors was a decision last August by Mongolia's new president, Elbegdorj Tsakhia, to scrap a punitive 68pc windfall tax on copper and gold profits imposed in 2005 by the previous communist-leaning government. Within months the government had also finalised a deal with the Canadian-listed Ivanhoe Mines to develop the $5bn (£3.3bn) Oyu Tolgoi (OT) copper and gold reserve, a Manhattan-sized deposit which will take 60 years to exhaust.

The scale of Mongolia's mineral reserves is mind-boggling, with 15 more OT-sized strategic reserves, according to a research note by Eurasia Capital Management.

The rapid conclusion of the OT deal, which had dragged on for six years under previous governments, has provoked a flurry of activity from both private equity and Chinese, Russian and Singaporean sovereign wealth funds. Mongolia wants to attract $25bn in investment over the next five years to build the roads, railways and new towns needed to exploit its natural wealth.

Market momentum gathered further force this January when Canadian-listed SouthGobi Energy Resources, which mines coal in Mongolia just across the border with China, raised $394m in a secondary listing in Hong Kong. The company had already attracted a $500m investment from China's sovereign wealth fund, the China Investment Corporation (CIC), which itself put $700m into Iron Mining International, a Hong Kong-based mining company with interests in Mongolia.

Masa Igata, CEO of Frontier Securities, which advises Mongolian businesses seeking to raise funds on the international markets, says he expects at least "three or four" Mongolian-based businesses to follow SouthGobi's lead in the next 12 months.

Such headline-grabbing, public investments are only the tip of the iceberg, according to Matthew Totty, managing director of Redwood Capital, which specialises in bringing Chinese firms to the international markets. Mr Totty is among those who see Mongolia as the next big opportunity or, as he puts it "the last major untapped frontier" for mineral exploration, with the lure of a resource-hungry China on its doorstep.

Mr Totty said investing attitudes towards Mongolia had been transformed over the last year. "Since they sorted out the windfall tax and settled with Ivanhoe, the floodgates have opened. I've seen a 180-degree turnaround in Hong Kong; private equity firms that wouldn't touch Mongolia a year ago are now actively focusing on the country."

Such confidence in the "new" Mongolia is not universally shared, however, particularly after the government announced this year that it was cancelling its auction for a 49pc stake in the world's largest undeveloped coal field, the $2bn Tavan Tolgoi (TT) deposit. Having invited bids from heavyweights including BHP Billiton, Vale SA, and US miner Peabody, Sukhbaatar Batbold, Mongolia's prime minister, announced last month the government had decided it preferred complete state control, adding that other projects would be decided "on a case-by-case basis."

Such uncertainty was seen by some as a disturbing throwback to the last decade, as was the passage of a 2009 Nuclear Energy Law which appropriated 51pc of all state-discovered uranium deposits to the government for no fee, effectively halting all uranium projects in Mongolia.

Worries also persist over the impact of strategic squabbles between Russia, which still exerts political influence over Mongolia, and China, the natural customer for its mineral resources. Tensions between the two are being blamed for the failure to agree a deal to build a planned railway linking the OT and TT mines to China, a move described as a "no-brainer" commercially, but unacceptable politically to Russia and sections of the Mongolian public who fear China's growing influence.

And yet, notwithstanding these political risks, the potential rewards continue to lure investors like Mr Totty. "This is the last virgin frontier for minerals exploitation, but you have to accept that there are strategic aspects the government will seek to control. Much of the elite is savvy, Ivy League-educated and understands international business culture. In the end, Mongolia desperately needs the foreign investment and the know-how. If they screw over a big public company they're done for, and they know it."

Khan Resources shares collapse as Mongolia cancels licences

Russia trying to squeeze us out, CEO says

Peter Koven, Financial Post 

14 April 2010

Canadian junior miner Khan Resources Inc. is caught in a geopolitical mess involving Russia, China and Mongolia. And even as the situation worsens, the company maintains that a planned Chinese takeover is still in the cards.

But shareholders are not buying it. Khan shares plummeted far below the proposed takeout price yesterday after the company said its mining licences in Mongolia have been invalidated.

Toronto-based Khan, which controls the Dornod uranium deposit, ran into trouble last year when the Mongolian government suspended one of its licences. The company then received a hostile bid from a state-owned Russian company that it felt was too low.

Khan thought it resolved all those problems when it got the suspension lifted and struck a friendly deal in February to be taken over by China National Nuclear Corp. (CNNC) for $51.8-million in cash, or 96¢ a share. But according to Martin Quick, Khan's chief executive, Russia has worked behind the scenes to squeeze Khan out, despite the Chinese bid. "What they are trying to do is get Dornod for nothing," he said.

Russia and Mongolia recently reached an agreement to jointly develop uranium projects in Mongolia, and Mr. Quick said Russia has used it to pressure the Mongolia Nuclear Energy Agency (NEA) to force out Khan.

Yesterday, Khan dropped its bombshell announcement that its licences have indeed been pulled, and Mr. Quick suspects that the plan is to transfer the mineral rights over to a Russia-Mongolia joint venture.

"It's an absolute travesty, and we're going after the NEA in court now," he said.

Khan shares plummeted more than 30% on the news, and they are now trading at a discount of roughly 40% to CNNC's offer of 96¢ a share. However, Mr. Quick maintained that CNNC accepted all the political risk when it struck the deal and it should still close. The offer is set to expire on May 25.

Mongolia has said that it wants more mining investment from the West, and it took a big step in that direction last year when it struck an investment agreement with Robert Friedland's Ivanhoe Mines Ltd. to develop the giant Oyu Tolgoi project.

The Khan situation threatens to revive political risk concerns that have held back Western investment in the past.

"It's a sad commentary on what's going on in Mongolia," Mr. Quick said. "They speak out of both sides of their mouth. On one side they're trying to attract foreign capital, and on the other side they're bowing to the pressure of Russian hardball."

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