A Critical Time for Mongolian Mining
Mongolia, Asia’s new emerging mining region, is currently undergoing a critical time in its early development as a high growth mining destination. With the recent formation of a new coalition government that campaigned on Nationalism of its resources sector, the relatively inexperienced government is attempting to find its feet and just precisely how far they’re willing to go will be something that all foreign investors will monitor closely. The most pressing case is the proposed re-negotiation of the contract with Rio Tinto over the massive Oyu Tolgoi copper/gold mine, south of Ulaanbaatar. Rio have publicly stated that the investment agreement signed in 2009 is a legally binding contract and they have no intention of re-negotiating the terms. The government find themselves in a difficult situation; to follow through with their promise and ‘populous’ stance on nationalism, or face an unprecedented collapse of economic growth and prosperity.
Jon Bowker, Regional Manager Asia Pacific, recently spent two weeks in Globe’s recently established Ulaanbaatar office in Mongolia,
“The consensus amongst many of the people I spoke with whilst in UB stated that the impact of the newly formed government and their hard line stance on foreign investment has already resulted in long term damages. It may take years for investors that have recently left the market to return, due to the unpredictability of government policy.”
It’s understood that at least a half a dozen mid tier international mining companies have departed Mongolia since the new government formed.
However, for those remaining and who have been operating in Mongolia for some time now, there is still a strong level of cautious optimism regarding the future of the mining sector in Mongolia. They believe that the government simply cannot afford to continue to lose foreign investors at the current rate, and that a change of direction is imminent. This may result in alternative measures to ensure revenue is generated by the Government without the need to ‘lay claim’ to mining leases developed by international companies. Bowker further observed,
“This is a classic case of a ‘Mongolian stand-off’ at the moment, and while no one can write off a major collapse of the market, the experts are predicting a balanced approach will prevail and growth for Mongolia will continue for the foreseeable future. Mongolia has a proud, rich cultural heritage and the people generally prefer to discover things for themselves. However, the new government appear to be more willing to understand and learn from overseas countries that have undergone similar economic growth and mining booms, with a view to potential best-practice for a balanced approach to foreign and domestic involvement in projects, and filtering this new found prosperity through to its people.”
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