Monday 24th October 2016

Resource Clips

Not without risk

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In other Mongolian news earlier this week, SouthGobi Resources TSX:SGQ announced a management shakeup attributed to high dudgeon on the part of Rio Tinto RIO. SouthGobi President/CEO Alexander Molyneux was dumped in favour of Ross Tromans. The Anglo-Australian giant apparently expects its new choice to maintain better relations with the Mongolian government.

Turquoise Hill Resources TSX:TRQ, the new persona of Ivanhoe Mines, played a role in the shakeup. On September 4 Turquoise Hill announced cancellation of a deal set up by Ivanhoe founder Robert Friedland just before he left the company last April, after Rio Tinto gained control. Under the agreement, the Aluminum Corporation of China (Chalco) was to acquire Turquoise Hill’s interest in SouthGobi, which now stands at 58%. Both Turquoise Hill and Chalco expressed a lack of confidence in getting government approval for the deal. Last April Mongolia had threatened to suspend operations at SouthGobi’s Ovoot Tolgoi Coal Mine due to concern about the Chinese company’s takeover. Mongolia considers China an important market but an ambitious neighbour.

Rio Tinto owns 51% of Turquoise Hill, which holds a 66% interest in Ovoot Tolgoi’s near-namesake, the Oyu Tolgoi Mine. The Mongolian government holds the remaining 34%. The world’s largest undeveloped copper-gold project, Oyu Tolgoi shows measured and indicated resources of 41 billion pounds copper and 21 million ounces gold, as well as inferred resources of 41 billion pounds copper and 25 million ounces gold. Start-up is planned for later this year, with commercial production in Q2 2013.

Mongolia will be one of the key global mining stories for the next 20 years.—Eric Zurrin, as quoted in the Gold Report

For now, Mongolia—its government and many of its citizens—holds 100% of the country’s second-largest mine, Tavan Tolgoi, one of the world’s largest coking coal deposits. The government has delayed to Q1 2013 plans to put 29% of its stake on the market. The IPO is expected to bring in $3 billion.

Last April the government announced a plan to give citizens free shares totalling 20% of the state-owned company that operates the project. But if that was a pre-election ploy, it failed. In June a new Democratic Party government took office after campaigning on the issue of resource nationalism. Some Democratic Party members want to take another shot at gaining a majority interest in Oyu Tolgo, after Mongolia backed down on a previous attempt last October.

In June, Eric Zurrin, director general of Resource Investment Capital, told the Gold Report, “Mongolia will be one of the key global mining stories for the next 20 years.” He pointed out the country of 2.8 million people has a GDP of just $8 billion, but with foreign investment last year of $5 billion. He said he expects to see real GDP growth of 15% this year. “So as an investment destination, particularly in today’s climate of lower global growth, Mongolia is extremely attractive.”

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