A new mining era for Mongolia?

Mongolia's Democratic Party leader, Tsakhiagiin Elbegdorj, won against the country's ruling Peoples Revolutionary Party in May's national elections.

It was touch and go right up to the wire [See article below: "Polls close in Mongolia with mineral wealth in sight"]

What does this mean for the opening of Mongolia's richest projected mine - the US$ 3 billion Oyu Tolgoi copper-gold project in the hands of Ivanhoe Mines and Rio Tinto?

The enterprise has already been delayed for nearly nine years, as debate raged within the country over translating the theoretical wealth from possibly the world's richest deposit of its kind, into benefits for Mongolia's three million citizens. A "windfall profits tax", implemented three years ago, was effectively abandoned by the previous government after pressure from the mining lobby.

Elbegdorj is widely credited as a "hard liner", so far as relying on foreign investment is concerned. But Mongolia has suffered, like many other states, from the recent plunge in commodity prices, particularly for copper. In theory, the depression favours Ivanhoe and Rio Tinto at the bargaining table should they try driving down the government's 34% stake in Oyu Tolgoi and acquire a bigger chunk for themselves.

However, just over half the country's other major mine project - Tavan Tolgoi coal - is owned by the state - a proportion that seems widely viewed in the country as a mininum benchmark for future contracts or the re-negotiation of existing ones. With Elbegdorj now in the driving seat - and a new draft agreement on Oyu Tolgoi currently before the parliament - the prospects for Ivanhoe and its finance partner Rio Tinto don't look good. This was reflected by a more than 10 drop in Ivanhoe's share price immediately after Elbegdorj came to power.

Mongolia is surrounded by China on its southern, eastern and western borders. The Chinese regime's demand for minerals and metals plays a critical role in decisions taken by its diminutive neighbour, which relies on the Peoples Republic to buy the majority of its exports.

So far, no Chinese mining company has openly expressed an interest in acquiring Oyu Tolgoi. Rio Tinto's re-financing agreement with Chinalco, although currently being "re-negotiated", doesn't envisage the Chinese gaining direct access to the UK-Australian company's Mongolian play.

For the time being, all Mongolian eyes must be on Elbegdorj and his new cabinet. So will be the eyes of others, wondering whether he will now go down the "Chavez road" (quasi-nationalisation of the country's mineral assets) or take the "Morales route" (continuing to offer resources to foreign companies like India's Jindal).

Perhaps he will surprise us all by carving out a specific Mongolian Way?

[Comment by Nostromo Research, 25 May 2009]

Polls close in Mongolia with mineral wealth in sight

By Jason Subler, Reuters

24th May 2009

* Country hopes to avoid unrest following polls
* Smooth elections important to quick approval of mine deal
* Voters hope for way out of poverty and better education

ULAN BATOR - Mongolians voted on Sunday in a presidential election they hope will bring the stability needed to allow the country to tap more of its vast mineral wealth.

Polls closed at 10 p.m. (1400 GMT), but a result in the tight race between incumbent Nambariin Enkhbayar of the ruling Mongolian People's Revolutionary Party (MPRP) and opposition Democratic Party (DP) candidate Tsakhiagiin Elbegdorj is unlikely until early on Monday at the soonest.

The young democracy is hoping to avoid a repeat of the rioting that followed last year's disputed parliamentary elections, which killed five and paralysed policymaking for weeks.
Any such outcome could further postpone approval of a draft investment agreement on developing the pivotal Oyu Tolgoi copper and gold project, hampering the government's efforts to use its deposits of copper, gold, uranium, lead, zinc, and coal to help pull its nearly 3 million people out of poverty.

The General Election Committee, hoping to avoid unrest, urged the media not to report unconfirmed allegations of fraud.

"The media and television are showing comments from ordinary people and there are many different things being said about fraud and cheating, information that is not confirmed," committee head Namsraijaviin Luvsanjav told a news briefing.

Nearly 65 percent of registered voters had cast their ballots by 9 p.m., the committee said, suggesting turnout could be significantly lower than the roughly 80 percent in past polls.
Mongolia, wedged between Russia and China, has been hit hard by falling mineral prices. The election pits Enkhbayar's pledge to beef up the rule of law against Elbegdorj's promises of change and fighting corruption.

A win by Elbegdorj could complicate policymaking on mining, given his track record of anti-foreign and populist inclinations, analysts say.

LOW TURNOUT MAY HELP INCUMBENT

Exit polls are banned, but relatively low turnout could work in favour of the incumbent, said Luvsandendev Sumati, director of the Sant Maral Foundation, a polling and survey group.

"What might change the election outcome is only feet," Sumati said. "The MPRP and their candidates were always better organised so their supporters are voting in an organised manner. But Democratic Party supporters, they are rather those who think, 'Well, should I go or not?'"

Voters turned out in droves in the capital, many dressed in traditional long silk cloaks known as deels, in a sign of their respect for the largely ceremonial head of state and symbol of national unity.

"The most important thing the new president needs to do is develop the country, to pull us out of poverty," said Davaadorjiin Suvdaa, a 56-year-old retired worker.

In the country's vast windswept grasslands, many nomadic herders traveled dozens of kilometres (miles) on horseback and motorbike to the nearest polling stations.
"Stability is the most important thing to me," said Sandagyn Bayarmaa, 46, who lives with her husband in a traditional felt tent and herds goats and sheep like much of the population.

The countryside is the base of support for the MPRP, the reincarnation of the party that ran Mongolia as a Soviet satellite through much of the last century, while Elbegdorj draws largely on urban voters.

Mongolia, whose empire under Genghis Khan once extended as far west as Hungary, must now decide on what terms it can accept working with foreign miners.

Negotiations over the $3 billion Oyu Tolgoi project, set to be developed by Ivanhoe Mines (IVN.TO) and Rio Tinto (RIO.AX) (RIO.L), have dragged on for years.

Sealing the deal quickly is increasingly important if Mongolia hopes to realise its ambitions of becoming a mining powerhouse and take advantage of the next upturn in commodity prices, analysts say.

(Additional reporting by Reuters Television and Jargal Byambasuren; editing by Andrew Roche)

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