It is hard to say that there was a progress in the negotiation of the investment agreement

Sep 9 • Business, Companies, Economy, Interview, Mining • 646 Views • No Comments on It is hard to say that there was a progress in the negotiation of the investment agreement

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Mr. Munkhbat, the Vice President of Ivanhoe Mines Mongolia Inc was interviewed.

Q: Once the Coalition Government established, the issue of Oyu Tolgoi and Tavan Tolgoi will be discussed. Also there was a rumor that their investment agreement will be signed very soon. We would like to discuss about this issue. Also there was the long awaiting expectation to solve this issue immediately.
Munkhbat: I understand that there is an expectation for both sides. Since after the amendment of the Mineral Law of Mongolia in 2006, Ivanhoe Mines negotiated with the Government of Mongolia and both sides are agreed on the draft of agreement and proposed to the Government. It was proposed to the State Great Khural (Parliament), but it was discussed by the parliamentary session in June, July 2007 and returned to the Government. Since that time it has been pending. I understand that both parties sincerely understand and agree to exploit such a huge project. Also political parties have such understanding and they inserted this issue into their program. Being as a Mongolian, I believe and hope that the political parties which won the most seats in the parliament decided to jointly establish Government in order to exploit this huge mining project. Unfortunately, the agreement will not be concluded that easily as mentioned before. Investors have expectation that first to establish the joint Government and then amend again the Mineral Law of Mongolia. But I cannot tell that how faster that procedure will be. I only hope it won’t be that long again.

Q: Is there any progress yet? Have you met with the old MPs and Government working group?

Munkhbat: In early 2008, we resumed our talks with the previous Government. Due to the approaching election, there was pending situation. Since that, parties haven’t met; therefore it is hard to say that there was progress. In year 2006, over 1800 people were employed by Ivanhoe Mines, but now there are only 500.

Q: This issue was the main question for us as well. There was some hearsay that many people were cut. Will Ivanhoe Mines cut its staff further or expand?

Munkhbat: as for today, these 500 people are mainly in charge of securing the project and continuing the work of the 1st vertical hole. This is the minimum number. If the Mineral Law will be amended and the agreement will be concluded as earlier as possible, then the project will expand. I think that those 1300 people who lost their work are paying so much attention on the project development and agreement progress. Generally, we will employ up to 10000 people, on temp basis, during the construction of the factory and mine and 3000-5000 permanent work position after the building the mine.

Q: Which works are being carried out at Oyu Tolgoi?

Munkhbat: The exploration team is working. The horizontal intrusion of the 1st vertical hole which is reached down to 1385 meters is being carried out. Also there was an accident in the vertical hole. Fixing work of it will be finished in November or December.

Q: In early 2008, there was a disclosure that it found much bigger deposit than South Oyu and Hugo Diamond.

Munkhbat: Heruga deposit was disclosed in the early 2008. It is continuation of those two deposits and one part of the ore body. As for now, drilling work for this deposit is being carried out. It is still early to calculate the reserve. But it is smaller than South Oyu and Hugo Diamond.

Q: But this disclosure shall show effect in the company’s activity, reserve and the share price.

Munkhbat: Obviously, we are disclosing about it to Mongolians and foreigners. Heruga is not that big deposit. But it is good news for the investors when increasing the total reserve of the project and it is also good news for Mongolians because it is the treasure of Mongolia.

Q: It will be long discussion if we talk about the share price changes at stock exchanges. But can you inform us about the recent news on share prices of Rio Tinto and Ivanhoe Mines?

Munkhbat: There is the declining trend in the world economy in the second half of 2008. Due to this recession, the commodity price is falling. Copper was 8800 US$ in 2006, but now it is 7200-7300US$ per ton. Also gold price is falling. Hence, when commodity price decreases, respectively, the share price of mining companies are decreasing. As for the last month, share price of mining companies are decreasing by 25%. It is same for Ivanhoe Mines and Rio Tinto. Ivanhoe mines share price was 11 US$ in July, August 2008, but now it is 9,6 US$. Generally speaking, the latest development in the world economy suggests us that these two mining project must immediately be exploited.

Q: If the agreement is concluded, then how long will it take to produce first products?

Munkhbat: It was said many times during the negotiation, that after the agreement is concluded, and then time span for the first production will be 30 months. But recently, we are facing some difficulties such as cut-off manpower and recent accident. In other words, another 2-3 months will be added.

Q: In 2006, when the negotiation progress is satisfactory, when did you reckon to start production, and now…?

Munkhbat: It was said that 30 months at that time, then it was end of year 2009. As I said you before, now the situation is changed. Also, more time is needed to conclude the agreement. If we say enthusiastically, if we conclude the agreement in the first half of year 2009, then the first outcome will be shown in 2012.

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