A.Munkhbat: It is matter of time when the world financial crisis will come to Mongolia

Oct 16 • Business, Companies, Economy, Interview, Mining • 1074 Views • 1 Comment on A.Munkhbat: It is matter of time when the world financial crisis will come to Mongolia

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World financial crisis brought turbulence in many countries of the world. It also can discourage investors in opening new horizon in their investment. Mr. A.Munkhbat, the Vice President and Executive Director of Ivanhoe Mines Inc., was interviewed.

Q: Today, world financial market is trembling in its crisis. Many experts conclude it as the worst crisis since 1929 in USA. What is your point of view towards it?

A.Munkhbat: Many people have no idea about how deep it will continue when this crisis began. But this crisis soars and influencing international financial market. Yes, many experts compare it as the same crisis in 1929. USA is the biggest financial center of the world. Dow Jones was over 15 thousand in 3 months ago, but it is lower than 10 thousand now. If financial crisis has effect on this point, then it is the sufficient enough reason of creating “financial-quake”. “Credit crunch” that was originated in USA, helps to shrink capacity of many banks in the west. Due to this reason, several banks and financial institutions such as “Lehman Brothers” and “Washington Mutual” have gone into bankruptcy and now, situation is critical in Europe and Russia.

Q: In USA, Federal Government is buying the loss of loan from banks. Visa versa, the Government of Mongolia is pursuing policy to support business. It creates an idea to some people that market economy is wrong, but socialism was correct social structure. What is your point of regarding this development in people’s mind?

A.Munkhbat: Government involvement is not always wrong. Especially, for Mongolia. But we shall not copy the policy that is being implemented in USA. Does Mongolia have economy growth? Yes. In one hand we should try to limit inflation, but on the other hand it could shrink our economy. Mongolian economy is relying very much on mining industry. Therefore, to formulate our policy based on it is wrong. At least we should develop bank and financial institutions and tourism industry. We should multiply our “cows for milk”.

Q: Mongolia has no way to avoid from financial crisis. At least, commodity price is decreasing. It is clear that the state budget will have deficit.

A.Munkhbat: Once the financial crisis is on our doorway, we’d rather prepare for it. Otherwise its impact will be much bigger for us. Today, we have full pocket, but we shall develop protection measures for it. Because, Mongolia is tiny fissure of the world economy, we can’t influence it. This crisis will not ask permission from us, it just itself can “cross” the border. It is the matter of when and how quickly it will come to Mongolia. We shall not throw away our money to even goat, believing that we have over 400 billion MNT in our Mongolia Development Fund. Otherwise, our financially favorable environment will be vanished. We experienced so much pressure and anxiety when crude oil price was rapidly increased in the world market.

Q: Citigroup announced that one ton copper price will go beyond 10.000 US$. But now its price is just around 5000 US$. Many experts said that Chinese market has surplus of copper etc.

A.Munkhbat: I mentioned earlier that US crisis verifies that world market is fully integrated. Many countries in the west are suffering from it. It even has its effect in the biggest consumer market of China and it’s financial market. Why this economy needs much commodity is that this country buys raw material and produce them internally and exports to the world. Also a well known Canadian company CanAccord predicted that copper price will be 4500 US$ in 2009-2010.

Q: When our politicians adopted 60% windfall tax, they were saying that this mineral price will continue in the next 10 years and boasting that people of Mongolia is so lucky.

A.Munkhbat: Yes, as you just mentioned, the future of Mongolia was so bright two years ago. Even the state Great Khural imposes 68% windfall tax. But the scenario is changed overnight. Copper price which was reaching 8800 US$ is now 5000 US$. Therefore, these people who initiate such acts should consider issues from both ends and better be responsible in their challenges.

Q: It will affect a lot in the investment in mining industry and production and its sales.

A.Munkhbat: Our officials were so idle in signing stability agreement on Oyu Tolgoi and Tavan Tolgoi. But the commodity price is decreasing sharply when we even started implementation of major mining projects of Mongolia. The result is certain and clear with or without my comments.

Q: What about the situation at Ivanhoe Mines?

A.Munkhbat: As for Ivanhoe Mines, it didn’t get any profit from its investment in Mongolia. In one word, it has been in loss since 2000. Just one example, Ivanhoe Mines share was reaching 17-18 US$ in 2007, but it is 3.7 US$ now.

Q: Does Ivanhoe Mines have power, strength to overcome this international financial crisis?

A.Munkhbat: A listed company in the international financial markets shall take care of its investors’ interest. It is the truth of the capital market, which is justified according to the law. As for Ivanhoe Mines, it can get through this crisis, because it is implementing coal, copper, and copper projects in many countries in Africa and Australia. Of course it is harming the value of Oyu Tolgoi, at this time when its share price is lower than 4 US$. Even Ivanhoe Mines can get through this crisis, but the biggest loser will be Mongolia. If Oyu Tolgoi project was implemented, then it can surely create several thousand workplaces in Mongolia. Last year we had over 1700 people employed, but due to the postponed signature of stability agreement, we employ around 600 people only.

Q: When the project was developed, it will be in production by 2012. What is the new date of it now?

A.Munkhbat: It was no problem in finding investors for Oyu Tolgoi, because its result is obvious. At least, Rio Tinto, a major mining group, became our investor, so there was no fear of funding. Now, there is risk in finding funding due to the current financial crisis. If we signed agreement earlier, then investors will come without problem, but now it is the question to find who will invest in it. It can be realistic with 2.7 billion US$, but its capital expense is increased enormously.

Q: What will be the increased budget? Do you have calculation?

A.Munkhbat: It was increased up to 5-5.5 billion US$. It is hard to find banks that can invest such amount of funding. Therefore, it is essential to start the project when economy crisis is not that deep. We shall not lose more time.

Q: A new working group of drafting investment agreement project was established with participation of MPs.

A.Munkhbat: I am afraid of deepening crisis when we are talking and exchanging point of views. Originally, Ivanhoe Mines promised to start its production in 30 months after signature of the agreement. But it is not the same now. In order to secure the investment funding, we need some time. If answer enthusiastically, we can start production by 2012, if we sign in the investment agreement within this year. But it is so hard to answer instantly.

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One Response to A.Munkhbat: It is matter of time when the world financial crisis will come to Mongolia

  1. Ivan Investor says:

    It’s a frustrating to me, as an investor in Ivanhoe Mines, to see the development of Mongolia’s resources held up because the government first wants to determine what it will do with it’s share of the revenues. My investment in Ivanhoe is now worth only a fraction of I what I paid for it, and the people of Mongolia are still without the benefit of the revenues they would be entitled to share if greed did not block their progress. Perhaps they have seen how other governments have been able to reap ridiculous amounts of wealth for themselves by breaking agreements with investors after those investors committed their hard-earned money (and it is hard-earned money). These delays and proposed changes have prompted me to sell my investment in Ivanhoe Mines, and I would be reluctant to invest another copper penny for fear that I will receive only half of my copper penny in return, instead of the reasonable profit I should expect to receive by putting my hard-earned money at risk. I now perceive the risk to be much greater, and would only invest if the return I could hope to receive would likewise be much greater. If other investors feel the same way, it would seem to me then that the Mongolian government’s efforts to extract more and more of the profits from this investment will serve instead to make this investment less and less attractive — at a time when capital is becoming more scarce than the underground resources they can’t hope to convert into revenues without the help of foreign investors such as myself. By the way, I am not a wealthy individual. I am a hard-working American that hoped to protect some of my hard-earned savings from the ravages of Wall Street greed by investing in a company that produces a commodity, gold, that might be expected to hold true value. Instead, I am finding that greed in Mongolia has caused my investment to have very little value, and that I would be much better off keeping my money in cash, here in the USA, rather than investing it someplace where my interests would be completely disregarded.

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