Appendix 2 of the resolution of the State Great Khural: MAIN PRINCIPLE AND GUIDANCE OF MAKING THE INVESTMENT AGREEMENT ON JOINT EXPLOITATION OF OYU TOLGOI COPPER-GOLD DEPOSIT

Nov 11 • Companies, Economy, Government, Laws, Mining, News, Politics • 1697 Views • 23 Comments on Appendix 2 of the resolution of the State Great Khural: MAIN PRINCIPLE AND GUIDANCE OF MAKING THE INVESTMENT AGREEMENT ON JOINT EXPLOITATION OF OYU TOLGOI COPPER-GOLD DEPOSIT

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MAIN PRINCIPLE AND GUIDANCE OF MAKING THE INVESTMENT AGREEMENT ON JOINT EXPLOITATION OF OYU TOLGOI COPPER-GOLD DEPOSIT
1. The agreement must be built in accordance with the effective law and regulations of Mongolia
2. To study the possibility of inserting the provision to allow the Mongolian side to own up to 50%, but starting from 34% and additional take over for the Mongolian side when the initial investment is compensated.
3. To study the alternatives of making the investment agreement based on the product share principle.
4. To agree upon 34% direct ownership of a stock holding company to the Mongolian side and its investment to be replaced with the taxes, payments, fees, dividend and loan types. 5. To effectively implement the payment of mineral resource exploitation, its calculation and distribution in accordance with the mountain-geological condition and reserve size of the deposit, as stated in the provision 47 of the Mineral Law of Mongolia and to receive the certain portion of the payment of the mineral resource exploitation and taxes in advance.
6. To insert the issues of city building and buildings and complexes of infrastructure such as supply of energy, roads, railroad and water those are essential for the deposit, in the agreement.
7. To pursue the principle of producing the final product as much as possible and must agree upon the production phases and product types.
8. To agree upon the national human resource training program and plan according to the laws and regulations.
9. To insert provisions of utilization of up to date environmentally friendly and sound techniques and technologies and implementation of environmental recovery works in every phase of the exploration and exploitation.
10. To consider the conclusion of the working group, which was established by the resolution of Speaker of the State Great Khural, dated December 24 2007, and not to allow or grant discount, waive and freedom beyond the limit of and different than stated in the effective laws and regulations of Mongolia.
11. To agree upon the agreement term according to the provision 29.3 of Mineral Law of Mongolia.
12. To seek advice and consultancy of the internationally recognized and reputable consultancy organizations.

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23 Responses to Appendix 2 of the resolution of the State Great Khural: MAIN PRINCIPLE AND GUIDANCE OF MAKING THE INVESTMENT AGREEMENT ON JOINT EXPLOITATION OF OYU TOLGOI COPPER-GOLD DEPOSIT

  1. marius says:

    and what will it happen?

  2. A Mongolian says:

    First the agreement must be built and then it will be discussed by the Parliament and if parliament agrees then the investment agreement will be signed and Oyu Tolgoi and Tavan Tolgoi will resume its operation

  3. Elmar says:

    WHAT ABOUT THE CRAZY 68% WINDFALL PROFITS TAX.
    OYU TOLGOI IS NOT WORKABLE WITH SUCH TAX IN PLACE.
    MONGOLIA SHOULD LEAR THAT WITHOUT SUCH TAX MONGOLIA WILL EARN MORE MONEY AND INVESTMENT!!!!!

  4. Amarsanaa says:

    It will probably be changed because most of MPs think that it is good for short run but much harmful in longer run.

  5. Elmar says:

    Comment from a shareholder and Lawyer:
    QUOTE “I do not think this is good news. As a lawyer, I can not begin to figure out what this document means in terms of IVN’s financial obligations.
    To me the working principles are little more than a political document meant primarily for local consumption. Obviously, there is a vague desire for an agreement but no real political consensus. However, the biggest problem is the document calls for eventual 50% ownership, which I do not think any rational company can accept. 49, maybe; but not 50.
    Clearly the market was looking for
    something much more definitive. Absent of better new developments, I suspect the IVN stock goes back to support in 1.70-1.80 range.”UNQUOTE

  6. Elmar says:

    “It is difficult for me to imagine ANY company agreeing to mine under conditions of marginal start up profit and reduced future profits after a project is up and running. It reads like a kids christmas wish list. They seem to STILL not understand what investment means and how predictable profits fit into the success of the mining company or their country’s financial future.”

  7. Elmar says:

    ANOTHER ANALYST-INVESTOR COMMENT:
    “It is difficult for me to imagine ANY company agreeing to mine under conditions of marginal start up profit and reduced future profits after a project is up and running. It reads like a kids Christmas wish list. They seem to STILL not understand what investment means and how predictable profits fit into the success of the mining company or their country’s financial future.”

  8. dorj says:

    it is just a draft of guidance on making investment agreement. Also it said that the government of mongolia or investment agreement making side from the Mongolian party shall seek the “possibility” of inserting provision to own 34% upon signature & further takeover of 16%. Frankly to say, yes it looks like children’s wishlist!!!

  9. joe says:

    I appreciate this news website, but I can’t help but wonder why none of the other English-language Mongolian news services are publishing the news about the mineral law working group’s drafts. Amar, do you have an explanation for this? Thanks.

  10. Amarsanaa says:

    I have no idea of what they have in their mind, but being as a diplomat and later adviser in several mining deals and deal maker, I am well acquainted with this business. Therefore, i dedicate this website purely businesses in Mongolia. This drafts were published actually in a daily newspaper called Zuunii Shuudan (Century Post) November 11 2008.

  11. Gary Mellon says:

    I am a large long term investor in Ivanhoe. I have watch the the share price of this company rise slowly over many years to $15 and then to plummet in the last few months. Currently under $2 and valuing the whole company at only $750M. Rio, who got involved 2 years ago own only 10% of Ivanhoe with options to take this upto 40% and are currently sitting on a loss of 80% on their initial investment of $350M. Ivanhoe still needs hundreds of millions of dollars of investments before it can even produce any product. No-one will be financing this project at the terms being discussed in the recent minsterial report. Mongolia has to understand that there has been a major change in world economics and their prevarication over the last 18 months has cost them dearly. Sure this mine will operate but not for many many years unless a win-win agreement is reach, and soon. If the the Mongolian state get this wrong this project will be mothballed and be the subject of bitter international for many years to come. What will the Mongolian people do in the interim?

    I seem to remember that Ivanhoe has been a good friend to Mongolia in the past. It loaned about $40M to the government in order for them to pay down it’s debt to Moscow. Perhaps the Mongolian people would like to purchase shares in Ivanhoe. $200M would curently buy them approximately 30% at today’s prices and then they could say that they are truely supporting the project. Or perhaps they could legislate to take 34% now but be prepared put in a third of the remaining moneies required to bring the mine into production.

    I for one will not be adding to my current stake but will watch with interest to see how this is resolved.

  12. Elmar says:

    ANOTHER EXPERIENCED INVESTOR QUOTE:”It appears the market agrees with everyone that in this climate no one thinks either working group proposal is good.

    The world economy is in worse shape than when the 34% rate was first passed. It appears to me that the Mongols are trying to con everyone that they are being reasonable by returning to a previous position. They might get away with it if they repeal the windfall tax and put it in the IA that the deal is for the life of the mine, and not subject to amendment except by mutual agreement of the parties.
    I remain unconvinced that the Mongols have really seen the reality of the situation.
    Dave” UNQUOTE

  13. copper says:

    The Mongolian Parliament needs to wake up and do a reality check. If they don’t, Rio Tinto is going to walk away from this deal and the people that are going to suffer the most are the Mongolian people. Just look at all the mining companies that are currently lowering production. Some are actually closing down.

  14. Craig says:

    Can anyone tell me what the average Mongolian thinks of all this?

    Is the average person aware that the dithering and delaying tactics of their politicians for the last 5 years has cost them one of their best opportunities to rapidly move out of poverty?

    If they had acted quickly Mongolia could not only have had Oyut Tolgoi/Tavan/Asgat and other mines in production (those three along could double GDP by itself – not including any flow on benefits), but massive investment into exploration for copper, coal, uranium, oil, gas etc would of flowed into Mongolia leading to potentially many more significant discoveries.

    Alas I have sat through booms and busts previously. Prior to the current boom lets remember that there was a 20 year period of chronic underinvestment in commodities and low commodity prices.

    Unfortunately – Mongolia may have to wait a long time for the next opportunity. In the meantime – foreign aid will also dry up. Try as it might, Mongolia will never be able to compete for investment money in other industries against the Chinese behemoth. Its competitive advantage is in the minerals industry. It appears to have squandered that opportunity this time around.

    If the world is entering a prolonged recession, which is looking more likely by the day, I fear for the future of Mongolia. Whereas it could of occupied a powerful position as provider of energy and resources to the hungry chinese economy, now Mongolia may become reliant on Chinese/Russian aid as they both via for control/influence over Mongolia.

  15. Sumya says:

    Good English language source. Keep up the good work.

    Sumya

  16. dorj says:

    yes it really is

  17. Griffin says:

    I sold all my Ivanhoe about two years ago at a substantial loss. I know that Robert Friedland is one of the best commodities men in the business and was happy to invest with him. But I am convinced the Mongolian people are not yet sophisticated enough to realize the costs associated with extracting their tremendous mineral resourses and their Parliment is not yet advanced to the point of bringing a rational consensus to a vote.
    I have followed the progress for the past two years hoping for a break through. But see nothing in the latest news to give me any encouragement to re invest in Ivanhoe. In fact I would not invest any of my own or my client funds in any venture in Mongolia.
    My fear for the Mongolian people is they will eventually be taken advantage of by companies far less ethical than Ivanhoe and Rio Tinto.

  18. joe says:

    Griffin- I agree wholeheartedly with your post. The Mongolian government has destroyed a lot of goodwill by its incredible lack of constructive action. I was willing to accept naivete as an excuse–but it now appears to be stupidity that was the guiding light. This happened in the face of a parade of neutral parties (World Bank, IMF, World Growth, etc.) recommending an agreement that was based on sound international standards. Their recommendations would have given the Mongolian people the best possible return on the resources that the country holds.

    I was willing to accept caution as the reason the GOM spent so much time debating and then sidestepping any mutually agreeable contract. This now appears to be nothing more than the outcome of purely selfish and short-sighted personal and communal cockiness in action.

    At one time I had a respect for the Mongolian people. Due to the actions (and lack thereof) I have witnessed over the last four years, I have lost all of that respect for the politicians and much for the people of Mongolia themselves for allowing this stupidity to continue.

  19. Barry says:

    Sad to say that the delay in the Oyu Tolgoi agreement will stop the commencement of production at the mine for another 5 years.
    Three years the mongolian parliament has been ‘THINKING’ about the agreement.
    ME THINKS their thinker is broke.

    I have been a LONG time shareholder ( 7 years),BUT, it is time to move on.
    their are many m,ore attractive countrys to invest in, Indonesis and Madagascar looking better every day.

    Good luck

    “B”

  20. Ana says:

    Barry, you shut up!

  21. hi says:

    ohh god bless 2 Tolgoi,.. and us. if you looking or a room to live . i will rent my next room. 120$ for month and for 1 person. Contact garigaa_18@yahoo.com

  22. No more china hureyyy says:

    Rest in peace mother nature for few years. GDP poverty aa what the heck people lived on these hills for thousands of years and will continue with mother nature. Why now dig it up for few stupid people starving. I hope the global warming thing gets serious and actually people starts to pass away to hell. Then The natural selection kicks in and those who deserves to live can actually live in harmony. Haha end part is bit corny but this is the truth it will be soon very soon

  23. No more china hureyyy says:

    Yee move on dig some holes in madmen island and make some coffins …. I think I’m gonna cry please come back I’m really hungry now you can dig up anywhere please 2 double angry big mac plz and a coke
    invihoe mines and rio Tinto are gonna get busted big time because of thier crime on this planet. Especially those who call them selfs invester hard times punished Pawww ZApED.

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