MP Kh.Narankhuu: Let’s give the power to sign the investment agreement to the Government

Jul 21 • Interview, Mining • 1860 Views • 14 Comments on MP Kh.Narankhuu: Let’s give the power to sign the investment agreement to the Government

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9200 USD per ton is absurd, let’s give the power to the Government.

Q: Many people worried about urgency of signing IA on Oyu Tolgoi. Being as an expert in this field, how do you see this development around OT IA?

MP Kh.Narankhuu: Before talking about details, I pay much attention on reaching comment agreement or consent on the principle Based on this principle, the correct decision will be made. I see many different and wrong understanding according to the principle.

Q: What exactly?
MP Kh.Narankhuu: Above all, any agreement contract is made by two legal bodies. It can’t be to have a company on the one side and the whole country on the other side. Or it can’t be one man on the one hand and ten or twenty or even 76 people on the other hand. Therefore, one entitled with full power should take challenge. It is the main principle of the Government. Of course, some people or certain group will not like the agreement, arrangement or deal.

Q: What is the next misunderstanding?

MP Kh.Narankhuu: Many alternatives are being discussed such as state ownership and so on. Ownership is the risk that would suffer loss when business is down or enjoy profit when the business is prosperous. We should understand these two cases. Also with ownership, we should contribute our own part to the funding. Owning without payment is absurd. It can have some arrangements like loan or carried interest etc. But the main principle is as follows: Mongolia has no money; it will obviously take loan with certain conditions. Copper commodity price is surging recently, but it had bad times in the past. People remember the best times and forget about bad times. Btu according to the median of many years of price chart, it doesn’t have that bright result.

Q: The first profit will come when copper price per ton reaches 9200 USD. Do you share that expectation?

MP Kh.Narankhuu: Average of many years, never has that high number. 9200 US$ is absurd. The top price was over 8000 US$ per ton last year, but the lowest was 1560 US$ per ton.

Q: Was it when you were Director General of Erdenet JVC?

MP Kh.Narankhuu: It was 1560 US$ in 2001 and 2002, reached $1720 in 2003 and $2200 in 2004. At that time we were so happy like touching heaven’s hand. But it will not be higher than 3000US$ as of average of last 30 years. Average price is taken around 2500-3000.

Q: So how do you think about the benefit of Mongolian people from the project?

MP Kh.Narankhuu: It is not interesting for the state whether investor makes profit. First of all, state will impose tax on water and royalty. It will levy tax in either cases profit or loss. Its citizens will be employed. It is the most important issue. After that if the company makes profit it will impose tax on it. If it makes huge profit it will get dividend.

But if we make agreement based on the price that was phenomenon in the copper commodity history, the agreement is not realistic. We will cheat ourselves.

Q: Do you agree on 34% ownership?

MP Kh.Narankhuu: We should consider our investment capacity and calculate the average price of the copper commodity. We should worry about securing our benefit. Based on this principle, this ownership of 34% is not that big deal. In other word, this issue is the secondary one.

Q: Do you agree with this version of IA?

MP Kh.Narankhuu: As I mentioned before, I will stand firm on two principles. SGK comment on principles and give the authority to the Government. Government should decide it within its full capacity. Nothing else. If everyone makes comment, this agreement is never built. Government gives the name on this agreement such as stability or investment, and name the company that will represent the Mongolian side. As for today, we prefer state owned company.

Q: Can the smelting factory be built in Mongolia?

MP Kh.Narankhuu: Yes, it can. But we have to talk about huge amount of money and investment again. Therefore, we need to urge investors to build that factory. But its initial investment is huge, plus global financial crisis. We can demand whatever we think of or create of, but investors’ have their own limit. We cannot lead the deal making in the philosophy of “we have resource nowhere in the world, but investors have so much interest in our wealth”. We are talking about swapping our resources with certain taxes. I think beyond that investors would say they can’t.

Q: Term of the agreement is under much debate. Can it be compared with Erdenet?

MP Kh.Narankhuu: Yes, of course. We were using Erdenet for 30 years. It has resource of another 30-40 years. Its size will be increased and its mine life would be longer. But it is not fair if suddenly someone came up and says “you stop and go away”. We are not talking about petty mines with mine life of 2-3 years. When we are considering deposit with mine life of several decades or centuries, we can’t talk about agreement term of 15 or 20 years. On the other hand, we are talking about different term which can be applied on small mines.

Q: If the agreement is built, it will repeat Boroo Gold case. Do you agree?

MP Kh.Narankhuu: I think we have good experience from Boroo Gold and market understanding. So I think it will not repeat.

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14 Responses to MP Kh.Narankhuu: Let’s give the power to sign the investment agreement to the Government

  1. Badrakh says:

    He has some good points

  2. Barry says:

    Badrakh,
    He does, But how many other MPs agree with him?
    If this one MP were able to negotiate and set the terms of the IA.
    It would have been done many years ago, don’t you think?
    He at least sounds reasonable. and appears to understand the economics of how profits etc are made from mining.
    The good to Mongolia is as much in the benefits from investment in Mongolia as it is for the Country of Mongolia to get part of the profit. Which ussually is some long time in the future, taxes on the other hand come in when sales are made. Also on utilites and from pay checks spent by employees to purchase goods. also Many goods will be purchase within Mongolia. Many people will be educated in semi-skilled jobs.
    The benefits to Mongolia are extensive.
    OT mine could be digging out mineral resources for as MP says, for 50 to 200 years. A mine agreement for 30 years with option to renew should be OK with Government.
    Another day GONE.
    Now do the deal
    “B”

    Is there going to be this much trouble negotiating for the smelting Plant that They want IVN to build?
    How about Electric power plant they want IVN to build?
    How about the other infrastructure that will be needed in the area of the mine? Sewers, water, heat, roads, schools, hospitals, telephones, Stores, resturants, etc, etc, etc.
    This is only the beggining of the building around OT,and the South Gobi region. My prediction, there will be 50,000 Mongolians and foriegn people living within 50 mile radius of OT.

  3. Barry says:

    I forgot about Railroads.

    Great interview Amaransaa,
    “B”

  4. Barry says:

    Sorry about the spelling. Amarsanaa, I get in a hurry typing.
    “B”

  5. Barry says:

    Unemployment is ONLY 33,000. Where are the miners going to come from?

  6. Amarsanaa says:

    They will be trained in the future, but at the moment almost zero, so foreigners will replace, If I were I would start funding our youth to be trained as the traders and skilled workers and miners. Plus managers.

  7. Zolboo says:

    It will be quite difficult to haul in that many Mongolians to work at OT. The Soviets prepared and trained the Mongolians to live and work in Erdenet and Darkhan for decades. Training the skilled workers will be the key, otherwise that area will be flooded with the Chinese labor.

  8. investor says:

    Armarsanna,

    What’s the lastest on the negotiation? In your opinion, how long is it going to take? Weeks, months? Thanks.

  9. to make the future says:

    SGK took break so it is officially postponed until Oct 1st 2009, according to my little information

  10. Barry says:

    Progress delayed is progress denied.
    Things will get worse in Mongolia before they get better. And better will not come for more than a year from now. at least.
    Parliament should be kept in session until the IA is DONE.
    Sad. “B”

  11. Barry says:

    Press release from Ivanhoe mines.
    July 21, 2009
    Ivanhoe Mines President John Macken said today that the company has accepted an invitation from the Government of Mongolia to resume negotiations on July 27 aimed at concluding an Investment Agreement for the Oyu Tolgoi copper-gold development project.

    The Government of Mongolia has indicated in a letter to Ivanhoe Mines and its strategic partner, Rio Tinto, that it will work with the compnaies to reach an agreement that is “mutually beneficial, fair and sustainable.”

    This Press release does not say whether what comes of the negotiations does not have to meet with and be presented to the SGK in Oct, for final approval.

    does those that are going to be involved in the negotiations on the Mongolian Government side have the authority to sign a FINAL agreement, without further SGK approval or changes.
    it remains to be seen if an agreement can be worked out that does NOT need further changes in any current Mongolian Laws. Any terms contained in this negotiatied agreement MUST not violate any current Laws, or it may be construed as unconstitutional.

    Now we wait another week, or more.

    sounds like they are getting closer to getting this thing done.
    MAYBE> “B”

  12. larry says:

    Dear Amarsanaa,

    In your opinion, how much power the Prime Mininster has on making changes to the tax issue? Thanks.

    Larry

  13. bolloo says:

    Thats right fellas, its just a matter of weeks. IVN said so, they would not announce that unless it was true. They always unleash these forward looking statements as the stock is declining. Its been like clockwork the past 3 years, but perhaps I am the only one who noticed.

    <>

  14. Amarsanaa says:

    To Larry, according to the current legislation and laws he has almost zero chance.

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