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.