Feasibility study (FS) of OT project Investment Agreement (IA) has been rejected after discussion by Mineral Wealth Professional Committee. We got details on this matter from M.Ariunbayar, Deputy Chairman of the Committee and Head of Geology and Mining Division, MRAM.
Q: The Committee has rejected the OTFS. What was the reason?
M.Ariunbayar:There were several reasons. First of all, economic estimation of 19 million tons was not incorporated in the FS. Secondly, as per ore mining, two versions of 100000-150000 tons have been developed. In terms of water 100000 tons is possible, however water issues had no adequate reasons and solutions as for 150000 tons. According to the agreement, ore mining should be up to 58 million tons or about 150 tons per day. Thirdly, except royalty fee of 5 percent, another royalty tax of 2 percent is added and is incorporated to be paid to the head company. Royalty fees must be paid to the Government of Mongolia only. Fees related to particular exploration risks and expenditures should not be incorporated as royalty fee in the FS. It should be in accordance with the agreement concluded with Mongolia and therefore we don’t accept those incorporated without prior agreement with the Mongolian Government. Fourthly, auxiliary works to be performed by Mongolian companies must be clarified. There small things as well but they are not the reasons of rejection.
Q: Why 19 million tons have not been clearly stated?
M.Ariunbayar: It’s the company’s irresponsibleness. Article 35 of the Minerals law says, “…all mineral resources shall be exhausted.” The Committee is obliged to ensure and enforce the realization of this article. The Company accepts and understands it.
Q: If not revealed, would these breaches affect the deposit utilization?
M.Ariunbayar: We may not make a profitable choice even the world market price goes up if we don’t make 19 tons issue clear. This is very dangerous because it may be too late for us to correct the mistake when minerals price and technologies change in the world market. That’s why we should foresee it.
Q: Shall we say the FS is insufficient upon rejection by the Committee?
M.Ariunbayar: No. The same problems occurred in cases of Boroo gold, Nariin sukhait, and Tavan tolgoi. This is ordinary to reject and correct the FS.
Q: Why works to be performed by Mongolian companies were incorporated unclearly in the FS?
M.Ariunbayar: The FS implied that major works might be performed by foreign companies. In turn we considered, “Mongolian companies should perform here in accordance with obligations under the agreement, but not depending on the work size. Then, it must be a legislation of OT activities until the agreement is amended.” If IA is the Constitution, the FS must be the Minerals law for OT. Therefore we shall require the implementation.
Q: Are there any works to be performed by foreigners?
M.Ariunbayar: If there are works to be performed by foreigners, it must be stated in the FS. However, it was not stated in the FS clearly.
Q: Is it because Mongolian companies were considered incapable of performing such major works?
M.Ariunbayar: I won’t deny it. It is impossible to assess capabilities of Mongolian companies today. Mongolian companies may join this big industry even if they can’t perform works 100% alone. For instance, the most expensive asset is intellect. This FS has been developed by 5-6 foreign companies and translated by Mining research Center staff of MUST. They are big scientists. The Committee also revealed the aspects incorporated in the FS were inadequate. It says we are not lacking intellect and specialization. We have assets and power, so we should have these things incorporated in the FS.
Q: IA has been concluded on the 6th of October. Economists criticize why FS is being discussed now?
M.Ariunbayar: The agreement frames the general parameters for OT. In three or maybe in 5 years, this FS might be adjusted. We can’t foretell how many times the FS will be amended during the utilization of the deposit. In other words, if we accepted the FS first, and then concluded the agreement, the agreement might be changed due to fluctuations in copper prices. We have done the general frame, and now we are working on FS to make it better.
Q: Why it is stated to transfer the payment under royalty tax of 2 percent to the head company?
M.Ariunbayar: Royalty fee of 2 percent equals to app. USD2.5 billion. They had no explanation when asked, “On which legal basis and grounds you mean payments to the head company under 2 percent royalty fee”. Of course, payments shall be allocated to both sides however we didn’t get any clear explanation from the Company. I haven’t seen any provision stating 2 percent royalty fee. It didn’t deny 5 percent royalty fee in Mongolian laws. This USD2.5 billion refers to expenses before the agreement. In any case, it shall not be named as 2 percent royalty tax legally. There are no such provisions in the IA.