Published: November 10, 2008
Alisher Djumanov, managing partner of Eurasia Capital Management, which manages a US$40mn
The copper market was particularly excited by the discovery of the Oyu Tolgoi copper and gold mine in 2001 by Canadian firm Ivanhoe. The company later sold a stake to Rio Tinto, and outlined plans to invest US$3.6bn in the project, making it the biggest single project in the Mongolian economy.
But the project has been hit by several moves by the government. First, it passed a 68% windfall tax on mining projects in 2006. The tax is one of the highest mining taxes in the world. The government has discussed amending the law, but so far has not done so.
Secondly, the government says it wants to take at least a 51% stake in all mining projects, following the lead of
However, investors have doubts that
The local banking sector is not big enough to provide financing for metals projects. The central bank has been discussing a US$500mn bail-out for the nation’s commercial banks, though as of early November, no bail-out had been agreed.
Meanwhile, the price of copper has fallen from over US$4 in May to under US$2 in November. International liquidity has dried up for
Some investors believe
The government is now stepping up its negotiations over Oyu Tolgoi, and is also in negotiations with Canadian firm Centerra over the Gatsuurt mine. But it now looks likely that the government will not agree a deal on Oyu Tolgoi until 2009.
Michael Howard, the former leader of the Conservative party in the UK, and now deputy chairman of Entrée Gold, in which Ivanhoe and Rio Tinto have stakes, says: “We are discussing a range of issues with the Mongolian government, including the size of stake that the government may take in the Oyu Tolgoi mine, and we hope the discussions will be resolved next year.”
Delays in the government’s negotiations with mining investirs has impacted some forecasters’ economic projections for the country. Business Monitor, for example, has said: “We have revised down our medium-term growth forecasts for