Don Cayo: Mongolia, Rio Tinto both have reasons to settle Turquoise Hill dispute
Vancouver — A cost overrun of a couple of billion bucks at Oyu Tolgoi (Turquoise Hill), Mongolia’s new mega-mine, is no doubt significant even to a big company like Rio Tinto with sales last year topping $50 billion.
But to a “little” country like Mongolia — which may have a land mass about twice the size of B.C., but has barely more than half the number of people and a much smaller fraction of our wealth — it’s a staggeringly large sum. It accounts for fully a fifth of last year’s GDP — in relative Canadian terms, the equivalent of about $350 billion.
Which goes a long way to explain the tension between the company, a two-thirds partner in Vancouver-based Turquoise Hill Resources, which owns the just-opened world’s largest copper mine in remote Mongolia, and the country, which has a 34-per-cent stake.
Mongolia’s parliament signed on in 2009 to borrow a third of the money to fund a $4.2-billion project, says parliamentary president Zandaakhuu Enkhbold, who was in Vancouver last week at the end of a cross-Canada visit.
“If at that time they had told us the cost will be $6.2 billion, then we would have thought twice,” he said in an interview with The Vancouver Sun.
Now that the costs have escalated so steeply, “We want to know how it happened? How much? Spent where?”
The huge proportion of Mongolia’s wealth tied up in this single project also explains why the country is so optimistic and so determined to see the dispute end well, and end soon.
Mongolia and Rio Tinto “are sitting in the same boat,” he said. “Either one can shake the boat if we have a disagreement. But we can’t overturn the boat. We both will die.
“So we need to find common ground, which is the (parliament’s) number-one priority today.”
He said he was confident that agreement would be reached in time to meet a June deadline for the first export of copper from the mine.
“We need the cash flow,” he said bluntly.
The dispute and related issues have coloured both the performance of Turquoise Hill’s stock and the international view of Mongolia as a place to invest in recent months.
The company’s stock is trading in the mid-$6 range, down from a peak of about $28 in early-2010 and about $15 a year ago.
And foreign investment in Mongolia nosedived last year, plunging 17 per cent to $3.9 billion, in response to what was seen as heavy-handed legislation concerning foreign partnerships.
Enkhbold conceded that the law hurt his country’s business reputation, but adds that investors’ fears will be eased now that the legislation has been revised and clarified. The threshold for requiring parliamentary approval for foreign investment has been raised from about $72 million to about $720 million, he said, and it has been made clear that this applies only to investments by state-owned enterprises.
The Turquoise Hill investment is private, and therefore exempt, he said. But it is so large it has made Canada the second-largest foreign investor in the country, behind China.
Enkhbold said mining has come to dominate the country’s economy, and the revenue from it is urgently needed to give the government the means to invest in other sectors — mainly agriculture, tourism and services.
“Mining doesn’t employ a lot of people. It employs a lot of big machines,” he said. “We have very high unemployment, and without diversification of the economy, it will stay high.”
Oops: I misread the fine print on the government’s HST/PST website when I was researching Monday’s column. The seven-per-cent PST will apply to car repairs, bringing the total federal and provincial tax to 12 per cent — the same as it was under the HST.
dcayo@vancouversun.com
© Copyright (c) The Vancouver Sun
But to a “little” country like Mongolia — which may have a land mass about twice the size of B.C., but has barely more than half the number of people and a much smaller fraction of our wealth — it’s a staggeringly large sum. It accounts for fully a fifth of last year’s GDP — in relative Canadian terms, the equivalent of about $350 billion.
Which goes a long way to explain the tension between the company, a two-thirds partner in Vancouver-based Turquoise Hill Resources, which owns the just-opened world’s largest copper mine in remote Mongolia, and the country, which has a 34-per-cent stake.
Mongolia’s parliament signed on in 2009 to borrow a third of the money to fund a $4.2-billion project, says parliamentary president Zandaakhuu Enkhbold, who was in Vancouver last week at the end of a cross-Canada visit.
“If at that time they had told us the cost will be $6.2 billion, then we would have thought twice,” he said in an interview with The Vancouver Sun.
Now that the costs have escalated so steeply, “We want to know how it happened? How much? Spent where?”
The huge proportion of Mongolia’s wealth tied up in this single project also explains why the country is so optimistic and so determined to see the dispute end well, and end soon.
Mongolia and Rio Tinto “are sitting in the same boat,” he said. “Either one can shake the boat if we have a disagreement. But we can’t overturn the boat. We both will die.
“So we need to find common ground, which is the (parliament’s) number-one priority today.”
He said he was confident that agreement would be reached in time to meet a June deadline for the first export of copper from the mine.
“We need the cash flow,” he said bluntly.
The dispute and related issues have coloured both the performance of Turquoise Hill’s stock and the international view of Mongolia as a place to invest in recent months.
The company’s stock is trading in the mid-$6 range, down from a peak of about $28 in early-2010 and about $15 a year ago.
And foreign investment in Mongolia nosedived last year, plunging 17 per cent to $3.9 billion, in response to what was seen as heavy-handed legislation concerning foreign partnerships.
Enkhbold conceded that the law hurt his country’s business reputation, but adds that investors’ fears will be eased now that the legislation has been revised and clarified. The threshold for requiring parliamentary approval for foreign investment has been raised from about $72 million to about $720 million, he said, and it has been made clear that this applies only to investments by state-owned enterprises.
The Turquoise Hill investment is private, and therefore exempt, he said. But it is so large it has made Canada the second-largest foreign investor in the country, behind China.
Enkhbold said mining has come to dominate the country’s economy, and the revenue from it is urgently needed to give the government the means to invest in other sectors — mainly agriculture, tourism and services.
“Mining doesn’t employ a lot of people. It employs a lot of big machines,” he said. “We have very high unemployment, and without diversification of the economy, it will stay high.”
Oops: I misread the fine print on the government’s HST/PST website when I was researching Monday’s column. The seven-per-cent PST will apply to car repairs, bringing the total federal and provincial tax to 12 per cent — the same as it was under the HST.
dcayo@vancouversun.com
© Copyright (c) The Vancouver Sun
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