The Mongolian government plans to more than double the size of the territory open to mining and exploration in Mongolia.
While that might sound promising for an idle junior mining and exploration sector looking for the next bonanza, it may not be enough to take the chill off doing business in Mongolia.
From a raw resource perspective, Mongolia is a potential Xanadu, rich in mineral deposits. Politically, it's a landscape filled with uncertainty.
The government of Mongolia has earned a reputation for rolling out the welcome mat, only to pull the rug out from under the companies walking on it. It suspended more than 100 mining licences as part of a fraud investigation in the country's mining authority and just recently accused Vancouver's Turquoise Hill Resources (TSX:TRQ) – a subsidiary of Rio Tinto PLC ADS (NYSE:RIO) – with tax evasion on its multibillion-dollar Oyu Tolgoi copper-gold mine.
Last month, following an audit, the Mongolian tax authority claimed the mine's owners owed the government – which is itself a 34% shareholder – unpaid taxes and assorted entitlements it claims it should not have claimed. The company did not return calls to Business in Vancouver.
On June 26, Turquoise Hill responded with an announcement that it had filed a dispute with the Mongolian government.
Days later, on July 1, in what Bloomberg News characterized as a move to regain investor confidence, the Mongolian government passed a law that lifts a ban on new mining licences, which would increase the area open to mining and exploration to 20% from 8%.
Mickey Fulp, a mining analyst and publisher of mercenarygeologist.com, doubts that will be enough for investors to ignore Mongolia's “horrible track record,” he said. “They change the rules all the time. There are many other countries like that, but Mongolia is absolutely, hands down, the worst, I think.”
Julian Dierkes, an associate professor at the Institute of Asian Research at the University of British Columbia, is an expert on Mongolia. He said the recent reversal of policies on exploration in Mongolia may be good for junior exploration companies that are already invested there – Vancouver's Kincora Copper Ltd. (TSX-V:KCC), for example – but whether it attracts any new investors remains to be seen.
“This is, in part, economic desperation because foreign investment has evaporated,” Dierkes said. “My concern is it's just another swing of the pendulum, rather than being a long-term, really well-founded policy change.”