Wednesday, March 9, 2016

Khan Resources to receive US$70M to settle Mongolia dispute

The Mongolian government will pay Canada’s Khan Resources Inc. to resolve a seven-year dispute over lost mining licenses, signaling a new willingness to attract foreign investment. The shares surged the most intraday on record.

The US$70 million is to be paid on or before May 15, according to terms of the agreement, disclosed in a press statement issued by Khan Resources Monday. Full payment will end all outstanding matters related to the international-arbitration award Khan received from a Paris court in March 2015.

Resolution of the case is a “long-awaited move in the right direction and further evidence that Mongolia is trying to get itself back on track with foreign investors and investment,” Jay Liotta, chairman of the American Chamber of Commerce in Mongolia, said by email from Ulaanbaatar.

The share rose 26 cents to 73 cents at 11:02 a.m. in Toronto, after rising to as high as 80 cents, the most intraday since the company began trading in May 2012, according to data compiled by Bloomberg. The shares reached a high of 76 cents in July 2015.

Mongolia’s foreign direct investment tumbled to US$195.1 million last year from US$4.45 billion in 2012. A series of long-standing disputes and a drop in commodity prices also slowed the country’s growth to 2.3 per cent, compared with 17 per cent in 2011.

Khan’s licenses were stripped in 2009 and it was forced to abandon its uranium development in the east of the country.

In March 2015, an international arbitration tribunal under the United Nations Commission on International Trade awarded approximately US$100 million to Khan as compensation for the company’s mining licenses. The Toronto-based company had been seeking damages in excess of US$350 million.

The agreement is in the best interest of Khan’s shareholders as “it provides a complete resolution of all outstanding matters in a timely manner,” Grant Edey, Khan Resources chief executive officer, said in the statement.

“Mongolia negotiated a very favorable deal for themselves,” Nick Cousyn, chief operating officer for BDSec, Mongolia’s largest brokerage, wrote in a tweet from Ulaanbaatar.

Andrew Fennell, sovereign analyst with Fitch ratings, wrote in an email that resolution of the dispute is a “credit positive for the sovereign insofar as it helps to relieve external funding constraints.”

In May 2015 Rio Tinto Group and the Mongolian government settled a two-year dispute that stalled development of the underground mine at Oyu Tolgoi. In December, a US$4.4 billion project finance package was signed to restart the project.

“The settlement demonstrates the government’s ongoing commitment to improving the investment climate,” Bolor Bayarbaatar, Mongolia’s minister for finance, said in a Khan Resources statement.

Bloomberg News


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