Turquoise Hill sale of stake in Mongolia's SouthGobi falls through

Heavy machinery moves coal at the SouthGobi Energy Resources Ltd. Ovoot Tolgoi coal mine in Mongolia. (Image from archives)

Rio Tinto-controlled Turquoise Hill (TSE:TRQ) said Friday that a signed deal to sell the remainder of its stake in SouthGobi Resources (TSE:SGQ), which was supposed to finally cut ties with the Mongolian coal miner that was once worth over $2.4 billion, has fallen through.

The announced and signed share purchase agreement expired on April 30, 2015 "without the transaction contemplated thereunder having been completed," the company said in the statement.

As a result, the Vancouver-based miner continues to own 56,102,000 shares or about 23.3% of SouthGobi's issued and outstanding shares.

As a result, the Vancouver-based miner continues to own 56,102,000 shares or about 23.3% of SouthGobi's issued and outstanding shares.

In July last year, Turquoise Hill agreed to sell the majority of its stake in the coal miner to Hong Kong-listed National United Resources Holdings for Cdn$12.8 million. And in February, it said Novel Sunrise Investments was buying the remainder for Cdn$8.5 million. That deal has been completed, the miner said.

Both deals were expected to close later this year and they would have left Turquoise Hill walking away with Cdn$21.3 million from the sale process, or less than 1% of the Cdn$2.3 billion the stake was once worth.

SouthGobi's Ovoot Tolgoi mine, located 25 miles north of the Chinese border, was once billed as a cash cow. Back in 2008 Friedland dubbed the asset the "beluga caviar of coal."

The Canadian company, previously known as Ivanhoe Mines and run by mining legend Robert Friedland, spun out its coal assets into SouthGobi in 2006 and received a controlling stake in the firm at that time.

SouthGobi's Ovoot Tolgoi mine, located 25 miles north of the Chinese border, was once billed as a cash cow. Back in 2008 Friedland dubbed the asset the "beluga caviar of coal."

Since then, Friedland and later Rio Tinto have tried to monetize the stake in SouthGobi. An agreement to unload a 60% stake in SouthGobi to Chinese aluminum giant Chalco for about Cdn$889 million in 2012, broke down because of obstacles put in place by the Mongolian government.

Turquoise Hill also has a 66% interest in the Oyu Tolgoi mine in southern Mongolia.

Mongolia to rescind $100m payment to Khan Resources

The remote Dornod uranium project in northeastern Mongolia. (Image courtesy of Khan Resources)

Barely three days after Canada’s Khan Resources (TSE:KRI) chairman, Jim Doak, was found dead in a hotel in Mongolia, the country’s ministry of justice revealed it would try to annul a $100 million arbitration claim awarded to the miner last month, FT.com reports.

Doak (59), who appeared as an analyst on business channel BNN, had travelled to Ulaanbaatar to negotiate the terms of the payment granted to his company for the expropriation of the Dornod uranium project back in 2009.

Canada’s Khan Resources chairman, Jim Doak, was found dead in a hotel in Mongolia last week.

Doak told a Globe and Mail reporter his company had hired an unnamed firm that specialized in collecting delinquent government debts by seizing assets, such as airplanes or ships temporarily located outside the country.

The Toronto-based firm halted negotiations Thursday, after not reaching any agreement with Mongolian officials. Hours later, it learned of the death of its chairman and said, while police did not find any indication of foul play, it would wait for a full autopsy report to be released this week to comment further.

Dornod uranium project location.

Khan Resources had sought $326 million in compensation for having its mining licenses cancelled by Mongolia and given to Russian producer ARMZ, but the tribunal lowered the payout to $100 million, including interest and costs, based on previous offers made for the asset.

Mongolian Prime Minister Saikhanbileg Chimed has promised to put and end to several high profile disputes with overseas companies, which have pushed investors away and damaged the nation’s economic growth. The Asian Development Bank has forecast a 3% percent expansion for 2015 from 7.8% last year.

Canadian mining chairman Jim Doak found dead in Mongolia

Jim Doak (59), was a prominent figure in the Toronto financial industry. (Image: Screenshot from BNN video)

Canada’s Khan Resources (TSE:KRI) chairman Jim Doak, a prominent figure in the Toronto financial industry, was found dead in a hotel room, The Globe and Mail reported.

Doak (59), who appeared as an analyst on business channel BNN, was in Mongolia in his role as chairman of the Toronto-based uranium exploration and development company, which has been active in the Asian country since 1995.

According to a company statement, he had just finished a second series of meetings with representatives of the government of Mongolia.

“He was a very special and uniquely talented individual whose insights and decision-making abilities were off the scale,” said Khan’s president and CEO Grant Edey.

Based on the firm’s website, Khan was involved in the development of the Dornod uranium project in Mongolia and became embroiled in a dispute with the Mongolian government over the mining rights.

Last month, an international arbitration tribunal ordered Mongolia to fork over $100 million for expropriating the project.

Turquoise Hill surges after Oyu Tolgoi expansion okayed

Shares in Rio Tinto-controlled Turquoise Hill Resources (TSE,NYSE:TRQ) surged on Monday after Mongolia approved the expansion of the Vancouver-based company's massive copper-gold mine in the Asian country.

By mid-day Monday Turquoise Hill had gained 7.4% in massive volumes affording the company a $7 billion market value on the New York Stock Exchange. Turquoise Hill owns 66% of the massive project in the Gobi Desert and the Mongolian government the rest.

Mongolian Prime Minister Chimediin Saikhanbileg announced on Sunday that his Cabinet has decided to proceed with the nearly $5 billion second phase at Oyu Tolgoi after two years of often bitter negotiations between the government and the Anglo-Australian giant.

Saikhanbileg said in televised address to the country with a population of around 3 million that the project, which could contribute as much as a third of the economy when in full production, was in the national interest reports AFP.

The two camps have been at loggerheads over funding for the underground expansion – where 80% of the resource is located – and during the protracted battle $4.5bn funding commitments led by the World Bank expired and a $100m-plus tax dispute was raised and settled. Construction was halted in October 2013 and resulted in more than 2,000 layoffs at the mine.

Turquoise Hill mined 589,000oz of gold and 148,000t of copper in concentrates last year and expects to produce 600,000oz – 700,000oz of gold and 175,000t to 195,000t of copper in concentrates in 2015.

Oyo Tolgoi phase II is a truly giant project – an updated feasibility study including the underground expansion released in September shows recoverable copper of 24.9 billion pounds, 11.9 million ounces of gold and 78 million ounces of silver over a mine life of 41 years. At today's metals prices that's worth an eye-watering $92 billion.

A separate economic assessment to develop Oyu Tolgoi further and include other deposits at the property shows just what a rich find Oyu Tolgoi really was. This scenario provides a 94 year mine life and recoverable copper of 56.5 billion pounds, 27.9 million ounces of gold and 195.2 million ounces of silver, pushing the value of the mine to closer to $200 billion.

Image of traditional Naadam festivities at Oyu Tolgoi in 2012 courtesy of the company.

Mongolia greatly responsible for Rio’s Oyu Tolgoi troubles – PM

Mongolia’s Prime Minister Chimed Saikhanbileg said Friday his country should take charge of how long a dispute with Rio Tinto (LON:RIO) over developing the second stage of a copper and gold mine in the country has taken.

"Much of the blame (for the delay) goes to us," said Saikhanbileg according to Reuters.

Oyu Tolgoi mine’s $6.5 billion second underground phase has been under revision since 2013, amid complaints about cost overruns, political uncertainty and a dispute over taxes.

Rio’s chief executive, Sam Walsh, noted he was very "patient and hopeful" that an agreement would be reached

But last week Rio and its subsidiary Turquoise Hill Resources (TSE:TRQ), which is the mine operator, said talks with authorities were finally down to only a few issues. Rio’s chief executive, Sam Walsh, noted he was very "patient and hopeful" that an agreement would be reached, Sydney Morning Herald reported.

A lot is at stake for both parties. For Rio, expanding Oyu Tolgoi will bolster its copper business and lower its dependence on iron ore. For Mongolia, it needs cash quickly from the mine to meet spending commitments.

Mongolia has had a strong economy in recent years, gaining 17.5% growth in 2011. But that figure has since slid to the current 6.3%, with foreign investment dropping by 59% last year alone. On top of that, prices of the country’s main mineral exports —gold, copper and coal— keep falling.

According to Turquoise Hill, Oyu Tolgoi — located about 80 kilometers (50 miles) north of the Chinese border — will contribute about a third of Mongolia’s economy when in full operation.

Asian miners transition towards digital mining

Asian mines are transitioning towards digital mining, as demonstrated by continuing investment in design software and mine surveying, Timetric finds.

According to Timetric’s Mining Intelligence Center (MIC), Asian mines are transitioning towards digital mining, as demonstrated by continuing investment in design software and mine surveying.

In a recently conducted survey of over 100 key decision-makers at operating mines in seven  Asian countries, – including: India, Indonesia, the Philippines, Pakistan, Vietnam, Mongolia and Thailand, – respondents nominated four categories of technology as their top priorities for investment. These four technologies support the movement towards digital mining and are namely mine survey equipment, mine design software, mine management (scheduling/optimisation) software and equipment diagnostics.

These four were the most likely to see new or continued investment over the next two years out of a total of 12 different  technologies investigated in the survey. The 12 areas included a range of other mine management and vehicle-related technologies used at an operational level, such as environmental monitoring and emissions management, communication products/systems, fleet management/vehicle monitoring and collision avoidance technologies.

The higher propensity to invest in the top four categories shows a focus on utilising technology to improve data and design accuracy, as well as productivity, and optimising equipment use. It also enables an organization to provide a safer working environment.

In contrast to these four technologies, investment intentions in other areas were more limited. For example, approximately three-quarters of Asian mines are not expecting to invest in autonomous vehicles within the next 10 years. Remote control/machine automation had the lowest rate of implementation across Asian mining operations. The capital investments required, coupled with a very inexpensive labour force, means few incentives exist for Asia-based companies to make the switch to autonomous fleets.

“The push towards advanced technologies on site is evident from the results in the survey. The focus is on improving planning and productivity, and follows a sequence starting with investing in mine surveying to improve the accuracy of the data flowing into mine design software. Accurate mine designs then help improve the management and scheduling of mining operations, while equipment diagnostics help to improve utilisation and supports mine scheduling by minimising down time,”  says Nez Guevara, Senior Mining Analyst at Timetric’s MIC.

About Timetric

Timetric is a leading provider of online data, analysis and advisory services on key financial and industry sectors. It provides integrated information services covering risk assessments, forecasts, industry analysis, market intelligence, news and commentary. For more information and updates, please visit www.timetric.com and follow us on twitter.

About Timetric's Mining Center

Timetric’s Survey will be published under its Mining Intelligence Center. The Mining Intelligence Center provides critical, forward-looking market intelligence to support clients’ investment strategies and customer targeting. Delivering information on projects, purchasing behaviour, commodities and markets, the service enables clients to identify new opportunities, predict developments in their markets and adapt to customers’ future needs.

Mongolia’s ancient silver mines highly polluting: study

Mausoleum of Genghis Khan in Ordos.

A team of American and Chinese scientists has revealed that pollution from heavy metals like lead, zinc and cadmium spiked between 1271AD and 1368AD in the Yunnan region, affecting several of southwest China’s water reservoirs.

Writing in the journal Environmental Science and Technology, geologists from the University of Pittsburgh and the Chinese Academy of Sciences argue that large amounts of silver smelting ended up contaminating the area. And they attribute the high volumes to Mongolia’s hunger for the precious metal, used to make coins, jewellery and art.

Kublai Khan (pictured), Genghis Khan’s grandson, established the Yuan Dynasty during which silver mining activities in the Yunnan region boomed.

“Culminating during the rule of the Mongols, known as the Yuan Dynasty, these metal concentrations approach levels three to four times higher than those from industrialised mining activity occurring within the catchment,” writes Aubrey Hillman, who led the study.

She said that one surprising finding was to see that the concentrations of lead were close to levels at which harmful effects may be observed in aquatic organisms. Yet, she added that levels of pollution remained relatively low until 1271AD, around the time when Kublai Khan founded the Yuan dynastyand became Emperor of China.

The Mongols established their first government-operated silver mine in Yuan around 1290AD and taxes from silver production came to account for 47% of the national revenue.

The Yuan area is still known for being rich in mineral resources, with important deposits of copper, tin, gold, silver and iron ore.

Mongolia fined $100M for expropriating uranium mine

An international arbitration tribunal has ordered Mongolia to fork over $100 million for expropriating the Dornod uranium project from Khan Resources (CNSX:KRI) back in 2009.

The Canadian company had sought $354 million in compensation for having its mining licenses cancelled by Mongolia and given to Russian producer ARMZ, but the tribunal lowered the payout to $100 million, including interest and costs, based on previous offers made for the asset, Reuters reported.

The decision caused stock in the $41.5-million small-cap to climb 27.9 percent on Monday.

Mongolia has been under increasing pressure to stop the flight of foreign direct investment in to the country.

Changes to Mongolia's 2012 foreign investment law (SEFIL) approved by the country's cabinet in 2013 provided more certainty surrounding mining taxes and royalties and scraps the distinction between private foreign and domestic investors, but seem to have had little impact.

Last August Mongolia's central bank said fresh capital entering the country fell 70% for a total of $873.2 million from January to June against a year earlier. Last year's dismal numbers followed a 47% drop during 2013.

The number one issue for investor confidence to return is the future of Oyu Tolgoi.

The $6 billion Oyu Tolgoi mine is 34% owned by the Mongolian government with Rio Tinto-controlled Turquoise Hill (TSE:TRQ) owning the rest. But Rio Tinto and the government of Mongolia have been locked in bitter talks over how to fund the $6 billion copper and gold project that at full tilt will transform the Asian nation's economy.

Ecological gold from Mongolia: Artisanal miners obtain Fairmined Certification

For the first time ever an artisanal and small-scale mining organization outside of South America has reached Fairmined Certification. The Mongolian NGO XAMODX now joins the existing three Fairmined certified organizations. They are the only producer of Fairmined Ecological Gold, a special Fairmined label for Fairmined Gold produced without the use of mercury or cyanide.

“It is a big honour for us as miners to get Fairmined Certification for the first time in Mongolia. When we heard the news, we were all so excited. All of us worked very hard to meet the requirements of the Fairmined Standard during the last 2-3 years.” Said Mr. Ch. Otgonbaatar, head of XAMODX.

The story of how the mining community came to be, begins back in 2006 when difficult conditions led herding communities to search for alternative livelihoods to survive the “dzuds” – extremely hard and cold winters that raged for consecutive years killing large herds of livestock. This situation, right in the aftermath of Mongolia’s economic transition when unemployment was on a rise, made the herding community move to an abandoned mine site called Tsagaan tsakhir in the Bayan-Ovoo Soum territory. It is there they began to focus their activities on mining – their only available alternative to herding. Since then the miners have worked hard to make mining a sustainable livelihood and now, less than ten years later, they claim the title as the world’s only organization with Fairmined Ecological Certification.

It is thanks to the support of the Sustainable Artisanal Mining (SAM) Project of the Swiss Agency for Development Cooperation in Mongolia that XAMODX is now one of four certified Fairmined organizations in the world and the first of its kind in Mongolia. The SAM project’s goal is the increased formalization of Mongolia’s artisanal mining sector while strengthening their social and environmental responsibility, formalization of ASM supply chains for sustainable livelihoods and tangible contribution to local and national economic development. On their way to certification, the SAM project supported XAMODX with organizational capacity strengthening, safety and environmental training and mining site management.

The community that is made up of around 2000 people mainly depends on mining, though a minority still relies on livestock and other small businesses and workshops. Women miners participate actively in the leadership of XAMODX which was formally established as a mining organization in 2009 with the main goal of protecting rights and improve livelihoods of legal miners. Now, as a Fairmined certified organization, XAMODX will be able to export to ethical markets at a fair price and make further important improvements to their mining organization and to the community.
Fairmined Certification was created by the Alliance for Responsible Mining (ARM), a non-profit organization globally recognized as a leader and pioneer of responsible artisanal and small-scale mining. Fairmined Gold means assurance for miners, the industry and consumers. The gold can be traced from mine to market. By buying Fairmined gold, businesses and individuals contribute to positive change through social development and environmental management in mining communities like XAMODX, giving everyone a source of gold to be proud of.

“It is a very big opportunity for local artisanal and small-scale miners to get Fairmined certified and to be increasingly known in Mongolia as well as in other countries. This will show how Mongolia’s responsible artisanal miners work as independent organizations according to the laws and regulations in the country. We will share all our experiences with other mining organizations in the country as well as in Asia” Says Mr. L. Byambadorj, member of XAMODX mining community.

“I want to congratulate XAMODX and the SAM project on this incredible achievement that represents a new milestone in the industry. We are honored that the SAM project and other allies recognize Fairmined Certification as the number one tool to transform artisanal and small-scale mining and join us in expanding the benefits of Fairmined to more miners.” Said Lina Villa, Executive Director of the Alliance for Responsible Mining.

For more information on Fairmined and how to source gold from XAMODX please visit www.fairmined.org or send an email to info@fairmined.org.

###

For more information, interviews and photos please contact:
Siri Teilmann-Ibsen, Communications Coordinator at the Alliance for Responsible Mining
siriteilmann@communitymining.org, +574 332 4711.

Contact info in SAM:
www.sam.mn or by email to sam@sam.mn or ulaanbaatar@sam.mn.

About the Alliance for Responsible Mining (ARM)
The Alliance for Responsible Mining (ARM) is an independent, global-scale, pioneering initiative established in 2004 to enhance equity and wellbeing in Artisanal and Small-scale Mining (ASM) communities. ARM is committed to social justice and environmental responsibility as the values driving the transformation of ASM.

ARM's mission is to set standards for responsible ASM and to support and enable producers to deliver Fairmined certified metals and minerals through economically just supply chains to the markets, in order to contribute towards the transformation of ASM into a socially and environmentally responsible activity, and to the improvement of the quality of life of marginalized artisanal miners, their families and communities.

Fairmined is an assurance label that certifies gold from empowered responsible mining communities. It is backed by a rigorous 3rd party certification and audit system that ensures that small entrepreneurial mining communities meet world leading standards for responsible practices. Fairmined transforms mining into an active force for good, ensuring social development and environmental protection providing everyone with a source of gold they can be proud of.
There are currently 4 Fairmined certified Mining organizations in Colombia, Peru and Mongolia and 25 organizations working towards Fairmined certification with the Alliance for responsible Mining in Colombia, Bolivia, Peru, Senegal and Burkina Faso.

About the Sustainable Artisanal Mining Project (SAM)

With the boom in the informal mining sector at the start of the 2000s, the Mongolian government, with support from the SDC, launched a project for sustainable artisanal mining in 2005. The project started its 4th Phase in January 2015. The project’s aim is to support formalization of ASM, strengthen its economic contribution for sustainable livelihoods while developing the capacities of both government institutions and miners through human rights based approach. It develops capacities of stakeholders to promote a socially and environmentally responsible ASM sector. The results of the SAM project to date include legalisation and formalisation of a once illegal sector, empowerment and organisation of ASM communities, improvement in safety performance of ASM, introduction of mercury free processing techniques, strengthening capacity of government stakeholders to deliver services to ASM, mainstreaming human rights issues in ASM, and facilitating cooperation between large mining companies and artisanal miners. More information, visit www.sam.mn.

Photos courtesy of: the Sustainable Artisanal Mining Project

Rio's Turquoise Hill gets rid of remaining stake in SouthGobi

Heavy machinery moves coal at the SouthGobi Energy Resources Ltd. Ovoot Tolgoi coal mine in Mongolia. (Image from archives)

Rio Tinto's Turquoise Hill (TSX:TRQ) is getting rid of its remaining stake in SouthGobi Resources Ltd. (TSX:SGQ) a troubled Mongolia-focused coal miner.

A private Chinese company, Novel Sunrise Investments, has agreed to buy 48.7 million shares in SouthGobi —which was once worth over US$2.4 billion —for 35 cents per share in cash.

The Vancouver, Canada-based firm said Tuesday a private Chinese company, Novel Sunrise Investments, has agreed to buy 48.7 million shares in SouthGobi —which was once worth over US$2.4 billion —for 35 cents per share in cash.

In July last year Turquoise agreed to sell the majority of its stake in the company to Hong Kong-listed National United Resources Holdings for Cdn$12.8 million.

Both deals, expected to close by year-end, will leave Turquoise Hill walking away with Cdn$21.3 million, or less than 1% of the C$2.3 billion that the stake was once worth.

Earlier this month three SouthGobi ex-employees were found guilty of tax evasion by a Mongolian court. Under the country’s law, tax and other disputes are pursued in courts under the criminal code.

US citizen Justin Kapla and two Philippine nationals, Hilarion Cajucom Jr and Cristobal David, each received jail sentences of between five and six years, while the company was fined 35 billion tugrik ($18 million) for tax evasion. Money laundering charges of some 200 billion tugrik were dropped. SouthGobi said if the tax verdict stands it might have to file for bankruptcy.

Turquoise Hill also has a 66% interest in the Oyu Tolgoi mine in southern Mongolia.

Coal miners jailed for Mongolia tax evasion seek pardon

Earlier this month, three ex-employees of SouthGobi Resources, a coal producer owned Turquoise Hill (TSE, NYSE:TRQ), were found guilty of tax evasion by a Mongolian court. Under Mongolian law, tax and other disputes are pursued in courts under the criminal code.

US citizen Justin Kapla and two Philippine nationals, Hilarion Cajucom Jr and Cristobal David, each received jail sentences of between five and six years, while the company was fined 35 billion tugrik ($18 million) for tax evasion. Money laundering charges of some 200 billion tugrik were dropped. SouthGobi said earlier if the tax verdict stands it may have to file for bankruptcy.

Turquoise Hill has denied the charges against it and its employees, who have been the subject of a travel ban since 2012, but only formally charged in May last year. SouthGobi president and CEO Enkh-Amagalan said there was a "complete lack of evidence to support such a harsh verdict." They will begin serving their terms immediately according to a court spokesperson.

SouthGobi understands their rationale for requesting a pardon, but continues to believe they have demonstrated their innocence throughout the investigation and court process

Last week SouthGobi issued a statement that it has learned that Kapla, Cajucom and David have requested pardons from the President of Mongolia Ts. Elbegdorj which, if granted, "would allow them to be released from prison and leave the country."

The Company understands that, as a condition of the potential pardon and whilst in a detention center in Mongolia, the three individuals were asked by the relevant authorities to elect in writing not to exercise their right to appeal. The Company supports its three former employees who are facing extraordinary and unjust hardships and understands their rationale for requesting a pardon. However, the Company continues to believe they have demonstrated their innocence throughout the investigation and court process.

Over the weekend Dale Choi of Independent Mongolian Metal & Mining Research who is based in Ulaanbaatar issued an appeal on "humanitarian grounds" to have the SGQ–3 freed coinciding with Tsagaan Sar (White Moon) celebration of the Lunar New Year in the country.

Mongolia text poll impact: Dust off your exploration plans

Mongolia's referendum by text message that asked its three million citizens (anyone with a mobile phone could participate, not just eligible voters) to help shape country's economic policy, is either a triumph of direct democracy, a meaningless political exercise, or both.

In new prime minister Saikhanbileg Chimed's poll, Mongolians voted by a not so overwhelming margin of 56% to 44% for the pursuit of foreign (mainly mining) investment versus spending cuts.

Despite the tepidness of the response Saikhanbileg will likely seize the opportunity to push through an agenda that offers the prospect of an end to the impasse over the expansion of Oyu Tolgoi and kickstart investment in the country.

The government would no longer invest in development at the mine, but would instead begin to collect a higher royalty on current and future production

Rio Tinto and the government of Mongolia has been locked in robust bitter talks over how to fund the $6 billion copper and gold project that at full tilt will transform the Asian nation's economy.

Julian Dierkes of the Institute of Asian Research at the University of British Columbia puts forth an intriguing argument on the Mongolia Focus blog saying Saikhanbileg's
announcement appears to include a proposed amendment to legislation on strategic deposits that would "establish a legal framework to transfer state-owned shares to the special license holder in order to collect special royalty payments":

That sounds like an offer of a deal to Rio Tinto (and others, obviously) to trade the 34% stake in Oyu Tolgoi for a higher rate of royalty payments. Presumably that would mean that the government would no longer invest in development at the mine, but would instead begin to collect a higher royalty on current and future production.

Two recent developments may have also been stepping stones along the way to this announcement.

When Gatsuurt was designated a strategic deposit recently paving the way for further development by Canadian Centerra Gold there were discussions of a lower stake (say, 20%) in exchange for a reduced investment. The new initiative might see this stake go to 0 in return for a higher royalty, it appears.

In an environment of falling commodity prices and shrinking budgets governments may not realize just how deep these concessions would have to be

Two weeks ago there were discussions in Australia that Rio Tinto had offered to forego the royalty on a smelter that would be constructed under the Investment Agreement. Perhaps this was part of a round of negotiations about what might be traded for the 34% government stake.

Saikhanbileg Chimed has a point

Mongolia in late 2013 rewrote rules on foreign investment without any noticeable impact of foreign direct investment. In 2013, FDI had contracted by nearly 45%. In the first five months of 2014 only $400 million was pumped into the country, a 64% year-on-year decline.

Overall economic growth has steadily slowed from 2011's whopping 17.3%. In 2015 depending on Mongolian policy decisions, GDP expansion may range from a high of 12% to as low as 2%. The country is now seeking assistance from the IMF for the second time since 2009.

Swopping shareholding for royalty payments and in the process transfer the development and financing risk to miners, may stem the decline.

But in an environment of falling commodity prices, shrinking budgets and general risk aversion, governments sitting on natural resource riches may not realize just how deep these concessions would have to be to persuade mining companies to risk billions.

Image of Saikhanbileg addressing Press Club in 2013 from Youtube.

Mongolian verdict sends chill through mining community

Mongolia is dependant on the mining sector to fuel growth and late last year rewrote rules on foreign investment, but the decline in foreign direct investment (and with it GDP) may now be even harder to turn around.

In 2013, FDI had contracted by nearly 45%. In the first five months of 2014 only $400 million was pumped into the country, a 64% year-on-year decline. Overall economic growth has steadily slowed from 2011's whopping 17.3%. In 2015 depending on Mongolian policy decisions, may range from a high of 12% to as low as 2%. The country is now seeking assistance from the IMF for the second time since 2009.

A drawn out dispute between Rio Tinto-controlled (LON:RIO) Turquoise Hill Resources (TSE:TRQ) and the Mongolian government about funding for the expansion of the massive Oyu Tolgoi copper and gold mine has taken much of the blame for stalling foreign investment.

Foreign investors and executives would be scared of signing documents in Mongolia

But the Asian nation is not doing itself any favours by the way it treats foreigners visiting or working inside the country.

A recent report from the US embassy in Ulaanbaatar states investors and local legal experts have regularly reported that Mongolian public and private entities can use administratively imposed travel bans to pressure foreign investors to settle civil disputes.
US ambassador to Mongolia, Piper Anne Wind Campbell, said "exit bans on foreign business executives whose companies are involved in business litigation in Mongolia have had significant, detrimental impacts on foreign direct investment.”

SEE ALSO: Mongolia's wealthy politicians
The rulers of Mongolia's fewer than 3 million citizens have amassed moolah to the equivalent of 7.6% of the country's GDP. If US politicians concentrated the wealth of America to the same degree they'd each be worth more than $2.2 billion.

Immigration officials may impose a travel ban for a variety of reasons, including an individual’s involvement in civil disputes, pending criminal investigations, or for immigration violations. Exit will not be allowed until either the dispute is resolved administratively or a court renders a decision.

Under Mongolian law tax and other disputes are pursued in courts under the criminal code

The Mongolian government does not impose similar travel bans for Mongolian citizens.

On Tuesday three ex-employees of SouthGobi Resources, a coal producer owned Turquoise Hill, were found guilty of tax evasion by a Mongolian court. Under Mongolian law tax and other disputes are pursued in courts under the criminal code.

US citizen Justin Kapla and two Philippine nationals, Hilarion Cajucom Jr and Cristobal David, each received jail sentences of between five and six years, while the company was fined 35 billion tugrik ($18 million) for tax evasion. Money laundering charges of some 200 billion tugrik were dropped. SouthGobi said if the tax verdict stands it may have to file for bankruptcy.

Turquoise Hill has denied the charges against it and its employees, who have been the subject of a travel ban since 2012, but only formally charged in May last year. SouthGobi president and CEO Enkh-Amagalan said there was a "complete lack of evidence to support such a harsh verdict." They will beging serving their terms immediately according to a court spokesperson.

“A criminal conviction would make huge waves internationally,” independent researcher Dale Choi who is based in Ulaanbaatar told Bloomberg ahead of the verdict:

"It would create very negative publicity. Foreign investors and executives would be scared of signing documents in Mongolia.”

Click here to download the US State Dept statement on Mongolia's 2014 investment climate.