Possible Reforms Coming to Mongolian Windfall-Tax Bill
By Karl Heilman
17 Nov 2006 at 04:13 PM EST
resourceinvestor.com
St. LOUIS (ResourceInvestor.com) -- According to the UB Post, the Mongolian government has elected to submit draft amendments to Parliament regarding the country’s windfall-tax bill.
On November 9, government spokesperson N. Demberel said a cabinet meeting the week prior had chosen to raise the cut-off price of gold for the tax in the international market -from $500 to $650 per ounce.
And on Monday, MonInfo reported that a draft had been submitted to the Speaker of the Parliament suggesting a raise in the cut-off price.
According to an anonymous source from the article, the draft had been submitted, however, had not yet been distributed throughout Parliament for discussion. Due to scheduling conflicts and pending priorities for the Monglolian Parliament, it is possible that draft discussion could be postponed until December.
Missing Sales?
Currently, when the international gold price is above $500, the Mongolian government collects a 68% tax; the new figure, $650, is in part being addressed to make up for a lack of sales to the country's central bank.
Demberel said that the Mongolian government planned to take measures that would ensure that foreign miners and exports followed appropriate laws.
"The amount of gold sold to the Bank of Mongolia has been falling sharply since the law came into force. Last year, 15,232.8 kg of gold was collected at the central bank, but the corresponding figure for the first ten months of 2006 is just 7,710.7 kg," he said.
Demberel also said that the Development Fund of Mongolia was expected to collect Tg10.5 billion (US$9 million) from gold sales and Tg107 billion ($92 million) from copper sales. The spokesman said the fund had only received about Tg3 billion ($2.5 million).
What’s Going on in Mongolia?
Stephen Bailey, Senior Vice President at Frontier Strategy Group, spoke to Resource Investor regarding Mongolia’s atmosphere for miners.
As the political climate in Mongolia continues to further mature democratically, the government is becoming more responsive to public opinion, Bailey said. One of the original attributors to the implementation of the windfall tax last year stemmed from a feeling of exploitation of the Mongolian populace and government by foreign miners.
However, Bailey called the news of the draft amendments “A move away from the initial environment towards a more measured and reasoned approach,” towards mining companies.
Since the announced news only influences gold miners, Bailey added that “We see the treatment of the gold sectors as the litmus test,” for other sectors such as base metals miners.
As Rio Tinto [NYSE:RTP; LSE:RIO] partners with Ivanhoe [NYSE:IVN; TSX:IVN] in Mongolia, other major players such as Anglo American [Nasdaq:AAUK; LSE:AAL] and BHP [NYSE:BHP; LSE:BLT] will be watching, Bailey said, forcing the Mongolian government to be careful with how it negotiates with foreign mining companies.
Other gold miners in Mongolia include: Entreé Gold [AMEX:EGI; TSXv:ETG], QGX [TSX:QGX], Erdene Gold [TSXv:ERD], Asia Gold [TSXv:ASG], Centerra Gold [TSX:CG], East Asia Minerals [TSXv:EAS], Golden China Resources [TSXv:AUC] and Solomon Resources [TSXv:SRB].
BHP Big Bucks
Last month, Rio Tinto announced it would invest up to C$1.7 billion in Ivanhoe to jointly develop and operate the company’s Oyu Tologoi copper-gold mining project - considered to be among some of the largest deposits ever discovered - in Mongolia’s South Gobi region.
''We have long believed that the right partnership would bring important benefits to the Oyu Tolgoi project, the people of the South Gobi region and all of Mongolia,'' Ivanhoe chairman Friedland said.
''We said in a formal statement three years ago that Ivanhoe was evaluating strategic partnerships with qualified companies that had relevant experience and resources to help ensure completion of a successful mining complex at Oyu Tolgoi. Today's announcement marks the realization of that vision.”
Under the transaction, Rio Tinto will become Ivanhoe’s largest shareholder, with an immediate C$345 million investment. Following the initial agreement between Ivanhoe and the Mongolian government, Rio Tinto will have the option to obtain up to 46.3 million more shares at C$9.54 for C$442 million, giving the company up to a 19.9% stake in Ivanhoe.
Lastly, Rio will receive warrants representing more than 92 million Ivanhoe shares that when exercised will bring total investment to about C$1.7 billion – or a 33.35% stake.
Conclusion
As nothing is yet official, stay tuned for future updates and progress on the draft amendments.
Bailey added that the current relationship between Mongolia and foreign miners offers a challenge and an opportunity where companies can use this window of opportunity to leverage themselves for the long term and to develop and establish future agreements with the country.
Ivanhoe shares were trading down one cent to $9.10 on the NYSE shortly before market’s close. Rio Tinto shares were trading down $1.62 to $204.29. |
