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Mongolian Mining and the Blogs


Mine shaft construction at Oyu Tolgoi, Mongolia, image by Ivanhoe Mines

The May 12, passing of Mongolia's windfall profit tax law on copper and gold rocked Mongolia's mining world. The law calls for a 68% tax on gold when the international price is above USD$500/oz and on copper on prices above $2,600 per ton. While Mongolia has always said that they are very supportive of foreign investment, companies viewed this as a real threat to a previously investment friendly atmosphere.

The law was passed on a Friday night and went relatively unseen in Mongolian media, however by Saturday afternoon reports in English were on mongolia.neweurasia.net and mongolia-web.com. For investors in the United States and Canada this was the first time they had heard about the new law and many companies stocks fell 20-30%. The lack of information sources in English on Mongolia have brought blogs to the forefront, especially on mining and the windfall profit tax.

The week following the passage of the law saw the Mongolian National Mining Association up in arms over the proposed law. The organisation's meeting was covered by Luke Distelhorst, author of mongolia.neweurasia.net . Both the mining companies and the members of the Mongolian Parliament who passed the law raised good points but still need to cross the gap that they have created in between each other.

The company that has been in the spotlight of protests and plastered across Mongolian papers is Canada's Ivanhoe Mines Ltd. Luke interviewed the President and CEO John Macken, as did Tom Terry of Eagle TV. Besides statements made by Ivanhoe and some other companies to the public, the majority of information came from blogs within Mongolia.

The actual law was passed in Parliament, while only 45 of 76 members were present, at a vote of 35-10. Most laws in Mongolia have three official discussions before they are brought to a vote, however this law was drafted and passed during the second discussion, all within five days. The haste and apparent lack of transparency brought criticism from mining companies as well as politicians and the President of Mongolia, who had a five day window to veto the law after
receiving it.

This issue brought international attention, most of which can be found on the comments of one post found here. Ivanhoe's press conference, which was also covered by mongolia-web, found here, sparked massive debates between Mongolians, foreigners and all those found between. So far there have been 87 comments from all over the world expressing almost every view possible.

Zorigo says:

Here again who is stealing whose wealth? OT [Oyu Tolgoi project] rightfully belongs to Mongolia. In the Mongolian Constitution, it says that – in Article 6 2. All land, except that in citizen's private ownership, as well as the subsoil with its mineral wealth, forests, water resources and wildlife shall be the property of the State. State is PEOPLE. People is Mongolian citizens.

A Canadian investor says:

I don't expect to take something for nothing – IVN will pay taxes, employ Mongolians, build infrastructure and Mongolia will prosper. But you can't just pick numbers out of thin air and call profits excess or say that a mineral discovery that would never have been found without foreign investment can just be expropriated when it turns out to be valuable.

On Friday May 26, it was first announced on television that the President would not veto the law. Mongolia.neweurasia.net was the first to announce it outside of Mongolia and served as the source for many mining companies and investors who were anxiously awaiting the President's decision.

This windfall profit tax law has garnered international attention and blogs (in english) have done more reporting than any other one news outlet. Even though big business economics is rarely covered in most blogs, the relevance of this issue has proven that blogs can take the spotlight when there is a lack of reporting from other sources. Interviewing CEOs (as well as political figures) CAN become the norm for blogs doing everyday reporting. In this case, even the Wall Street Journal contacted bloggers requesting information that may not have been publicly available in English.

12 comments

  • Dave from Canada

    I think Mongolia needs to look at mining industries in other countries before they implement this new law. No one disputes that the minerals in the ground belong to the country it is in, but at the same time, if you invite foreign companies to invest money and help your people and build your economy, you cannot at the same time, slap the hand that feeds the mouth.

    Fairness and stability is paramount in the business world, investors will shy away from areas where there is very high perceived risk – which right now Mongolia is considered one. Does it make sense to invest $350 million dollars in a business that will tax the profits at 68%? Well, Ivanhoe mines already did and they are willing to invest another $2B to build out the open pit and underground mines at OT. In hind sight, Ivanhoe would not have invested the $350M if they knew of this new tax.

    The implications for any future foreign investor is huge, no other foreign company will spend money to bring a project to commercialization. OT will be mined because of it’s size and high grade ore, but it took a lot of money and time to prove it out. Something no one will give Mongolia in the future with this overhanging 68% tax. Try 40% or some other risk sharing formula. Try a graduated progressive tax approach. or look at how other countries successfully use the mining industry to generate jobs, money, taxes and other benefits.

    if you do not make the environment conducive to investors, investors will not come. I hope someone takes a closer look at this otherwise the only mine that will be built in Mongolia for the next 50 years will be Ivanhoe’s.

  • Saruul

    I am sorry to say that Canada does not event have an official embassy in Mongolia. Obviously, this is clear indication on how Canadian government sees Mongolia. In terms of community support they contribute next to nothing. There are only one or two small projects were funded by CIDA. Yet Mongolian mining industry heavily dominated by Canadian companies. I do not see how they are contributing to prosper Mongolia? Maybe by destroying beautiful untouched nature???

  • noraida muhammad

    Hi!Can u help me.How can i get Mongolian miners contact number?tq

  • Sarnai G

    I really do not think we should exhaust our resources beforehand. We do not need to. Our country has only 2.6 million people. If the government supports local projects or increase non profit sectors that would help locals there is no reason we should be buying vegetables, furnitures, clothes from China. Don’t you think??? We should preserve our natural resources, and beauty. Do you know that the DAMAGE IS IRREVERSIBLE to our land. (to any land that is being destroyed)Whole species of flower, vegetation, birds and animals, and our culture (world heritage) will be lost.
    Trust me on this. This Damage is irreversible. Please do not r-a-p-e our land. Consequences will be costly. (to us, Mongolians, to our land, to the world heritage, to some species. I’m a Biology major. I see it as an ecosystem. We Mongolians can help each other. I’m starting a nonprofit with my husband & some friends. Please write me at princessfrog9@excite.com Feel free to leave a comment.

  • mandukhai

    Why don’t you just dig your country? Oh so we invited you to our land just to give our treasures and get our beautiful
    land to be destroyed? and have you make a lot money?for free? just for a little tax? How are you helping us to build our economy? By making money and taking away our minerals? How are you feeding us by the way?Employment? yes 300$ a month? of course that’s a lot of money for people who don’t have decent degree or major.Thank you very much for employing many people and feeding them. By the way how many hours do they work? 10?12?14? Is there a break? And you’re a businessmen talking about fairness? And I’ll tell you why you invested in Mongolia. You thought as if you won a big jackpot didn’t you? Even then you have to play with some and pay the tax. You’re still building your mine? why? it still benefits you. You’re not saying you’re worried about Mongolians are you? Very well then I already know the answers. So long.

  • paavo

    Sarnai.
    Plants will die, but species will not go extinct. 90% of all species have gone… without the aid of man. Mines aren’t nuclear plants that leave Chernobyl type residual effects…. and…

    I am sure your government wanted foreign investment to grow the economy, help build roads and infrastructure, create jobs and EXPERTISE!

    DESTRUCTION! If you want to see what destruction is wrought without modernization, here is one example of the destruction of the environment due to the lack of roads: http://www.ias.ac.in/jbiosci/mar2006/85.pdf

    Perhaps you would like the Russians and their eco-friendly ways to invest instead of western companies? That’s fine too, as that is the way of Mr. Market. Just be careful of what you ask or demand.

    mandukhai:

    Businesses are in business to make a profit. Local labor laws are local labor laws,and wages are relative to the region. You don’t see the rural Polish receiving Los Angeles level wages, so why should you expect London type wages in Mongolia? Price efficiencies are why you have companies moving about. Germany is too expensive, so companies pack up and move to Czech, Poland, Hungary, China or India. American unions have out priced themselves from work, as has the ever increasing minimum wage. Countries and companies learn, adjust and move forward.

    For your country to attract foreign investment, you need a stable set of rules. Putting in an arbitrary, non-negotiated penalty on profits does not accomplish this. It freaks the investor out, and as the Market is huge, and opportunities enormous, money will flow aay from Mongolia. If that is what you want… OK.

    Will there be government assistance when prices plummet? LOL… we know the answer to that one… it’s called tough darts buddy.

  • Mongolkhuu

    Hi all

  • Mongolia

    Dave and Paavo,

    I don’t understand what you are talking about. Mining is the most primitive type of business. It should be taxed that way when market is favorable. Yes, we want foreign invesmtent and expertise, but not one in mining. If you were from Intel or , we wouldn’t or shouldn’t do this. Think about it. And be careful. We might do even more. I am not threatening you. Just to make sure that we both understand each other and that we really don’t simply want to be a mining country.

  • Zul

    We, Mongolians, don’t want to push foreign investments. We just want to find suitable and beneficial way to do. But of course there are too many obstacles and illegal things occuring in our country. For example, Chinese companies treat very badly for our nature. They are poisoning and using very dangerous chemicals on our land. Do you have any idea and suggestions to stop these knids of issues?

  • paavo

    mandukhai,

    The profits are not “free”. They are earned and are negotiated with your government.

    The question for investors is really simple. Are you people trustworthy, do your contracts mean anything, or are you a bunch of bait-and-switchers? Liars in other words?

    YOUR government wanted this investment, and Ivanhoe were heroes when they stayed as everyone else left.

    You folks are playing a silly game. Capital can be moved easily, and the money that doesn’t flow to Mongolia because of dumb laws and changing the rules of the game midway through is difficult to calculate.

    If it is Chinese and Russian companies you want, then have a it, and good luck.

    As for the environmental destruction????????? How about a few photos. Google Earth shows the operation is in barren, unpopulated, hard to reach places, and you can’t see anything except a few structures.

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