Mongolian Prime Minister Sükhbaatar Batbold was in Vancouver recently lauding the opportunities that await Canadian resource companies in his country, but questions swirled around how far his state has really come from its communist past.
Batbold told Business in Vancouver his country is emerging from a 20-year transition period, and that Canadian business expertise, especially in B.C., could help Mongolia advance to the next stage of development.
“I think British Columbia and [its] business of mining and sophistication and technology and management and government … provides a lot of opportunities for Mongolia and Mongolian mining industries,” Batbold said.
His comments come at a time when a number of local mining companies are busy establishing footprints in the Asian steppe.
Chief among them is Vancouver-based Ivanhoe Mines Ltd. (TSX:IVN) and its US$4.6 billion Oyu Tolgoi copper-gold project.
Other local companies there include SouthGobi Resources Ltd. (TSX:SQG), Prophecy Resource Corp. (TSX-V:PCY) and Entrée Gold Inc. (TSX:ETG).
Experts throughout the mining community say Mongolia contains a treasure trove of mineral riches, but critics argue that the government remains slow to sign investment agreements and issue permits and is still battling corruption.
For example, it took Ivanhoe several years to negotiate a long-term investment agreement with Mongolia, eventually resulting in a 34% stake for the government.
According to Ernst & Young’s 2010 business risk report, Mongolia prefers state exploitation of its minerals.
But Batbold said that’s not the case.
“It’s not the aim of government to have a major stake in the projects,” he told BIV. “The aim of the government is to ensure the interests of Mongolia, to ensure the interests of its citizens by having fair and transparent agreements with investors.”
Yet past political moves show otherwise.
Toronto-based Khan Resources Inc. (TSX:KRI) has been embroiled in legal drama in Mongolia ever since it had its exploration licence for the Dornod uranium property invalidated.
Khan subsequently took the issue to a Mongolian court and won, but still has a $300 million lawsuit outstanding against Russian uranium giant ARMZ Uranium Holding Co. regarding Dornod.
Mongolia also recently decided to retain control of the massive Tavan Tolgoi coal project.
One source said Mongolia’s former communist regime has left a lasting legacy that remains a detriment to investment today.
“They don’t understand democracy, and they don’t understand the free enterprise system, and the capitalistic system and the benefits that accrue from it,” said the source, who has worked closely with Mongolian officials in the past.
Despite its mineral opportunities, Mongolia ranked 67th out of 72 mining jurisdictions around the world in a recent Fraser Institute survey.
That puts Mongolia in the company of Venezuela, Ecuador and the Democratic Republic of Congo.
“It’s corruption in one part,” the source said. “But the second part is this old Soviet mentality [that] everything belongs to the state, and it’s hard to get it out of their head.”
Julian Dierkes, an associate professor at the University of British Columbia’s Institute of Asian Research, said although the commodity markets have reached new heights recently, some junior mining companies have put their Mongolian projects on the backburner because the permitting process has taken too long.
“If you’re working with risk capital and low capitalization there’s only so long you can wait,” Dierkes said.
But he did say state participation in a project could be good for mining companies in that it adds a level of certainty to a project.
Dierkes also said Khan’s ability to win its case in a Mongolian court speaks volumes about how far the country has come from its communist past.
“There’s challenges of course, corruption is one of them … but they’ve come a far way and no one else in the neighbourhood has.”
In a recent interview with BIV, Haruhiko Kuroda, president of the Asian Development Bank, highlighted Mongolia as one among a cluster of Asian nations that hold ample opportunity for B.C. resource companies.
He also said Canada’s western-most province would continue to be the gateway to Asia, and its global reach can play a key role in helping emerging nations in Asia grow and prosper.
“The communication between Canada and Asia is led by British Columbia … that trade relationship makes British Columbia the forefront of the economic relationship with Asia,” Koruda said.
According to the federal government, Canada’s direct investment in Mongolia totalled $601 million last year, but the two countries have yet to sign a foreign investment promotion and protection agreement with Mongolia, which Dierkes said is important because it would offer guarantees and security for investors.
Shortly before he left Vancouver to return to Mongolia, Batbold was presented with a Vancouver Canucks home jersey.
Even though he sees strong ties with Canada as an essential part of his country’s success, it’s clear that his home and the real work to help Mongolia lies half a world away.
Said Batbold: “We have a strong agenda to deal with deficiencies of bureaucracies … we are working through this process now, and it may result, again, to support the business environment and make it stable and competitive.”