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MACMAHON Holdings has taken full ownership of its Mongolian contract as it uses its debt facilities to pay for the necessary infrastructure to ramp up production. 

The WA contractor won a $491 million contract on the Tavan Tolgoi coal mine in Mongolia last October in a joint venture with German Operta GmBh.

Macmahon today said site operations at the mine - which is state-owned - started in January with mining, stripping and temporary workshop facilities constructed.

Calling it an “enormous opportunity” at the time, Macmahon chief executive Nick Bowen said the contract put the WA company at the forefront of an emerging mining region.

Though the chief executive reaffirmed the growth potential of Mongolia, in a presentation posted to the Australian Securities Exchange today, he also highlighted the need for more investment in infrastructure.

Mr Bowen said the Tavan Tolgoi was on target to deliver 3 million tonnes of coal in the first year and could reach up to 20mt a year depending on infrastructure.

To help get production to “around” 6mt in 2013, Mr Bowen also told shareholders today the company had taken over “responsibilities” for the entire contract as it would assist the “rapid ramp up” of production.

“To facilitate the required rapid start up, the initial capex over the next few months will be funded from Macmahon’s existing debt facilities,” the company said in a statement.

Mr Bowen said the debt would come off the WA company’s balance sheet once the contract returned to a 50/50 split in the 2013 calendar year.

“Full control of the project during ramp-up will assist Macmahon to efficiently align the project with our well-established operational process,” he said.

Macmahon said it had a current order book of $3.2 billion, slightly down from its first-half figure of $3.4 billion having won $520 million in contracts since December 31 last year.

Source:mongoliaeconomy.blogspot.com

Draig Resources’ (ASX: DRG) latest drilling on the company’s Teeg licence in Mongolia has returned the thickest coal seam intercepts to date, with apparent thickness of 86.28 metres in one hole.

Phase 1 drilling at Teeg, which is located in the Ovorhangay province, has now been completed.

The 86.28 metre seam was intercepted from a depth of 27 metres. Other thick seams intercepted during the program included one of 66.75 metres and 30 metre thick intercepts in a twin angled core hole.

Samples and cores from the program are at the ALS laboratory in Ulaanbaatar for quality testing, with further tests to be undertaken in Queensland.

Draig has commenced the assimilation of drilling data and plans to begin resource modelling to define a JORC Resource for Teeg.

Planning for the Phase 2 drilling program is underway, with further drilling required to connect the due diligence coal intersection achieved in mid-2011 with the northern extent of the current strike.

If successful, this work could extend the strike length of mineralisation at Teeg to more than 6.5 kilometres.

Phase 2 drilling will also include exploration on the neighbouring Nariin Teeg licence, where geophysics have identified a number of potential coal bearing targets, and at the four South Gobi licences.

Mongolian Office

In a move to strengthen its position in Mongolia, Draig has completed the establishment of an office in the country, and appointed a Mongolia-based general manager.

Terrence Thompson has 25 years of experience in the startup, administration and expansion of domestic and international businesses, including the project management of construction and mining projects.

A nasty bout of resource nationalism in Central Asia is worrying investors brave enough to invest in frontier markets. Mongolia and Kyrgyzstan are at it, with the Kyrgyz government this week announcing it has revoked 46 gold mining licences in what it calls an attempt to clean up the mining industry.

At least none of the Kyrgyz licences are for the country’s major mining operations. The situation is different in Mongolia, which on April 16 suddenly suspended the mining licenses of SouthGobi Resources.

SouthGobi’s majority owner Ivanhoe Mines had agreed to sell a 57.6 per cent stake in the company to state-run Aluminum Corporation of China (Chalco). In response, the government is now busy rushing through parliament legislation that puts limits on foreign investment into enterprises with “strategic significance”.

According to comments attributed to Minister of Foreign Affairs G Zandanshatar on the parliament website, he told MPs that the law could be passed “within two weeks”. Zandanshatar said it is only a “coincidence” that the government is rushing through this law following the revoking of SouthGobi’s licenses and ahead of the June parliamentary elections.

Nevertheless, Chinese influence is a touchy subject for many Mongolian people, and bashing foreign investors, especially Chinese ones, goes down well with voters. “This contract should be terminated immediately,” Jargalsaikhan Dambadarjaa, an economist and popular local talk show host said on his programme, speaking for many. “If someone doesn’t disrupt the SouthGobi deal, it will become Chinese property.”

SouthGobi Resources is one of the country’s largest exporters, shipping one in every five tonnes of Mongolian coking coal to China. The company is majority owned by Ivanhoe Mines, but Chalco earlier in April agreed with Ivanhoe to buy the majority stake for $926 million, a hefty 28 per cent premium to the market. The announcement appeared to take the government by surprise and two weeks later it suddenly announced it would suspend SouthGobi’s licenses, including that for the flagship Ovoot Tolgoi coal mine, as they had not authorised the deal.

The problem is that SouthGobi is listed in Canada and has no major Mongolian shareholders (as well as Ivanhoe Mines, the Chinese sovereign wealth fund China Investment Corporation owns 13.8 per cent). Foreign investors are worried that if Mongolia finds a way to intervene in this case, it may do so in other deals in the future. Currently, there is no known legal reason for Mongolia to prohibit this deal or suspend the license, something the parliament’s website acknowledges in its report on the draft legislation. MP Bat Batjargal told reporters: “It has become an urgent issue to create legal regulation on this matter.”

Populist talk about clawing back a greater share of country’s resources is not new for Mongolia. Last year, a letter was sent by MPs to Ivanhoe Mines demanding a higher stake in Oyu Tolgoi, the country’s flagship copper-gold mine. That issue was promptly resolved when the government, Ivanhoe Mines and its project partner Rio Tinto released a joint statement honouring the original agreement. This time round, however, political reputations are on the line, so analysts worry that a deal might not be so quick in coming.

“Threatening to revoke licenses and create new laws is a dangerous game to play with the hand that feeds you, but when the economic sovereignty of Mongolia is at stake there may be changes made,” Monet Capital Investment Bank in Ulaanbaatar said in a note April 25. “We expect Chalco’s deals to go ahead, and Mongolia to swiftly create a legal environment that gives them a say in future deals of this kind. The fighting in between will most likely create some good buying opportunities for an investor outside the bubble of fear.”

For their part, both Ivanhoe and Chalco issued a statement expressing “their commitment to cooperate with and assist the [Mineral Resources Authority of Mongolia] and the government of Mongolia in any future processes that they may have.”

By Nicholas Watson

Source:english.news.mn

The following is an interview with the acting Director of the Mineral Resources Authority M. Ariunbayar. Translated from the Undesnii Shuudan newspaper.

-Let us begin our conversation with recent events – SouthGobi Sands. A draft law was proposed to the State Great Khural concerning a certain loophole in the law but the only official decision made today is the suspension of SouthGobi Sands licenses. What sort of management is this?

-This simply means getting permission from the Mongolian Government. We are currently discussing the company in question which obtained the rights to the stocks of SouthGobi Sands. Right now the mineral resources still belong to the Mongolian people. They should understand that owning stocks does not necessarily mean owning the resources. Suspending the licenses means that the stocks cannot be transferred, everything is halted.

I want to add something here: the suspension was our warning sign and I think our target received the sign. Ivanhoe Mines were planning to sell its Tsagaan Tolgoi mine but now they have stopped. This is the direct result of the SouthGobi Sands license suspension.

-People are counting the days until the law on limiting foreign ownership on state strategic mines is passed. Is it possible to resolve this issue with the suspension action even after the 35 days?

-Well, they are talking about the time in which the permission is granted. But what we should be talking about is how the buyer and the seller should both be seeking to get permission from the Mongolian Government.

-Even State Great Khural members are saying that if the law is passed within the 35 days, the Mongolians will not lose their resources to China…

-This law is not about losing resources. It is law on foreign investment management. It will manage what it has to. We also cannot understand that the new law will limit foreign investments.

-But unless we deal with this fast, Chinese state-owned companies will be mining and exporting coal from within Mongolia, will the market rule apply to this operation?

-We did bring this issue up in 2009, but no one paid any attention to it. But this doesn’t mean it cannot be managed today. It can be done through monitoring coal exports. We can determine exactly how much we can mine, and how much we can sell. Whether a Chinese state-owned company was planning to reduce its coal price is just a speculation that stirred up a lot of trouble.

-It is said that trading can be done without getting permission from the Government through a loophole in the law. Generally, are there any other loopholes or similar problems in the current Law on Mineral Resources?

-I think there is no perfect law. I don’t think there are any countries with the perfect law. Canada is believed to be the most experienced country in mining, but I believe in 2005, a large foreign company that was mining gold in Canada simply left the country after exploitation without proper mine closure procedures and ecological restoration. Canada then quickly passed a law that forces mining companies to pay up all the environmental restoration costs before the mining operations commence.

There are a number of things that need to be fixed in the Law on Mineral Resources. We cannot count them one by one, there are always new ones.

-There are foreign investment limitations on 15 mines that are considered to be of strategic importance. What about the other mines? The State Great Khural was ordered to add more mining sites to the current 15, what is the progress?

-This is being done. We have been doing this and will continue in the future. Every time a company performs a full geological data on a reserve and reports it to the Ministry of Mineral Resources and Energy, we find and evaluate new reserves. It is not about how many strategic mines we have but it is about what we do after we have many strategic mines. This management should be satisfactory.

Private companies are reluctant to have their mines turned into a state mine of strategic importance as the Government support for any strategic mine is very blurry. This should be managed.

-Lately, there is news that the Oyu Tolgoi reserve estimation is increasing. What can you say about this?

-I received their official standing on this rumor and they said that as of today they have drilled holes in locations where there could be possible reserves. But they don’t yet have a full geological data to solidly say that the total reserve has increased. They have sent me this information through a letter, saying that geological exploration is ongoing.

There is one geological rule to finding mineral deposits: they are discovered by looking in places right next to other mineral deposits. We do not usually go out to nowhere to look for minerals. So we believe that there are other deposits nearby Oyu Tolgoi.

A nasty bout of resource nationalism in Central Asia is worrying investors brave enough to invest in frontier markets. Mongolia and Kyrgyzstan are at it, with the Kyrgyz government this week announcing it has revoked 46 gold mining licences in what it calls an attempt to clean up the mining industry.

At least none of the Kyrgyz licences are for the country’s major mining operations. The situation is different in Mongolia, which on April 16 suddenly suspended the mining licenses of SouthGobi Resources.

SouthGobi’s majority owner Ivanhoe Mines had agreed to sell a 57.6 per cent stake in the company to state-run Aluminum Corporation of China (Chalco). In response, the government is now busy rushing through parliament legislation that puts limits on foreign investment into enterprises with “strategic significance”.

According to comments attributed to Minister of Foreign Affairs G Zandanshatar on the parliament website, he told MPs that the law could be passed “within two weeks”. Zandanshatar said it is only a “coincidence” that the government is rushing through this law following the revoking of SouthGobi’s licenses and ahead of the June parliamentary elections.

Nevertheless, Chinese influence is a touchy subject for many Mongolian people, and bashing foreign investors, especially Chinese ones, goes down well with voters. “This contract should be terminated immediately,” Jargalsaikhan Dambadarjaa, an economist and popular local talk show host said on his programme, speaking for many. “If someone doesn’t disrupt the SouthGobi deal, it will become Chinese property.”

SouthGobi Resources is one of the country’s largest exporters, shipping one in every five tonnes of Mongolian coking coal to China. The company is majority owned by Ivanhoe Mines, but Chalco earlier in April agreed with Ivanhoe to buy the majority stake for $926 million, a hefty 28 per cent premium to the market. The announcement appeared to take the government by surprise and two weeks later it suddenly announced it would suspend SouthGobi’s licenses, including that for the flagship Ovoot Tolgoi coal mine, as they had not authorised the deal.

By Nicholas Watson

Source:www.business-mongolia.com