MELBOURNE, March 27 (Reuters) – Mongolia is starting to take steps aimed at arresting a slide in investment in its crucial mining sector, looking to curb uncertainty over regulations that has been blamed for stalling copper and coal projects. Even so, miners remain cautious.
Regulatory concerns peaked last month when Rio Tinto threatened to delay the start-up of the $6.2 billion Oyu Tolgoi copper and gold mine, until it resolves a dispute with the government over their investment agreement.
The mine is due to start selling copper in June and could make up a third of Mongolia’s economy by 2020, producing 425,000 tonnes of copper and 460,000 ounces of gold a year.
“At the higher echelons…there’s at least the recognition that something’s wrong and needs to be fixed,” said Elisabeth Ellis, Ulan Bator-based partner at law firm Minter Ellison, which advises mining and mining services firms.
Foreign direct investment dropped 17 percent to $3.9 billion in 2012, according to the Bank of Mongolia’s balance of payments, coinciding with a string of moves by the government that deterred investments in copper and coal.
Spokesmen for the prime minister and mining minister did not respond to requests for comment on investor sentiment.
But in a move that should help calm some concerns, the government last week approved regulations to carry out a foreign investment law in strategic sectors which had been in limbo since last year. It has clarified that the main target of the law is foreign state-owned investors, not private companies.
It also decided to defer debate on a proposed Minerals Law until after presidential elections in June, giving more time for talks with industry and reducing the risk of the issue being embroiled in nationalist sentiment surrounding the election.
The law is contentious as it seeks to give the state a free right to shares in strategic minerals deposits, authority to change tax rates on mine leases, and to make it easy for the state to take back leases with limited compensation.
MINING SHARES SLIDE
Regulatory uncertainty started with the suspension of SouthGobi Resources’ mining licences last year when China’s Chalco bid to buy a majority stake in the coal miner, followed by legislation looking to cap foreign ownership at 49 percent in strategic sectors, including mining.
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