On November 3 Mongolia’s new, friendlier foreign investment law came into force. Probably not a day too soon. The Asian nation of three million citizens, dependent on the mining sector to fuel growth, is desperate to turn around the slump in its economy and the steep fall-off in foreign investment.
Foreign direct investment in the country dropped 49% to September 2013 compared to last year which already marked a 17% year-on-year decline, the value of the currency, the tugrik, is down 20% this year, inflation has returned to double digits and the Mongolian central bank’s off-balance sheet spending is burning through foreign reserves as foreign debts balloon to 55% of GDP.
The path to prosperity for Mongolia, ranked 155th in the world according to GDP per capita, has always been a rocky one. The country has been bailed out by the IMF no fewer than five times and it suffers a domestic bank failure on average every 18 months.
While the changes to the 2012 Strategic Entities Foreign Investment Law (SEFIL) including greater certainty surrounding mining taxes and royalties and the scrapping of the distinction between private foreign and domestic investors are being universally welcomed as a positive step, a number of issues remain unresolved.
Mongolia is currently being sued in international courts by South Africa’s Standard Bank after a $120 million loan to a leading Mongolian banker and industrialist backed by the state-owned copper miner Erdenet went sour.
The debacle has prompted Standard Bank, 20%-owned by top Chinese bank ICBC, to exit the country entirely, selling its $350 million Mongolian portfolio to a French bank.
It marks something of a retreat for Standard Bank which in 2009 was the sole lead arranger for the country’s inaugural sovereign bond issue.
Canadian uranium explorer Khan Resources, is currently seeking $326 million in damages from the government of Mongolia due to the illegal expropriation of its permits with a trial by the International Arbitration Tribunal in Paris scheduled to start Monday.
Legal action is also likely to follow from the revocation at the end of October of 106 exploration licenses – covering a landmass approximately six times larger in surface area than active mining licenses in Mongolia – held by companies caught up in a corruption case relating to former senior government employees in the Mineral Resource Authority of Mongolia.
The mining sector accounts for more than 20% of GDP today, but has the potential to contribute a much greater proportion to the economy where 30% still live in poverty.
For the rest of this article, click here: http://www.mining.com/mongolia-gears-up-for-the-fight-of-its-mining-life-70319/