Issue link: http://resourceworld.uberflip.com/i/392638
8 www.resourceworld.com o c t o b e r / n o v e m b e r 2 0 1 4 with Ivanhoe retaining a 66% interest. At the time, Rio Tinto held a 9.9% interest in Ivanhoe. This Investment Agreement began the full-scale con- struction of the Oyu Tolgoi Mine. The first copper-gold concentrates produced from Oyu Tolgoi's initial open pit mine was exported from the multi-billion-dollar sprawling facil- ity in the Gobi Desert to customers in China on July 9, 2013. A convoy of trucks delivered the initial sale of approximately 5,800 tons of concentrate to the Mongolia-China border over two weeks. In 2013, Oyu Tolgoi gross revenues were US $55 million on sales of 26,400 tons of concentrate. For 2014, Oyu Tolgoi is targeting production of 135,000 to 160,000 tons of cop- per in concentrates and 600,000 to 700,000 ounces of gold in concentrates, according to Turquoise Hill Resources news reports. For the second quarter of 2014, Turquoise Hill Resources reported revenues of US $436 million on sales of 202,500 tons of copper-gold concen- trates. This was comprised of: 51,600 tons of copper for US $285.4 million; 126,000 ounces of gold for US $145.2 million; and approximately 309,000 ounces of silver for US $5.4 million. The company paid the Mongolian government US $25.5 million in royalties. Concentrate sales during the sec- ond quarter of 2014 increased 320% over the first quarter of 2014 due to ongoing improvements in customer logistics and marketing, Turquoise Hill Resources reported August 12, 2014. Sales contracts for 2014 production are fully booked and nearly booked for 2015 and for the next eight years. The expansion plan for the US $4 billion underground mine is stalled because of further approvals to the Minerals Law after Parliament recon- venes in September 2014 and also because of a tax dispute between Oyu Tolgoi LLC and the government (see sidebar). The potential of mining and other natural resources in Mongolia is now known worldwide, yet the needed investments are only at a trickle at present because foreign investors have been discouraged by the parlia- ment's passage of counter-productive laws and the government's failures to honor contracts. Currently, the foreign direct investments (FDI) needed for the economy to prosper are down 70% over the same period last year. Mining products generate 90% of Mongolia's total export revenue income – copper alone accounts for 40% – and 83% of FDI. The Strategic Entities Foreign Investment Law (SEFIL) of 2012 drastically decreased foreign investments and, as a result, was repealed in November 2013 and replaced by a new and more welcoming Investment Law. "The new investment law of 2013 provides more security and stabil- ity by defining how long the period of tax and regulatory stability will be," said Graeme Hancock, President and Chief Representative for Anglo American plc [AAL-London] in an interview in Ulaanbaatar. In addition to the repeal of SEFIL and the passage of the investment law, the govern- ment has also passed a series of amendments to the Minerals Law that has led to the lifting of a moratorium imposed in 2010 on the granting of new exploration licenses. Mongolia's new development profile has mining investors waiting for things to change. However, the juniors can't be patient like the majors can because shareholders' concerns weigh more on junior mining companies. "There were a lot of juniors here in the early to mid-2000s, hoping to be successful on the coattails of Oyu Tolgoi, but the actions of the govern- ment in 2006 with the Windfall Profits Tax and again in 2012 with SEFIL scared many of them off," said Dr. Hancock. Getting Mongolia back on track Investors shy away from uncertainty and regu- lations they deem as unfair which has caused a significant drop in foreign direct investment (FDI) in Mongolia's important mineral sector. In an effort to correct this situation, Prime Minister Norovyn Altankhuyag recently made some sur- prising comments on Mongolian television and radio. "A rapid soar of copper and coal prices at the world market made us lazy. Initial investment in Oyu Tolgoi and flows of dollars made some think that we would have all this forever," he said. The PM also noted that his government's poli- cies scared away investors, stalled exploration and resulted in cancelled mineral licenses and a politicized business environment. "The time has come to put aside all this empty politicization and solve problems," he added. "The country's security, external relations, policies with neighbouring countries, banking and financial trust and the rate of the national currency must serve the national interest, not politics." In the wake of what were seen as unfair poli- cies for the mining sector, Mongolia's parliament passed new mining legislation on July 1. It's going to take a while before investors regain con- fidence on a large scale; however, the UB Post reported that, in July alone, Mongolia attracted US $82.4 million in FDI, the highest amount in the past six months. In a related development, the Financial Times of London reported that Chultem Ulaan, Mongolia's Finance Minister, said that Mongolia is taking steps to boost foreign currency reserves by attracting more FDI and boosting exports while reducing fiscal outlays. Ulaan said it is cru- cial to solve the Oyu Tolgoi cost overrun dispute between Rio Tinto and the government. Just before press time, the Tax Dispute Resolution Council of the Mongolian Taxation Department ruled that the amount of tax, inter- est and penalties claimed to be payable by Oyu Tolgoi LLC was reduced from approximately US $127 million to about US $30 million.