ULAN BATOR Nov 7 Mongolia has annulled more
than 100 exploration licenses as part of an investigation into
mining sector corruption, raising further concerns among foreign
investors about the risks of doing business in there.
Mongolia-focused Kincora Copper said on Thursday
that it had received a letter from the Mineral Resources
Authority saying that two of its licenses had been revoked
following a criminal investigation into former government
officials accused of illegally issuing a total of 106
exploration licenses between 2008 and 2009.
All of the 106 licenses have been cancelled.
Kincora Copper said the move, which will affect the licenses
of an estimated 11 foreign and 67 domestic firms hoping to
explore for a range of minerals, highlighted the uncertainty
facing a growing legion of foreign investors.
"Security of tenure and a transparent legal system are key
cornerstones for both domestic and foreign private sector
investment," said Sam Spring, president and chief executive of
Kincora Copper, in an email.
With legal proceedings already underway, the company
suspended exploration activities on the two properties, known as
North Fox and Tourmaline Hills, at the start of the year.
Mongolia's Ministry of Mining could not immediately be
reached for comment. Representatives of the Mineral Resources
Authority were also unavailable.
SOLD ON THE CHEAP?
Surenjav Odbayar, head of research at Ulan Bator-based
brokerage National Securities, said the case related to two
government officials caught up in a crackdown on corruption that
was launched ahead of Mongolian President Tsakhia Elbegdorj bid
for re-election this year.
Elbegdorj won a second term on June 27 and there have been
no more additional allegations against the officials since then,
Foreign firms in Mongolia have long expressed concern that a
populist, resource-nationalist streak amongst lawmakers could
put their operations at risk, with legislators routinely
complaining that Mongolian resources - including the flagship
Oyu Tolgoi copper mine run by Rio Tinto , are
being sold on the cheap to overseas interests.
Business confidence was hit further by an unpopular 2012 law
restricting investments in "strategic" assets like mining, and
foreign investment in the first half of this year dropped 43
percent on the year. The law has since been replaced.
Another Canada-based explorer, Khan Resources, is suing the
Mongolian government for $326 million in damages after the
Mongolian government refused to reissue its licenses for the
Dornod uranium property in 2010.
The International Arbitration Tribunal will begin a five-day
hearing into the case on Nov. 11 in Paris, with Khan accusing
Mongolia of breaking its own licensing laws in order to
accommodate a uranium development deal signed with Russia's
AtomRedMetZoloto (ARMZ) in January 2009.
Kincora's Spring said arbitration for his own company would
only be a last resort, and that they would first seek to resolve
the matter directly with the government.
He said Kincora acquired the licenses last year following a
takeover, and while it could still reclaim them, it would have
to participate in a competitive bidding process, even though it
had already spent heavily on developing the properties.
"While the majority of the 106 license holders would much
prefer not to engage in legal proceedings, further court action
would obviously not be good for the government, either
financially or reputation-wise, given the current environment."