MON­GO­LIAN HOARD

The Australian - The Deal - - Resources -

ON­THE STREETS OFMONGOLIA’S CAP­I­TAL, Ulaan­baatar, the dis­tinc­tive sound of the Aus­tralian twang is never far away. In­side the Grand Khaan Ir­ish Pub, a pop­u­lar down­town bar, it’s com­mon to spot Aus­tralian ex­pats shar­ing a Ja­cob’s Creek red and en­joy­ing some wagyu beef.

Mon­go­lia’s rich and largely un­tapped nat­u­ral re­sources have at­tracted a di­verse ar­ray of Aus­tralian busi­nesses, in­clud­ing­min­ers, sup­pli­ers, con­struc­tion and en­gi­neer­ing com­pa­nies and firms fromthe le­gal and fi­nan­cial sec­tors.

More than 650 Aus­tralians live in the coun­try and more than 45 Aus­tralian busi­nesses op­er­ate there, with many other staff work­ing on a fly-in, fly-out ba­sis from China and Aus­tralia.

“With strong skills and ex­pe­ri­ence in the min­ing sec­tor and re­lated ser­vices in­dus­tries, Aus­tralian firms have played a large role in the de­vel­op­ment of this sec­tor,” says Aus­tralian ambassador to Mon­go­lia Sam Gerovich, who is based in Seoul.

In 2011, Mon­go­lian GDP stood at $ 13.4 bil­lion, with an­a­lysts pre­dict­ing for­eign in­vest­ment will top $ 10 bil­lion over the next five years in the min­er­als sec­tor alone. And Aus­tralian in­vest­ment is ex­pected to be a sig­nif­i­cant con­trib­u­tor.

Rio Tinto’s $ 6.6 bil­lion Oyu Tol­goi pro­ject, the huge cop­per and gold mine in the south Gobi Desert, is pre­dicted to in­crease Mon­go­lianGDP by one third when it reaches full pro­duc­tion. Oyu Tol­goi has al­ready paid $US800 mil­lion in taxes to the Mon­go­lian govern­ment, in­clud­ing $US280mil­lion in national and lo­cal taxes and other govern­ment fees last year.

How­ever, as Rio­has found out, do­ing busi­ness in­Mon­go­lia isn’t all smooth sail­ing. Oyu Tol­goi op­er­a­tor Turquoise Hill Re­sources, whichis­con­trolled­byRio, is­bat­tlin­grenewed­po­lit­i­cal in­ter­fer­ence over de­vel­op­ment costs, roy­al­ties and own­er­ship of the pro­ject, of which the govern­ment has a 34 per cent stake.

TheMon­go­lian min­ing boom also cooled last year. The 2011 recordGDP­growthof 17.3 per cent slowedto12.3 per cent last year. De­creas­ing ex­ports to China and for­eign in­vest­ment con­cerns over a tight­en­ing of the min­ing reg­u­la­tory regime sent shock waves through the ex­pat busi­ness com­mu­nity.

The Strate­gic En­ti­ties For­eign In­vest­ment Law in­tro­duced last May added­tothe­uncer­tainty. “In­sti­tu­tional share­hold­ers havebeen less in­ter­ested in­Mon­go­lian-re­lated stocks be­cause of leg­isla­tive volatil­ity,” Aspire Min­ing man­ag­ing di­rec­tor David Paull says.

Ac­cord­ing to Paull, Aspire (which op­er­ates Ovoot, the sec­ond­largest cok­ing coal de­posit in Mon­go­lia) ex­pe­ri­enced more than 50per cent un­der­per­for­mance last year as a re­sult of par­lia­men­tary elec­tions and changes in the for­eign in­vest­ment law. While the ef­fect on Aspire was sig­nif­i­cant, Paull reck­ons the com­pany got off fairly lightly. “We were the lucky ones. We didn’t have to go to mar­ket and we al­ready had our dis­cov­ery. If you were a ju­nior ex­plo­ration com­pany with a lower share price at that time, it would have been very dif­fi­cult.”

John Mi­ragliotta is the en­vi­ron­ment­man­ager at Sus­tain­abil­ity, a Perth-based con­sul­tancy firm spe­cial­is­ing in oc­cu­pa­tional health and safety and en­vi­ron­men­tal is­sues and with clients in­clud­ing the Oyu Tol­goi and Ovoot op­er­a­tions. “The past six months have been chal­leng­ing for us,” he says. “While that has been across the

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