Cirtics blast SouthGobi sale to Chalco

The Aluminum Corp of China Ltd (CHALCO) has reached an agreement with Ivanhoe Mines to purchase up to 60% of the shares of SouthGobi Resources at a price of USD 926 million. 

SouthGobi operates in the Ovoot Tolgoi mine site, located in Umnugovi aimag, and has a supply of coking coal and high quality energy coal of totaling 302.3 million tons. The reaction to the news has been swift, with harsh criticisms coming from both Government officials and citizens alike. 

G.Bayarsaikhan, Member of the State Great Khural: “Selling SouthGobi Sands LLC shares to CHALCO might cause a serious loss to national interest. Foreign countries are stealing Mongolian natural resources behind our backs, while Mongolians are making it a political issue among ourselves. 

CHALCO will own 57.6% of a coal mine that has reserves of over 500 tons of coal. China is becoming both the coal supplier and buyer for Mongolia.”

D.Jargalsaikhan, economist: “This contract should be terminated immediately. In order to trade Tavan Tolgoi coal, Parliament took USD 250 million in advance and spent it handing out cash to the public. However, Erdened Tavan Tolgoi doesn’t have the capital to operate. I wonder why the board of this company is being silent, as it supposed to make an statement. If someone doesn’t disrupt the SouthGobi Sands deal, it will become Chinese property. 29 days are left for the Mongolian Parliament and Government to intercept the purchase of SouthGobi Sands. 

Ts.Sedvanchig, Member of the State Great Khural: “ The CEO of Ivanhoe Mines, Robert Friedman sold SouthGobi Sands. He is overstepping the borders and underestimating the Mongolian people and the Government. The draft law on the rules of foreign investment in areas of strategic importance to provide the national security must be approved urgently. Mongolia’s national property about to become the property of Chinese government. 

G.Bayarsaikhan, Member of the State Great Khural : “During the Manchu Period, the Mongolian Government affair was discussed and solved in Beijing, and now the destiny of Mongolian mining is to be decided by Beijing.”

B.Batjargal, Member of the State Great Khural: With the purchase of SouthGobi Sands, only Ihanhoe Mines benefits 

-It has been long time since foreigners started to merchandise the licenses of Mongolian mining resourses. The latest example is, SouthGobi Sands being sold to Chalco. What are your concerns?

-We should create a legal environment that looks at the conditions and limits for foreign companies that purchase Mongolian strategic mining sites. It has become an urgent issue to create legal regulation on this matter. At the moment the only company we know is SouthGobi Sands which belongs to the Canadian company Ivanhoe Mines, but we don’t know how many other companies are selling their mining licenses. 

Other foreign countries have governmental special agencies, that coordinate and arrange these kinds of dealings. The merchandising of national resourse licenses or the resale of the company’s shares to foreign companies should be conducted under the supervision of the State and the State should impose a tax on such deals. We are losing our underground resourses by selling mining licenses to the foreigners. We should make a conclusion on mining license deals and should urgently make amendments to the related laws. 

-CHALCO is about to purchase 60% of SouthGobi Resources. What is this deal about?
-Rio Tinto owns 51% of Ivanhoe Mines, and Ivanhoe Mines owns 57.6% of SouthGobi Resources. 

14% of SouthGobi Resources owned by China Investment Corporation, a Chinese State-owned company, and other investors own 21%. 

SouthGobi Resources owns 100% of SGQ Coal Investment Pre. Ltd, listed on the Singapore Stock Exchange; and SGQ Coal Investment Pre. Ltd owns SouthGobi Sands, listed on the Mongolia Stock Exchange. SouthGobi sands owns several mining site licenses, including a large coking coal deposit Ovoot Tolgoi. 

Ivanhoe Mines made an agreement with Chinese Chalco to sell its SouthGobi Resources shares on April 1st. The current high stock would greatly benefit SouthGobi Sands financially and Ivanhoe Mines would yield profit from selling the stocks. 

-It is interesting that Chalco decides to buy not from the Mongolian-listed SouthGobi Sands but from a Canadian company, which is a few levels above SouthGobi Sands. 

-According to the Mongolian Law on Mineral Resources, there are conditions for managing and transferring mining site licenses. Instead of switching the ownership of licenses, they have decided to transfer the rights to the mine by stock transactions; which is easier for them. 

Lately, the stock prices of Mongolian mines are increasing rapidly and cases of mine ownership transfers being done through stock transactions are also increasing. These transactions involve millions of dollars. There are talks of how these high-profit transactions can be taxed. We have developed and prepared a draft law on Economic Entity’s Income Tax in line with global standards. 

In it, if a mining company makes a transaction worth more than 10% of its shares, it is considered a business profit and liable to be taxed. 

It is reasonable that when a company decides to sell mining permit licenses, transfer ownership, or if it is going under the administration of another company, these transactions should require the permission of the Minister of Finance of Mongolia to check if involved companies are owned by foreign Government. The Minister of Finance should also set the required taxes and also let the parties perform the transactions only when the taxes are transferred to the Mongolian Government funds. 

-Is it right for Mongolia to use all of its mining assets in today’s situation of incompetent laws and policies?

-In my opinion, we must use our mineral resources cautiously. The fact that the President temporarily halted license granting was a right step. It is important that we manage and deal with current licenses and set the right taxing management before issuing any more.

The fact that some large mines are not considered to be of strategic importance is because the definition is very vague in the Law on Mineral Resources. It says that mining deposits of strategic importance are ones that “greatly affect” Mongolian economy, or if it contributes more than 5% to Mongolia’s GDP. It is unclear who, how, or through what qualification the licenses be transferred, sold, or purchased. There are several strategic deposits in Mongolia just being passed around the ownership of foreign companies under the pretense of “licenses.