Mongolia cuts licence of Canadian mining firm

In Mongolia, almost anything Chinese is viewed with suspicion – including deals with Canadian mining companies.

A new political debacle in the landlocked Asian nation has thrown a wrench into plans to transfer control of Canadian miner SouthGobi Resources Ltd. to China.

On Monday, the Mongolian government announced it will suspend SouthGobi’s mining and exploration licences on the rich Ovoot Tolgoi coal mine. SouthGobi maintained that its licences are in good standing.

According to sources, the move appears to be largely political.

Earlier this month, Ivanhoe Mines Ltd. agreed to sell its 57.6 per cent stake in SouthGobi to state-owned Aluminum Corp. of China Ltd. (Chalco). The move allows Ivanhoe to focus its resources on the $6-billion US Oyu Tolgoi copper-gold project, also in Mongolia.

The deal received some negative reaction in the local press.

Mongolians feel overwhelmed by China, their powerful southern neighbour, and are wary of increasing Chinese investment in their country. There was particular concern about this deal because it was struck between Canadian and Chinese firms, and Mongolia had no say in it.

Tensions in Mongolia are heightened by the political climate. Elections are coming up in June, and late last week, former president Enkhbayar Nambar was arrested and jailed on corruption charges following a dramatic police raid of a compound. He was planning to run for parliament in the election.

It appears this conflict might be resolved by simply giving the Mongolian government a chance to review the transaction. SouthGobi said it has already reached out to Ivanhoe and Chalco and asked them to discuss their deal with the government.

“In a best-case scenario, in one to two weeks a foreign review process would be established, Mongolia would review the deal, and the Chalco transaction would close in August as planned,” BMO Capital Markets analyst Meredith Bandy wrote in a note.