On September 8th, I spoke at the Discover Mongolia 2011 conference. I shared a presentation titled “Oyu Tolgoi – Strengthening and Growing Mongolia” that was covered by the international media outlet, including The Australian.
The headline of The Australian article was wrong. However, the article touched on several key points that I sought to make regarding investor confidence in Mongolia. The Mongolian economy has experienced rapid growth in recent years. This is due to the fact that investor confidence is high at the moment, and this investor confidence can be tied directly back to the signing of the Oyu Tolgoi Investment Agreement.
Even a few calls for Mongolia’s commitments to be broken and agreements to be changed will only lower the confidence of investors, and this will have a negative effect on the country’s future economic prosperity.
Here is an excerpt from the text from The Australian:
“A group of 20 members of Mongolia’s parliament has been petitioning for another revision of the country’s minerals regime.
During the Discover Mongolia forum in Ulan Bator, Cameron McRae, Rio Tinto’s country director and chief executive of the $US7 billion ($6.6bn) Oyu Tolgoi copper-gold deposit, said the Oyu Tolgoi investment agreement secured with the government in 2009 had demonstrated that Mongolia was open for business.
‘If even a few voices call for Mongolia’s commitments to be broken and agreements to be changed, there is a risk that this will undermine investor confidences,’ Mr McRae said.
‘These few will have to answer to the many Mongolians whose jobs will be on the line, and the local businesses whose prospects will be jeopardised. We are confident that Mongolia will not let this happen; that stability and the rule of law will prevail; that Mongolia’s long-awaited economic promise will become a reality.’
The regulation and taxation of the mining industry are a major political issue in Mongolia, where the economy is growing at about 17 per cent a year because of the expanding mining industry.
The construction of Oyu Tolgoi and the looming development of the Tavan Tolgoi coal deposit, which is expected to become the world’s largest coking coal mine, are leading a surge in new investments in Mongolia.
The ever increasing importance of the mining industry in Mongolia has fed political debate about the best ways in which the country can benefit from the industry.
At least four major revisions to the tax regime on miners have been implemented in the past 12 years.
The most recent investment agreement replaced a short-lived windfall profits tax regime that would have seen the government take 68 per cent of profits during times of high commodity prices.
Investment in the Mongolian resources sector slowed significantly while the windfall profit tax was in place.
Mr McRae noted that the Mongolian government would receive more than $US220 million in taxes from Oyu Tolgoi this year alone, with the government to receive $US700 million in tax revenues and payments from the project before it entered production.
Almost 14,000 employees and contractors are working on the project – and more than 60 per cent of those workers are Mongolian.
‘Oyu Tolgoi’s investors needed (the investment agreement) to have the confidence to invest such mammoth sums and to pursue the mining industry’s largest ever project financing,’ Mr McRae said.
‘As a result, Mongolia is now perfectly positioned to launch a series of world-class projects and is seeing concrete growth in the economy; from foreign direct investment to job creation.’
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