Jim Dwyer, Executive Director, Business Council of Mongolia
Mongol Messenger, September 2, 2009

The OT investment agreement which is expected to be finalized in the next two weeks will provide the template, long-awaited by many significant potential as well as current private sector investors, for much needed Foreign Direct Investment (FDI) in Mongolia. 

As the Business Council of Mongolia (BCM) noted in a letter to all Members of Parliament that was published in the daily newspaper, Montsame Medee, on July 9, 2009, “The Project is critical and the effective way for Mongolian economic development and poverty reduction.  We look forward to your leadership so that the mine will start operation and employ thousands of Mongolians with major positive economic effects on the supply chain nationwide.”

FDI could come from major global entities such as Oaktree Capital, a private equity fund with $60 billion under management, based in Los Angeles.  Oaktree's Asia Chairman, Ralph Parks, said at Euromoney's Mongolia Investment Forum in Hong Kong in early 2009, "I have been in Mongolia about 15 times in the last several years and have come close to three major investments.  But I will not be back unless and until an OT investment agreement is made with the Government.  This will provide the template necessary for investors in Oaktree's funds to rely upon for future investments.  Then I will be back, able to commit funds in a country with vast potential."

The agreement will enable current investors to have confidence in a stable economic environment to expand their investments.  As Peter Akerley, President & CEO of Erdene Resource Development Gold, commented after the Mongolian Parliament’s approval of amendments to four mining laws, “The amendments announced yesterday have reinforced our belief that the country provides one of the most attractive locations globally for investment in the minerals exploration sector.  Our company will now be accelerating our efforts on all fronts in Mongolia.”

Several other investment agreements for significant minerals projects can now be addressed and moved forward.  The government’s sale of partial ownership in the Tavan Tolgoi deposit to production partner(s) will undoubtedly now be positioned on the front burner to enable development of this huge coal project.

The ripples from the OT project will spread wider and wider and be ever expanding like when a stone is thrown into a still pond.  The fastest noticeable effect of the OT agreement will be in the supply chain.  Many new jobs will be created such as those envisioned by Ivanhoe in its “10,000 new jobs” campaign. These will be not only in  Umnugovi aimag, but nationwide.  Vocational training will have to be ramped up dramatically to provide trained and qualified Mongolian workers.  In addition, Ivanhoe and Rio Tinto could consummate leases for expanded space in UB office buildings.  Apartments will be needed for an influx of Rio Tinto and Ivanhoe officials.  Additional school facilities will be needed for those families.  The ripple-effect will include new hotel space such as the very recent decision by the ownership of Shangri-La Hotels to build and open a top-of-the-line, 5-star Shangri-La Hotel in UB in 2012.  Hopefully the Hilton Hotel, now under construction, can also be completed by then if not before. Retailers will be attracted to UB such as Louis Vuitton’s planned opening  of its leather goods store in the CentralTower in October, 2009.

BCM was contracted by Ivanhoe Mines earlier this year to construct a database of Mining Supply Chain suppliers.  With the fieldwork done by the Sant Maral Foundation, we recently presented a database of 1,153 registered companies to Ivanhoe.  This database will soon be uploaded publicly.  It will provide suppliers of a multitude of products and services to mining and other key sectors free publicity for their offerings and direct interaction with mining sector and other purchasers. Its registrants run the gamut – from current suppliers to Ivanhoe to obvious future suppliers to Ivanhoe and the mining sector, to many less-than-obvious and potential supplier to the mining and other sectors. 

•    A current supplier to Ivanhoe is Aquaterra as chronicled in the OT Project’s “Awakened Gobi”,   Responsible Mining Magazine’s Summer 2009 issue.  This international water resources and  environmental group has been working with the OT Project for six years and played a key role in the discovery of the Gunni Hooloi aquifer from which the large water demands of the Project will be sourced.  Their desire to extend partnering relationships led to the opening of their Mongolia office (Aquaterra East Asia LLC) in 2008.
•    Companies providing mining equipment and mining supplies will certainly see huge orders from the OT Project ramping up.   
•    Less-than-obvious and potential suppliers to the mining supply chain include well-known entities such as DHL, Eznis Airways, and International School of Ulaanbaatar as well as over 1,000 other Mining Supply Chain database registrants, of which 88% are Mongolian owned, 6% are JV’s between Mongolian and foreign entities, and 6% are foreign owned.  
BCM will maintain and add significantly to this nationwide database. Its size will grow as the ripple-effect caused by dramatic initial splash made by the OT agreement spreads.