Source: Frontier Securities                     Date: 12 October, 2011

The controversy surrounding the Oyu Tolgoi project may have divided Parliament between the coalition government that supports the 2009 agreement and an anti-coalition force protesting it. The Oyu Tolgoi project has been deemed too big to be stopped.
Oyu Tolgoi accounts for approximately one-third of Mongolia's economic growth. Halting operations would damage the economy and tarnish Mongolia's reputation for investment. Recently Mongolia has been compared to places in Africa where resource nationalism has caused hesitancy among mining firms from opening operations.
“I am grateful that the Oyu Tolgoi issue is being discussed,” said Prime Minister S. Batbold. “We must establish Oyu Tolgoi together for productive development. We made requirements that will create real benefits and profits for Mongolia starting next year.”
Last week Ivanhoe Mines and Rio Tinto refused to renegotiate the 2009 investment agreement to the Oyu Tolgoi project. The government wanted to increase its stake from 34 percent to 50 percent, but the current agreement prohibits the government from doing so until 30 years have passed. A faction within government had contested that the investment agreement violated Resolution 57 because its stake fell short of 50 percent. It is likely that an anti-coalition inter-party alliance embarked on the campaign to gain political points for its hardliner attitude towards foreigner industry.Parliament Speaker D. Demberel warned MPs against disrupting project activities. In light of falling copper prices and global economic perils world-wide that stand to exacerbate any obstacles that may arise, it is important that Mongolia demonstrate to investors that it has stable politics to ease concerns. President Ts. Elbegdorj, who originally insisted upon a 50 percent stakeholder agreement and supported the move to raise Mongolia's stake ahead of schedule, said Mongolia must demonstrate to the world that it stands by its agreements.

Development at Oyu Tolgoi recently reached 50 percent completion and should begin production next year. Both firms have already invested USD 2.6 billion towards the project.
“We expected the government to resolve the situation, but we did not expect this so quick and swift,” said Frontier Securities Strategic Market Analyst Dale Choi. “This is a great response to restore the confidence of investors in Mongolia, a move apparently applauded by the market.