Source: uraniuminvestingnews.com   Date: May 6, 2010

As President Ts. Elbegdorj returned home from a visit to China, the question on the minds of some in the uranium market is whether or not the battle over Mongolia’s Dornod uranium deposit was discussed in his talks there. The fight over Dornod has been playing out between Russia’s state-owned ARMZ, the Mongolian government, Canadian-miner Khan Resources, and now state-owned China National Nuclear Corporation (CNNC).

If the five-year struggle Ivanhoe faced over the Oyu Tolgoi property and Khan’s current problems are any indication, foreign miners will no doubt be wary of investing in Mongolia in the future; especially with the high turnover rate for government officials in key positions and the nation’s poor ranking (120th in 2009) on Transparency International’s corruption perception index.

The biggest influence on Mongolia’s mining future and its associated political risks is its powerful and resource-hungry neighbors, China and Russia. It relies on both China and Russia for trade and economic support. China is the nation’s biggest trade partner, purchasing over 70 percent of Mongolia’s exports in 2009.
Russia provides Mongolia with economic and humanitarian support. But, of course, this neighborly kindness comes at a cost. Russia is certainly not bestowing such aid without expecting something in return.

It should be clear to most that Khan Resources is caught in the middle of a cold war over Mongolia’s resources. And at the center of this struggle is the Dornod uranium deposit, which reportedly holds reserves of about 22,000 tons with the potential for more. For the moment, Russia is pulling the strings on this marionette show. Khan’s management has accused Russia of “working behind the scenes to force it out of a deposit in the northeast”.

Rumors have been circulating that Russia and Mongolia plan to cut Khan out and develop the project themselves. Mr. Martin Quick, Khan’s CEO,  says once the company announced CNNC’s bid, Mongolia’s NEA began claiming the Canadian miner was in violation of the Nuclear Energy Law. “The fact that we have found a Chinese partner has probably upset the Russians and we think the Russians are putting a lot of political pressure on the Mongolians.”

But, the joint venture is not merely speculation. Mongolian state-owned MonAtom (51 percent) and Russia’s ARMZ, along with potential Japanese or Chinese partners, are forming a joint venture called Dornod Uranium. The group has already been granted a license on the property after Khan’s was revoked, according to The Voice of Russia.

There are also reports that the Mongolian government has told CNNC not to continue with its takeover of Khan. For now, the offer is still open and has been extended to May 25, so that CNNC can obtain approval from the Chinese government.
While Mongolian’s top officials may seek to align themselves with Russia, “China is unlikely to step aside, and will also have much to say on where and how Mongolia builds its roads and railways,” insists an analyst.