Source: BCM NewsWire                     Date: 16 September, 2010

“Discover Mongolia 2010” attracted more than 700 participants from 12 different countries this year. The active interest they displayed at all the four sessions over two days and in the exhibition showed once again why this annual forum has become such an important part of the calendar of international mining investors interested in Mongolia.

In his keynote speech as Guest of Honor, Mr. Bernard Guarnera of Behre Dolbear Group said Mongolia’s economic landscape will continue to encourage investment. With a stable GDP at 7% per annum that’s expected to grow and Foreign Direct Investment increasing five-fold between 2004 and 2008, the country can only move forward, he said. A recent survey by the mineral industry advisory firm ranks Mongolia as the most attractive Asian country for mining investment, putting it 7th internationally, behind Australia, Canada, Chile, Mexico, US and Brazil.

Coal and the Chinese demand dominated most of the talk at the first session on Mineral Investment Environment. Catering to China’s growing demand was key to Mongolia’s projected growth, a view shared by chief speakers Mr. Guanera and Mr. Tim Goldsmith, Partner and Mining Leader of PricewaterhouseCoopers, one the world’s leading audit and advisory firms and the second of the Big Four to move into Mongolia after Ernst & Young.

“China will become a bigger economy than the US by 2025,” said Mr. Goldsmith, expressing confidence in the future investment prospects that this held for Mongolia and explaining why PwC made the strategic decision to set up a Mongolia office.

The Chinese government’s ongoing programs to develop the country’s North West regions were touted as a great opportunity for Mongolia’s growth considering the regional proximity of Mongolia to these areas. In his presentation, Mr. Alexander Molyneux, President and CEO of SouthGobi Resources, delineated how high production cash costs and low safety records have kept China from supplying its own need. Mongolian coal exports to China could stand at 30-to50 million tons by 2015, he said, accounting for 60% to 70% of Mongolia’s total coal production.

Mr. Layton Croft, Vice-President of SouthGobi Resources, and Mr. David Paull, managing Director of Aspire Mining, also gave presentations on their respective coal fields in the South Gobi region and the growing Chinese demand. The strategic need for infrastructure development to markets particularly in China was a recurring theme.

Prophecy Resource Corp., represented by Mr. John Lee, CEO, presented the company’s lead in exploiting coal resources to meet Mongolia’s energy needs. The company’s project plans include building a 4,200-mw power plant at the company’s Chandgana thermal coal deposit in North East Mongolia. Phase I looks at supplying both the Mongolian East Energy System (EES) and the Central Energy System (CES) while proposals for Phase II include power transmission to China’s North East Power Grid with further plans to supply Russian grids.

The second session on Innovations, Best Practices and Lessons to Share featured a talk from Mr. Martin Walsh, Senior Trade Commissioner for Austrade, where he recounted Australia’s experiences in resource development. Other topics in this session revolved around transparency initiatives, responsible mining, challenges and issues in developing Mongolia’s mining projects to international standards, resource asset management and the country’s mining investment trends and outlook.

Day 2 started with a session on the Challenges and Realities of the Mongolia Mining Sector. In his opening speech, Mr. John Finigan, CEO of Golomt Bank, said 2016 would be the golden year when Mongolia started collecting regular high revenues. With copper output expected to reach 36,000 tons a year, the GDP would lunge ahead from the current USD5 billion to USD27 billion. However, adequate government support was critical for this, he warned, pointing out that investors were still wary of Mongolia’s policy shifts and volatile legal environment.

Impending License Crises, mining sector taxes and investment opportunities within the mining supply chain were other subjects tackled in this session. Speaking on the subject of Mining Grievances and Conflict Solutions, Ms. Rena Guandez, Senior Mining Advisor of EPRC-USAID, stressed the need for collaboration between mining companies and the local community. Companies have to develop and earn the social license to operate, she said while broaching the topic of mechanisms to deal with grievances and avoiding conflict.  Presenting a survey by Barristers&Solicitors LLC, Mr. G. Surakhbayar, Director of the company, revealed that 66% of mining disputes were over revoked license while admitting many companies were frustrated with the enfocement of seemingly insignificant regulations.

The last session, on Community Relations and Sustainable Development, dwelt on the lack of skilled labor for mining. Opening the session, Mr. Jon Lyons from Erdene Resources Development Corps, stressed the need for companies to engage early in community relations and identify the overlap between community and company aspirations. He admitted that investments in community relations remained poor and needed to be improved while adding that consultation with beneficiaries on areas where CR investments should go is extremely essential. Other speakers called for a reform of the labor market study to identify what jobs were in highest demand and the need to establish more vocational training schools catering to the mining industry.

Turn-out at Parliament hour was thinner than anticipated, with fewer than 15 foreign representatives present. The Members of Parliament present included Mrs. S. Oyun, Mr. Ts. Munkh Orgil, Mr. Ts. Badamsuren and Mr. B. Davasaambu. In his opening address, Mr. Davasaambuu Advisor to the Speaker of Parliament, made two requests to investors – one, to educate local staff and personnel and to co-operate with local communities and safeguard environmental norms to reduce conflict and two, to operate openly, honestly and transparently.

Most of the questions posted by attendees at both Parliament Hour and the subsequent Government Hour were regarding the moratorium on issuance on new licenses and the Water and Forest Protection Law prohibiting mining exploration and activity in the vicinity of a water source or forest areas, a hugely unpopular move for many investors. The MPs defended the law as the way to save swaths of land threatened by expansion of mineral activity but assured miners that certain provisions in the law will be clarified by the Government Agency responsible for the cadastral mapping of the contested areas.

Responding to a foreign investor’s complaint about the ambiguity in the Water and Forest Protection law, Mr. Munkh Orgil stated that companies that operate responsibly will not be affected and called for mining companies to co-operate more with the media and environmental NGOs. Mrs. Oyun revealed that the moratorium will be lifted on December 1 and the tender application system will be revised. All the MPs were agreed that environmental protection and rehabilitation was a must and a “lenient attitude will not be brought in”.

Responding to questions posed on the status of the proposed resource rent tax which may substitute the Windfall Profit Tax once it is rescinded in January 2011, the MPs said the position should be clear during the Autumn Session of Parliament.

During Government Hour, officials defended the President’s decree. “The suspension of licenses was not an unpremeditated act, and the President merely acknowledged widespread public concern,” said Mr. D. Batkhuyag, Head of the Mineral Resources Authority. Echoing the thought was Vice Minster for Minerals and Energy B. Arunisan. “When we travel outside Ulaanbaatar, we see the environmental damage. We cannot sacrifice our environment for minerals,” he said.

On the Parliament Act prohibiting mining in certain areas, the officials did admit that the problem lay in the implementation of the law and not the law itself as the Government Implementing Agency was still struggling with reaching a consensus on the cadastral mapping of the areas suspended from mining activities under the Act. Compensation measures for exploratory work already done in these areas will be discussed at the Autumn Session of Parliament, said an official, hinting that a maximum of MNT5 trillion in compensation might be in order.

Officials also reconfirmed their approval of Mongolia’s railroad direction from the South Gobi mines to Russia answering a question posed by a BBC journalist. “We could put think about a route to China next year but right now the priority is to complete the line to Sainshand and then to the Northern ports,” said Mr. Batkhuyag.

Some participants complained of the lack of booth space to accommodate the 23 sponsors in the exhibition area, but all in all, the conference was a success, like its predecessors. A poll was taken among participants on a proposal to rename the forum “Develop Mongolia” next year, but gauging by the sentiments overheard, Mongolia’s largest international investment meeting is likely to keep calling miners for another challenging trip to “Discover Mongolia”.