Source: Reuters                               Date: 10 March, 2011

Following are some of the key Mongolia risks to watch:

Political instability

The capricious nature of Mongolia's democratic government can complicate foreign investment projects. Analysts also complain about the weakness of Mongolia's political parties and its poor regulatory capacity. Corruption may also prove to be a long-term problem. Transparency International rated Mongolia 116th in its 2010 corruption perception index, up from 120th in 2009 but down from 102nd in 2008.

Political troubles have also arisen from the arrest in London of Mongolia's counter-espionage chief, Mr. Bat Khurts. Several hundred protesters gathered outside the British Embassy in Ulaanbaatar at the end of February, calling on the government to expel firms like Rio Tinto from the country in retaliation.

Regulatory risk

The halt to the issuance and transfer of mineral exploitation licenses until the government enacts stricter environmental laws has rekindled some of the uncertainty that for years surrounded mining investment in the country. It is unclear how long it would take to pass a new law. In November, the Ministry for Energy and Mineral Resources said it would suspend 254 gold mining licenses and review another 1,700 believed to contravene the country's Water and Forest Law.

Dependence on China, Russia

China already dominates Mongolia's economy, buying 84 percent of the country's exports last year. Some Mongolians fear China's bulging population will increasingly lead to immigration into Mongolia for work, especially if Chinese firms take over the bulk of its mining sector.

Russia has also been exerting pressure on its former satellite, especially over uranium. Canadian miner Khan Resources has accused Moscow of working behind the scenes to force it out of a deposit in the northeast. Talks continue on a Russia-Mongolia joint venture to explore and produce uranium.

What to watch:

-- The growing dominance of China in Mongolia's economy has prompted many of Mongolia's elite to lean further towards Russia, but China is unlikely to step aside, and will also have much to say on where and how Mongolia builds its roads and railways.

-- China rejected the bid for Khan Resources by state nuclear firm CNNC after Ulaanbaatar revoked the company's licenses. Is Russia now in the driving seat in the battle to secure more Mongolian uranium? What will be China's next move?

Balancing "third neighbors"

Mongolia has sought to carefully balance the interests of China and Russia, and to press ahead with its "third neighbor" policy aimed at courting allies like the United States, but analysts say no nation has the clout to underwrite Mongolia's independence or undermine Russia or China's influence.

While the country hopes to develop its resources as quickly as possible, many of its bigger projects have been stymied by geopolitical concerns.

What to watch:

-- Will Mongolia's efforts to bring in overseas investment be derailed by the pressures exerted by Russia and China?

-- Mongolia now plans to list 30 percent of the eastern block of the Tavan Tolgoi project on an overseas stock exchange, distribute 20 percent to local enterprises and residents, and keep 50 percent in the hands of the state. Meanwhile, stakes in the western block of the project have been put up for tender and received 15 bids from mining firms in January.

Will this be the ownership model in other key "strategic resource" projects, or will Mongolia be forced to sell properties outright in order to kickstart economic growth?