• 3 minutes Oil Price Could Fall To $30 If Global Deal Not Extended
  • 8 minutes Why Is America (Texas) Burning Millions of Dollars Per Day Of Natural Gas?
  • 11 minutes Is $60/Bbl WTI still considered a break even for Shale Oil
  • 15 minutes CNN:America's oil boom will break more records this year. OPEC is stuck in retreat
  • 21 mins The Pope: "Climate change ... doomsday predictions can no longer be met with irony or disdain."
  • 56 mins Hormus and surrounding waters: Energy Threats to the World: Oil, LNG, shipping markets digest new risks after Strait of Hormuz attack
  • 5 hours As Iran Nuclear Deal Flounders, France Turns To Saudi For Oil
  • 31 mins The Magic and Wonders of US Shale Supply: Keeping energy price shock minimised: US oil supply keeping lid on prices despite global risks: IEA chief
  • 10 hours Middle East on brink: Oil tankers attacked off Oman
  • 4 hours Never Knew Gasoline Prices were this important!
  • 1 hour Russia removes special military forces from Venezuela . . . . Maduro gone by September ? . . . Oil starts to flow ? Think so . .
  • 3 hours (Un)expectedly: UK Court Sets Assange U.S. Extradition Hearing For February 2020
  • 21 hours Magic of Shale: EXPORTS!! Crude Exporters Navigate Gulf Coast Terminal Constraints
  • 20 hours Emmissions up, renewables nowhere
  • 20 hours Britain makes it almost 12 days with NO COAL
  • 21 hours Only one country is contemplating destroying its own resource sector: Canada
  • 2 hours The Latest: Iranian FM Says US Cannot Expect To ‘Stay Safe’
  • 4 hours We Are Better Than This

Is Mongolia's Resource Boom on the Brink of Collapse?

Mongolia was the world’s fastest growing economy last year, driven by foreign investment and rapid developments in its rich coal, copper and gold mining sectors. Now it looks like all of that development could fall apart and the nation’s economy could collapse, all due to an ill thought out law.

In late 2009, Rio Tinto (NYSE:RIO) the international mining giant, negotiated a contract with the Mongolian government to develop Oyu Tolgoi, the world’s largest new copper mine. The mine would cost around $10 billion to build and Rio Tinto’s investment would be secured with the assurance that all taxes and royalty payments to the government would be fixed for the first 30 years.

Encouraged by the cooperation between Rio Tinto and the Mongolian government other foreign investors got involved in Mongolia and its natural resources. Wealth in the country started to increase significantly, sky scrapers were being built all around Ulan Bator, and the economy grew by a massive 17.5%.

Then in May the government introduced the Strategic Foreign Investment Law, and everything changed.

Related Article: The World Starts to Come Apart at the Seams as it Battles over Energy Supply

The law restricts foreign investment in the country in the important strategic sectors of mining and banking (which happen to also be the most attractive).  The law demands that parliament approves any foreign investment in assets in the afore mentioned strategic sectors.

Investors have complained about the lack of clarity in the law as the government have still not specified exactly how it would work in practice. Needless to say that foreign investment has plummeted, and coupled with the fall in coal revenue as Chinese demand continues to fall, Mongolia is now facing some financial difficulties.

John Finigan, the CEO of Golomt Bank, the nation’s second largest bank, explained that “there are a series of elements that have built up less-than-welcoming attitudes to Mongolia at a time when the macroeconomic situation is deteriorating.”

In September 2012 foreign investment was down 44% compared to the year before. An anonymous executive at a company which has made major investments in Mongolia, has admitted that, “we haven’t made any new investments. It is a horrible law. It is very menacing and unclear. At a time when investors are scared of allocating capital anyway, it’s definitely had a negative impact.”

Now in order to try and summon some extra revenue the Mongolian government is determined to try and renegotiate its deal to increase the taxes and royalties that Rio Tinto pays to the sum of an extra $319 million a year; this would be four times higher than the original deal.

Mongolia must be careful, the arrival of Rio Tinto heralded the economic boom, but forcing the mining giant to leave could scare all other foreign investors away and see the country’s economy collapse.

By. Charles Kennedy of Oilprice.com



Join the discussion | Back to homepage

Leave a comment
  • Jack on December 17 2012 said:
    Do you not think that the Mongolian government will not just sign an agreement with the China should RioTinto decied not to accept the increase in taxes and royalties, of course they will. This whole revised proposal may we be to achieve just that outcome, after all China already imports a large quantities of coal from Mongolia without paying a middle man, so why not do the same for copper?

    Your thoughts..

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News