Business Council of Mongolia

Source: Udriin Sonin                            Date: 30 July, 2010

An iconic fixture in the banking and financial world of Mongolia, Mr. Peter Morrow, Chief Executive Officer of Khan Bank, will be laying down office soon,  staying on as a Director of the bank for at least two more years. In a broad-ranging interview, Mr. Morrow answers questions on his many years in the country, the changes he has been witness to (and, in come cases, initiated), and on what he sees lying ahead. A selection of the questions and Mr. Morrow’s answers follows.

What was Mongolia like when you came here ten years ago?

When I came Ulaanbaatar was like an old socialist city with much air pollution and little infrastructure. There have been a lot of improvements in the 10 years since. The last two years have been difficult but Mongolia has grown rapidly. The city has changed. It now has lots of money, cars, more buildings and bustles with activity.

Why did you choose to work in Mongolia?  It was not common then for a foreigner to come and run a Mongolian bank?

I saw the offer as a career opportunity and challenge and accepted a two-year contract.  My appointment was under an agreement between the Government of Mongolia, the Bank of Mongolia, USAID and the World Bank to bring in a foreign management team and an independent Board of Directors for the Agricultural Bank. The Bank of Mongolia was particularly keen to have a foreigner with experience in dealing with problem banks and someone who would be free from political interference.

What did you do earlier?

I had worked for the Export and Import Bank, a U.S. Government bank in Washington, DC and also for commercial banks for many years. I was running a consulting company when I came here. If I hadn’t come here, I would still be doing consultancy work.

Source: Hunnu Coal                         Date: 30 July, 2010

Hunnu Coal has reported the initial test results of coal quality analyses performed on samples taken from the due diligence drill cores at the Tsant Uul Coking Coal Project in southern Mongolia, demonstrating similarities to coals at the giant Tavan Tolgoi Coking Coal Field.  Tsant Uul is strategically located within 40 km of Tavan Tolgoi in Umnugobi Province. An extensive drilling program is to commence in the coming weeks with the aim of generating initial JORC resources and further coal test work.

The company's drilling program included seven diamond core holes. Mr. George Tumur, Managing Director, has said the company has set a timetable of developing three coal mines in Mongolia within the next four years.

Source: The New York Times                          Date: 30 July, 2010

The Russian government, which just a few years ago was salting away billions of dollars in oil revenue, is now confronting such a gaping budget deficit that ministers approved a wide-ranging plan on Wednesday to sell off state property.  It would be, by some estimates, the largest privatization program in Russia since the post-Communist sell-off of the 1990s. Still, the government plans to sell only minority stakes in the companies, retaining control while letting private investors share a larger part of the risks and profits.

Privatizations of some type had been expected since the onset of the financial crisis, but the scale of the plan suggested that the crisis in public finance elsewhere in Europe was catching up with Russia, too. Until recently, the Russian government under the former president and now prime minister, Vladimir V. Putin, had been bulking up its share in the economy through nationalizations.

The program approved Wednesday involves 11 companies, including the national oil company, the national railroad, a fleet of merchant marine vessels, two state banks and a company managing hydroelectric dams. Some of the companies, in fact, grew or were created out of the nationalizations. But officials, and independent economists, say now is a good a time to let the pendulum swing the other way, and sell to private investors. There will be marked differences compared with the privatizations of the 1990s. The prices will be higher because Russia now has an infrastructure of investment banks and stock exchanges to manage sales on market terms.

The plan was considered at a meeting on Wednesday in Moscow, led by Mr. Putin, who afterward remarked that Russia would work to eliminate budget deficits by 2015. But he did not delve into the details of the privatization program that would include the state oil company, Rosneft. After years of oil-driven surpluses, the Russian government squeaked by over the last two years by borrowing and by drawing down its savings. The deficit this year, for example, is expected to reach 5.9 percent of gross domestic product, according to the International Monetary Fund.

Source:  The Financial Times                         Date: 30 July, 2010

Russia is desperate to put the “R” back in the Brics. Its membership of the elite quartet was questioned last year when its economy shrank 8 percent, while Brazil’s contraction was barely noticeable and Indian and Chinese output powered ahead. Now Alexei Kudrin, the finance minister, is proposing that Russia should sell minority stakes in 10 state-controlled corporate jewels, including oil company Rosneft, VTB Bank, and the Russian Railways monopoly, totaling perhaps $29 billion. It would be Russia’s biggest asset sell-off since the botched loans-for-shares privatizations of the 1990s. The government should embrace it. But this time, it also needs to do it right.

The proposal has many merits. It would raise additional budget revenues – when Russia is dealing with its first budget deficits for a decade – which could be used, say, to stimulate underdeveloped small- and medium-sized businesses. Most importantly, while Moscow will surely not cede state control of these companies, the plan at least demonstrates a willingness to loosen its grip. It would start to reverse the increase in the state’s share of the economy that occurred under Vladimir Putin’s presidency. It would increase the pressure on companies to become transparent and answerable to private investors. And it could bring in foreign strategic investors with capital and know-how.

The key, as ever in Russia, will be execution. Future stake sales must not be a repeat of the shady insider deals of the 1990s. There should be no new generation of oligarchs, or inefficient state managers turned into owners. Auctions must be carried out in an open and transparent manner by internationally recognized banks. Foreign investors should be free to participate in a non-discriminatory way. Even if the leadership is committed, Russia’s bureaucracy and vested interests are so entrenched that achieving these goals – within the planned 2011-13 time frame – may yet prove impossible.

Handling the privatizations correctly is, moreover, only a start. Russia still needs to strengthen protection of property rights. Too many foreign groups – from Shell and BP, to portfolio investors such as Prosperity Capital, engaged in a tussle over an aborted buy-out of a power company stake – have found Russia’s legal system inadequate or susceptible to pressure. It is not enough simply to ensure foreign investors can buy assets. They must be sure they can hold on to them – or indeed dispose of them – in an unimpeded way.

Source: Xinhua                      Date: 30 July, 2010

Many people were injured when security guards of a mining company in western Mongolia recently clashed with illegal miners known as "ninja miners". About 50 security guards of a gold mining company fought for over two hours with about 200 ninja miners and local residents in Omnogobi district of Uvs province. Many were injured in the fight and three were in critical condition.

The guards used gas pistols, while ninja miners threw stones and wood at them. The guards called local police, who detained about 17 ninja miners. It is unclear what caused the clash, and the case is now being investigated by police.

About 100,000 ninja miners dig for gold and other minerals during summer and 30,000 dig throughout the year in Mongolia. Ninja miners include unemployed youths, students, impoverished herders, and others. Ninja miners are individuals not licensed by the State and mainly look for gold in abandoned gold fields and unauthorized places with hand tools such as shovels and pans.

Source: Bloomberg                   Date: 29 July, 2010

Aluminum Corporation of China Ltd., the nation's biggest producer of the metal, suspended its shares from trading pending an announcement on an "important discussion". Shares of the company that's known as Chalco are expected to resume trading in Hong Kong and Shanghai on July 30, the Beijing-based company said in a statement on Tuesday.

Chalco's parent company, known as Chinalco, is in talks with Rio Tinto Group to buy a stake in the USD4.6-billion Oyu Tolgoi mine in Mongolia or in the U.K. company's partner in the project, Ivanhoe Mines Ltd., London-based Rio said  on July 7. Chinalco has "indicated an interest in acquiring a minority equity stake in the company or acquiring, from the company, a direct minority ownership interest in the Oyu Tolgoi project," Rio said at the time in a U.S. Securities and Exchange Commission filing, referring to Ivanhoe.

Rio is working to repair relations with Chinalco, its largest shareholder, which were soured last year when it scrapped a USD19.5 billion investment by the Chinese company and four Rio employees were arrested in Shanghai. Ivanhoe Deputy Chairman Peter Meredith said in May that the company may bring in another partner to the copper and gold project and it made sense for Chinese interests to study an investment.

Source: Voyager Resources                         Date: 29 July, 2010

Voyager Resources has reported "exceptional" high grade drilling results from the North Hinge Zone at the Daltiin Ovor Gold Project in Mongolia with intersections including 3 meters at 50.59 g/t gold. A further RC drilling program is now being planned to test strike extensions, down dip continuity and other mineralized areas that have been identified from previous trenching.

Drilling has also indicated that the mineralization is shallow dipping as opposed to the previous interpretation from mapping that indicated the system was steeply dipping.

Drilling is currently being planned to recommence in August. Mr. Kell Nielsen, managing director, said the company has also completed initial drilling programs at the Argalant and Tsagaan Gold Projects, where results will be reported over the next month.