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Mongolia on the brink

Government disputes with foreign companies stymie exploitation of rich natural resources.

Mongolia is on the verge of plunging itself into prolonged economic gloom, and its predicament offers telling lessons for external observers about the dangers that arise from the interface between finance and politics.

The country is rich in natural resources: its vast sweeps of plains and rock are rich reserves of coal, iron, uranium, gold and other precious metals. Coal reserves of 175 billion tonnes have been identified.

These and the rest of the country’s natural resources hold the key to Mongolia’s economic future but they remain buried. Politicians wrangle with foreign firms about the manner in which they are to be extracted and what share of the resulting riches belongs to the government.

In late July the tortuous negotiations between the government and Canadian firm Ivanhoe Mines over the Oyu Tolgoi previous metals deposits had been extended once again. The only thing that has been decided is that there ought to be more negotiations. When Euromoney met president Tsakhiagiin Elbegdorj in mid-July he promised a resolution soon. However, foreign investors are dubious. Mining firm BHP Billiton has closed its Mongolia office.

The argument revolves mainly around the Mongolian government’s proposal that it take a 10% to 15% stake in Ivanhoe without investing any capital, and that it receive at least half of the profits generated.

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