Lot of politics lies behind Mongolian mining - FT.com

How hard is it to get a huge mine off the ground? 

Lot of politics lies behind Mongolian mining - FT.com

Standing in a ger, a traditional herder's tent, near the Oyu Tolgoi copper-gold mine, N. Bagabandi, a former president of Mongolia had an answer: "Oyu Tolgoi has had a very difficult time getting started, like an elephant giving birth," he said.

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ON THIS STORY

• Mongolia presses on key mine project
• Lex Rio Tinto in Mongolia
• Boomtown Mongolia
• Mongolia set for $3bn coal triple listing
• Rio and Anglo to sell Palabora stakes

"It had to go through a lot of challenges to get to today's success."

Mr Bagabandi made the remarks at a dinner party held in the ger and that was attended by Jan du Plessis, chairman of Rio Tinto.

Rio owns an indirect 32 per cent holding in the mine through its stake in Ivanhoe Mines, owner of 66 per cent of Oyu Tolgoi.

At first blush, the dinner, hosted in the Big Ger entertainment complex built at the behest of Ivanhoe chairman Robert Friedland, appeared to be just another chance for politicians and business people to toast each other.

But behind the scenes, the elephant giving birth has been more challenging than anyone had anticipated.

The day before, Mongolia's mining minister D. Zorigt had mailed a letterrequesting discussions with Ivanhoe and Rio about the time frame in which the government could raise its stake in the mine from 34 per cent to 50 per cent.

The politics behind the mining minister's request are worth scrutinising because they will set the tone for other developments in Mongolia's mining sector in coming months.

Mongolia's general elections are set for June. Mr Zorigt and prime minister S. Batbold – who both oversaw the signing of the Oyu Tolgoi agreement in 2009 – belong to the majority party, the Mongolian People's party (MPP), which is in a coalition government with a smaller but powerful rival the Democratic party.

Mr Batbold and Mr Zorigt have seen their political fortunes waning steadily this year, as support for them within their own party has eroded and other party members jockey for position. The MPP is particularly nervous because of the emergence of a powerful former prime minister, N. Enkhbayar, who has re-entered politics.

In a bizarre turn of events Mr Enkhbayar has registered his new political party as the Mongolian People's Revolutionary party, the old name for the majority Mongolian People's party. The MPP is concerned that the name confusion will cost them votes.

The erosion of support for Messrs Batbold and Zorigt is sufficiently serious for sources in Ulan Bator to believe that Mr Zorigt will not last until the end of the year in his position. The attacks against him have been going on all year – most recently in May when parliament discussed a motion to dismiss him – and the Oyu Tolgoi agreement is always one of the arrows in the arsenal.

The possibility that Mr Batbold could get pushed out by his own party ahead of elections also cannot be ruled out, although that is less likely.

So this month, when 20 members of parliament sent Mr Batbold a letter asking him to reopen the investment agreement, the challenge was serious. Under Mongolian law, a minimum of 19 lawmakers out of the total 76 are required to bring a motion to the floor to dismiss the prime minister, so the signatures of 20 lawmakers was symbolically significant.

On the other side of the aisle, Democratic party leader and Mongolian president Tsakhia Elbegdorj is increasingly powerful, and is regarded as an influential decision maker behind the development of the Tavan Tolgoi coking coal deposit, which is one of the largest in the world.

The irony of the Mongolian government's move on Oyu Tolgoi is that in Ulan Bator people close to government usually have only nice things to say about how important the mine is for Mongolia.

Quietly, people close to and within government say there is little chance that the investment agreement will get changed in any significant way. If Rio and Ivanhoe can succeed in keeping the political heat off, then the birth of the elephant that is Oyu Tolgoi could still proceed on track.

http://www.ft.com/intl/cms/s/0/bbe22450-eb3d-11e0-9a41-00144feab49a.html#axzz1ZQuud4XH

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Hallowed gold haven succumbs to sell-off - FT.com

From the FT, the important stuff is at the end of the article - after they talk down the barbarous relic...

Traders point out that this is not the first time gold has fallen at the peak of a crisis. At the height of the financial crisis in 2008, gold struggled for direction. From March 17, the day after the Bear Stearns collapse, to a low in mid-October, the bullion fell more than 30 per cent. In the next year, it surged 50 per cent.

Likewise, when the Dubai World default triggered a wave of selling across global financial markets in November 2009, gold dropped 12 per cent in the subsequent 10 weeks, only to rally to fresh records.

Indeed, there were signs on Monday that some traders were attempting to pick a bottom. By mid-afternoon in London, bullion had rallied more than 5 per cent from its low of the day to trade at $1,612.

Investors in gold through exchange-traded funds, which now hold more gold than most central banks, have also stuck with the metal. The holdings of the largest, the SPDR Gold Shares, remained flat at 1,252 tonnes throughout the whole of last week.

Crucially for traders who watch technical models, the yellow metal managed on Monday to stay above $1,525, its 200-day moving average, a level that has not been breached since January 2009. A fall below that level could indicate a sustained drop in prices, traders say.

see the whole story here:: Hallowed gold haven succumbs to sell-off - FT.com

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Hedge funds seen sticking with gold despite sell-off - chicagotribune.com

Hedge funds seen sticking with gold despite sell-off

chicagotribune.com

Laurence Fletcher and Tommy Wilkes

Reuters

7:49 AM CDT, September 26, 2011

LONDON (Reuters) - The recent sell-off in gold may not be enough to make some hedge funds with long-term bull positions change their views that the metal is still one of the best bets for profit in a perilous global economy.

Gold has dropped around 11 percent since the start of last week as liquidity-strapped investors scrambled to convert gold into cash amid fears over Greece's near-bankruptcy, likely hitting a number of hedge funds which have profited from its bull run in recent years.

However, the yellow metal is still around 7 percent above its level at the start of July, and is up 14 percent this year, leaving long-term holders comfortably in the black for now.

"I don't think... people who hold it as another currency... are changing their view," said Morten Spenner, chief executive of $2.8 billion fund of funds firm International Asset Management (IAM).

"For some people who are long-term holders ... and who have banged that drum, they're likely to take it (the price fall)," Spenner said, adding that short-term market volatility that put pressure on the price of gold would not sway managers to abandon their positions.

Some big-name hedge fund managers have been successfully betting on the gold price this year, including John Paulson and Paul Tudor Jones.

Meanwhile, some managed futures funds -- whose investment decisions are dictated by computer models -- such as Man Group's AHL and Winton Capital may have been hit by the fall in gold, although profits in other areas have offset the damage.

The AHL fund has sold down much of its long position in gold in recent weeks -- one of the $23.9 billion fund's best-performing trades in 2011 -- after its models showed that the metal's price was losing its momentum, although it still has a small long position.

"If you look at the price action in precious metals, particularly over the last four weeks, it's been pretty sideways and choppy. That is the sort of scenario where we actually start reducing our positions because it does indicate to us that there is no strength in that trend," Kevin Chuah, senior client portfolio manager at AHL, said.

The fund, which has also taken out a small short position on base metals including copper recently, gained last week after profiting from short positions on equities and crude oil and long positions on bond markets, Chuah said.

Winton, which manages $25 billion in assets and whose flagship fund is up around 1 percent this month, declined to comment.

Coast Sullenger, managing director of Gaia Capital, which buys commodity-related stocks, said gold equities had performed well recently, despite last week's sell-off, and he may buy more gold equities if prices continue to fall.

"Gold equities is one of the only sectors that has been performing," he told Reuters. "If the sell-off continues, it will probably create more of a buying opportunity... Gold shares are trading at a very, very low valuation, vis-a-vis their own history.

"We're of the opinion that gold shares is an asset class you should be overweight."

(Editing by Sinead Cruise and Mike Nesbit)

Copyright © 2011, Reuters

Hedge funds seen sticking with gold despite sell-off - chicagotribune.com