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.
"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.
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
