Anglo American steps into Mongolia

By bne IntelliNews March 15, 2013

Terrence Edwards in Ulaanbaatar -

As foreign investment in Mongolia falls by the wayside and investors continue jumping ship, the question one has to ask itself as Anglo American arrives on the Mongolian steppe: what does it think it knows that its competitors don't?

The diversified miner opened its representative office in Mongolia in February, which will be headed by a figure well-versed in Mongolian operations and already familiar with the top officials in government. Graeme Hancock, who worked for 15 months as chief operating officer to the government-owned mining firm controlling the Tavan Tolgoi coking coal deposit and before that as chief mining sector specialist for Mongolia to the World Bank, said Anglo is most interested in metallurgical coal and copper assets in Mongolia.

"The timing is interesting," Hancock tells bne. "I think when there was analysis of whether we should establish our presence, it was during the lead-up to the last elections. Then was the announcement of the 'SEFIL' [Strategic Entities Foreign investment Law], but that has not discouraged the company. We will make workable conditions for ourselves."

Indeed, it's as curious as it is intriguing that Anglo should decide to enter now, just as the world's second largest miner Rio Tinto feels the sting of its government partner's capriciousness and after two other major international mining groups have bowed out.

Laws of the land

Much of the international ambivalence towards the mining opportunities in Mongolia stems from what many feel is an increasingly hostile environment for foreign investment. This includes a proposed Minerals Law that companies argue leaves no room for profits, and a vague foreign investment law rushed through the parliament last year that has kept many companies at a standstill. This new law on foreign investment, SEFIL, means government approval is required for investments above 33 per cent in mining assets. Many are unsure how to act for fear of dire consequences, including having their right to operate revoked.

The embassy of Canada, Mongolia's second biggest foreign investor with $5bn worth of investment funnelled mostly into the mining sector, said there was indeed evidence that foreign direct investment (FDI) had fallen since the passage of SEFIL because of the uncertainty it had created, but could not produce any specific figures. The Embassy of the US echoed that sentiment in a 2012 statement on the business climate in the country, saying the law directly contributed to the impression that Mongolia was becoming a "demonstratively riskier place in which to invest and operate."

One of the two other major mining outfits left in Mongolia, Rio Tinto, is now quickly sinking into a quagmire of disagreements over the Oyu Tolgoi copper/gold mine with its joint venture partner, the Mongolian state. The government's list of grievances is long, but for starters includes wanting an explanation from Rio Tinto, the controlling partner in Turquoise Hill Resources which holds 66% of the Oyu Tolgoi mine, for allegedly going $2bn over budget for project development. Since the beginning of the year, Turquoise Hill stock has lost about a quarter of its value as it became clear the relationship with the government is strained and a renegotiation of the investment agreement grows increasingly likely.

The world's largest private coal miner Peabody Energy is enjoying little better treatment from the government. After receiving a formal invitation from the government to prepare the 888m-tonne coal resource West Tsankhi for mining in October, it was announced in February that domestic firm Khishig Arvin would instead be preparing the top soil, putting into question whether or not the government had changed its mind over Peabody's involvement.

Brazil's Vale is currently making a quiet exit from Mongolia as it tries to sell off its remaining coal assets, while BHP Billiton, which once held the rights to develop the Oyu Tolgoi project, left in 2009, similarly without comment.

Observers say the resource-rich nation, which needs to plug holes in the country's finances, will have to make clear signals if it wants to see foreign investors return. Mongolia has hinted it may do that with plans to ease restrictions to SEFIL. Also, Mongolian President President Tsakhia Elbegdorj, whose office drafted the proposed mining law, announced in February it has decided to pull the bill for further revision and that a new working group to implement changes would be formed.

Back to Anglo, although cautious about revealing his plans so early in the game, Hancock is unfazed by this tough investment climate that has sent other mineral explorers packing. Speculating that the current aggressiveness of the government can be partly put down to attempts to impress voters before the upcoming presidential election in June, Hancock says: "We're seeing a particularly challenging period with the elections and political rhetoric. I'm optimistic that after the elections we'll have a more balanced environment for investment."

"More junior companies might find the environment threatening, but as a major we don't think we'll have the same problems," he concludes.

Related Articles

COMMMENT: Great challenges for Eurasia call for decisive solutions

Juha Kähkönen of the IMF - The Caucasus and Central Asia (CCA) region continues to navigate a wave of external shocks – the slump in global prices of oil and other key commodities, the slowdown ... more

IMF calls for Central Asia to tighten monetary policy

Naubet Bisenov in Almaty -   Caucasus and Central Asian (CCA) countries need to tighten their monetary policy to anchor inflation expectations, but excess tightening may weaken financial ... more

Business leader-turned-technocrat ready to mine Mongolia's “treasures”

Terrence Edwards in Ulaanbaatar -   One of Mongolia's premier dealmakers has taken on the supreme task of putting the country's mining and infrastructure projects back on track after years of ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.