The Mongolian Copper Corporation (MCC) said on January 9 that it is to fight a decision of the Mongolian government to repurchase and thus nationalise its 49% stake in one of Asia‘s largest copper mines with a $400mn payment.
The move follows a December ruling by the country’s Supreme Court against the nationalisation of Mongolia‘s Erdenet mine decided on by parliament back in February last year. MCC said no official agreement for the purchase has been reached with the government. If purchased, the stake would grant the government full control of the mine. Such a nationalisation would not bode well for Mongolia’s recovering economy, which is heavily reliant on foreign investment flowing into its commodities sector.
“If this kind of thing happens again, no-one will come to Mongolia,” MCC chairman of the board Munkhbaatar Myagmar told Reuters on January 9 in London. He added that through its actions Ulaanbaatar was sending a negative signal to potential foreign investors whose continued interest in Mongolia would help the country meet the terms of a $5bn IMF-led bailout agreed in 2017.
MCC purchased the Erdenet mine from Russia in 2016, but the parliament then claimed it had not endorsed the sale. MCC maintains that the purchase was legal and that the government’s dismissal of the Supreme Court decision was unconstitutional.
However, the details behind MCC’s purchase of Erdenet are dubious, a report by The Diplomat revealed last year, describing MCC as a private entity fronting for the Trade and Development Bank (TDB), one of Mongolia’s large private banks.
At the time of the purchase, MCC was registered at a private apartment in a middle-class neighbourhood of Ulaanbaatar. The funds for the deal were made up of $200mn from the TDB and $200mn from undisclosed sources.
The government was then led by Prime Minister Chimed Saikhanbileg, who at the time approved the deal. He attempted to use the transaction to take advantage of nationalism surrounding Mongolian resources in favour of the Democratic Party while it was preparing for the general election. But the Mongolian People’s Party (MPP), which has gone further in appealing to such nationalism by opting for nationalisation of the stake, won the election, securing 65 of parliament’s 76 seats.
Foreign investment in Mongolia has developed into a sensitive political issue. People fear the country’s economically crucial mineral resources will be sold out to foreigners. Its copper is an attraction given that Mongolia neighbours China, the world’s biggest consumer of the malleable metal. In July last year, martial arts star and populist politician Battulga Khaltmaa, a Democratic Party member, rode a wave of anti-foreign investor sentiment to claim the presidency.
Erdenet produces approximately 530,000 tonnes of copper concentrate annually. The mine paid around $100mn in tax in the first half of 2017.