Ivanhoe Mines & RioTinto get Deeper into IA Contract: What it means Long-Term

Ivanhoe Mines (IVN) is again in further heated discussion with Mongolian Government on negotiations for the Oyu Tolgoi copper-gold development project. They have been sitting in daylong meeting since July 27^th with the goal of getting it completed. It was only two weeks ago that Mongolian Parliament voted to authorize the Government to conclude the meeting on a long-term Investment agreement with IVN and Rio Tinto on the development of the mine. In a recent letter the government indicated they would work with the companies to reach an agreement that is mutually beneficial. Easily this will be a win-win for both sides if structured right. IVN and RTP get their mines and Mongolian gets economic prosperity. Oyu Tolgoi is one of the world’s biggest undeveloped copper deposits. Recently Ivanhoe has taken a strong stance forcing the government to meet and come to an agreement. Ivanhoe outlined what a new mine could due. The following is exact quotes from Ivanhoe’s letter to the Mongolian Government.

“The coalition government of Mongolia is the first step to ensure great development of Mongolia’s socio-economy in a way of creating thousands of new job places, business opportunities and infrastructure. It also will be a beginning of responsible use of natural and mineral resources”.
The companies reminds that a decision on “putting the Oyu Tolgoi into economic circulation will be a vital for future and next generation of Mongolia decision”. The content of the letter means that some MPs do know nothing about mining and investment contracts. “So all of you are allowed to ask us questions on the issue,” it says. 
In accordance with the law on parliament, MPs are not responsible for a speech given at the parliamentary session. It is also possible that some policy-makers compulsorily inhibited the Oyu Tolgoi project. Nonetheless, it is more than strange for a foreign company to give a conclusion to independent activities of the legislature body of a sovereign country. 
If the “Ivanhoe Mines” company really wants to give the MPs useful research documents and information about its activities, why did it send the letter to each parliamentarian in personal line? They could have sent a letter to the Speaker or secretary of the parliamentary office. It is suspicious that these companies sent the letters only after approval of the 57th resolution on granting the government a right to establish a contract with the investors, but not in previous year when parliament was considering the issue. Some people consider that under expressing personal interests and attempting to influence MPs lies a wish to bribe them. According to the letter signed by S.Riggall, a commercial manager of “Rio Tinto”, and by J.Foniani, a legal affairs manager of “Ivanhoe Mines”, Mongolia has two ways: either to attract foreign investments, build world standard mining sector and create strong independent economy, or to build depending on neighbors economy, get limited agriculture, and make investors lose a confidence in in Mongolia. “Your respected votes will choose the right way and will benefit in the long run. Hopefully we will get chance to share our opinions,” the letter said. Mongolia’s economy is limited, the import dependence on China has reached some 80 percent, Mongolia is a landlocked country. But, of course, Mongolians do not think that the 76 parliamentarians know nothing about how to develop the country and who to partner with. Although the country suffering from financial crisis and other problems and Mongolians need money, Mongolia still has an immunity to protest itself from any country’s interference. Anyway, the government has a right”

What it Means

After reading that article it has become clearer that culturally there may be insurmountable barriers to this agreement. The letter from both RTP/IVN was an insult to the government and their intelligence. They laid out what a mine could do for the country and the great riches it could bring in. They also laid out that if the mine is not build to expect downfall within the Mongolian Economy. If the government is too stupid to see the clear gains to society brought by the mine well maybe then it will take a collapse of the togrog (Mongolian Currency) to change their attitude. Right now the TG is weak and even losing value against the U.S. Dollar. Is there anything besides the mine that can rescue the TG? What is holding them back from making this agreement? Currently Mongolia depends on China for 80% of their imports. Unless they are trying to sell off the deal to a Chinese Company, then there is no logical reason in why it won’t be signed by weeks end. The country is in a mess with no form of middle class. There have the poor and then they have the rich and the politicians who do well. Mongolia has made a mistake waiting this long to capitalize on the copper boom. To hold off on any agreement would be idiotic at the least. What’s holding it up? If they really want to get a mine up and running, they should be able to come up with a solution to the windfall tax issue. As for IVN this stock is solely speculated on whether or not this agreement goes through. Further standstill will only send share prices lower long-term. I have played IVN throughout holding it for five months buying it at $4.40 and selling out at $8.37. Well after the drop I bought back in at $7.31 last week. IVN with an IA agreement by the government would appreciate a lot. I strongly believe, as do many analysts that IVN will easily reach 13-15, in a short run if this can go through smoothly.  The runs have been due to speculation and anticipation on a signing. As you can see most likely an agreement will be in place soon. I firmly believe that by weeks end we should have an agreement in place. For those of you not invested within IVN, hold off until we have further definite news that an agreement is in place. For those of you invested either hold it for the long run or swing trade it at its peak after an agreement goes through.