ULAN BATOR - There was a time when IVANHOE MINES, led by Canadian financier Robert Friedland of Voisey's Bay fame, looked like it would single-handedly create a mining industry in Mongolia. Now, however, that country's government has slipped in a windfall tax on mines that is going to take a huge bite out of profits.
The new law would impose a profit tax on copper and gold producers depending on commodity prices. Details are sketchy and have not been released to the Mongolian press. Some reports put the tax at 80%, others at 68%. And commodity prices between US$2.60 and US$8.00 per pound for copper and US$500 to US$700 per ounce for gold are being mentioned. Not only does the introduction of the new tax come as a surprise to our industry, but exactly what it is still shrouded in mystery.
Reactions to the proposal have been predictable.
EAST ASIA MINERALS of Vancouver is "monitoring the situation."
"The new tax measure was introduced with little advance notice, and debated and approved in inexplicable haste," noted Ivanhoe.
"We are surprised and disappointed," said David Anderson of QGX LTD. of Waterdown, Ontario. He notes that his company is working with others to get the new law repealed.
Vancouver-based UGL ENTERPRISES is "very surprised by this new law," but its projects are primarily coal and uranium.
Just when mining in Mongolia was becoming attractive, along comes what is essentially a confiscation of the profits of foreign miners. The move was made without warning or consultation. The companies that have spent millions of dollars on exploration and made huge commitments to development have been robbed of their ability to make a reasonable return on their investment. The country deserves to be put into a higher political risk category.