In April, it appeared that Mongolia’s parliament was about to pass a series of amendments (see box), but they could not be pushed through before elections in June, and after that, things appeared to take a considerable turn for the worse. Riots accompanied the June 29 election, killing five and injuring hundreds; key government buildings in the centre of Ulaanbaatar were still burnt-out shells during Asiamoney’s visit three months later.

Still, the election eventually put in place a coalition between the Mongolian People’s Revolutionary Party and Mongolian Democratic Party, both of whom support the idea of mining law revisions and an investment agreement for Oyu Tolgoi. So in the aftermath of the violence, optimism returned. A working group was established to report to parliament on November 15 and this, it was hoped, would be the point when the revisions finally got through.

However, as the interview with Mongolia’s President, Nambaryn Enkhbayar, shows, even this is going to be time-consuming, and the amendments seem no closer.

One can see why Mongolia wants to get it right: even now, mining accounts for more than 40% of government revenues, and in 2007 accounted for 67% of the US$500 million in FDI. Oyu Tolgoi and others would increase the contribution dramatically. But has Mongolia already missed the boat? The climate for commodities is worsening by the day. Cost projections are rising at Oyu Tolgoi, at just the same time that financing is becoming harder. Copper was trading at $4 per pound earlier this year; it was at $1.50 in early December.

Some of the mining companies, exasperated by delays, have been suggesting Mongolia has lost out through its reticence. One is Entree Gold, which wants to develop a copper and gold project not far from Oyu Tolgoi. “There is an increasing realization in Mongolia that they’ve missed out on an extraordinary [resource] boom and that, if they’re not going to miss out altogether, they’re going to have to get their skates on,” its director and deputy chairman, the former UK conservative party leader Michael Howard, said in early November.

International fund managers remain guarded. “There’s been rumours now for several months about an agreement on ownership levels for these [Mongolian mining] assets,” says Evy Hambro at Blackrock in London, who heads arguably the most well-known mining fund management team in the world. “But we’ve been disappointed in the past and there is every expectation we might be again.” He adds: “We would look to take exposure to some great assets there. But only when there’s clarity.”

Morrow at Khan takes a different view. “You need to back up and understand that it’s enormous amounts of money,” he says. “Think Kuwait and Brunei in terms of what potentially could happen.”

“They don’t want it stolen: these are 70 to 100 year projects, so the decisions that are made today are going to be applicable to their great-grandchildren,” he says. “They don’t want to wake up in a few years and say: we did this wrong and screwed up. But the democratic process is coming, I believe, to a head.”

Instead, it now appears that the government will not wait for the revisions to get through parliament and will instead negotiate the bigger projects, chiefly Oyu Tolgoi and Tavan Tolgoi, on a one-off basis. On December 4, Mongolia’s parliament established a February 1 2009 deadline for completing a draft agreement for Oyu Tolgoi. Ivanhoe’s President and CEO, John Macken, welcomed the decision in a statement the following day, and increased the sense of optimism three days later by announcing another high-grade discovery of gold and copper at the mine. It is understood the government is expected to seek a 34% stake in this agreement.

Even with the mining law unresolved, frontier-spirited investors have started to get footholds in the Mongolia market. Alisher Ali Djumanov, managing partner of Eurasia Capital Management, visited Mongolia for the first time in 2007, with what he describes as “limited expectations.” But he liked what he saw: “an economy in an early stage just about to take off. And apart from being a genuine investment story, it’s a back door to China growth.” So he came back in January with an idea for a multi-asset fund, and raised $5 million of seed capital in three hours.

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