(Corrects to remove quotation marks in paragraph 12)
By Terrence Edwards
ULAANBAATAR Feb 16 Mongolia plans to
nationalise a 49 percent stake in a copper mine sold to a
domestic private firm last year, bringing one of Asia's biggest
copper producers under full control in a move its former Russian
owner said could deter foreign investors.
The country's parliament voted to nationalise the Erdenet
mine last week after a probe by lawmakers concluded the June
2016, $400 million sale by state-owned Russian holding company
Rostec to little-known Mongolian Copper Corp (MCC) was
unconstitutional as it was agreed without lawmakers' approval.
Erdenet, which produces 530,000 tons of ore annually, is one
of Asia's biggest copper and molybdenum mines and a top tax
contributor to the country's $12 billion economy. The sale to
MMC was sanctioned by former prime minister Chimed Saikhanbileg.
The parliament's intervention comes as Mongolia, sandwiched
between Russia and China, struggles to take advantage of vast
mineral wealth, with investors deterred by inconsistent laws and
tax rules. Russia has been involved in the mine since 1978, but
sanctions imposed after its annexation of Crimea have encouraged
it to liquidate overseas assets.
The country has been involved in a spat with miner Rio Tinto
over the giant Oyu Tolgoi copper deposit.
Mongolia was also forced to pay $70 million compensation to
Canada's Khan Resources after international arbitration
ruled it had illegally revoked a uranium licence.
A parliamentary working party concluded the sale violated
financing laws because of the involvement of multiple shell
corporations controlled by Mongolia's largest private lender,
Trade and Development Bank (TDB), and its staff.
The working party said the deal placed too much risk on the
bank, violating banking laws, and also used borrowed funds from
the central bank.
Both MCC and TDB deny wrongdoing.
The bank's chief executive officer Onon Orkhon said it only
provided underwriting services, in addition to "partial
financing" referring to a $75 million bridge loan to MCC.
M. Munkhbaatar, MCC's chairman, said in a statement emailed
to Reuters that no domestic or international laws had been
violated during the purchase. The parliament's actions
represented "increased state intervention in the economy," he
Meanwhile a letter addressed by Sergei Chemezov, the chief
executive of Rostec, to the country's prime minister said any
decision to intervene in the sell-off could damage Mongolia's
reputation, warning any move to challenge his firm's sale could
end up in court.
Any efforts to change the deal could result in claims for
damages and court costs in the Singapore international
commercial court, Chemezov wrote in the letter, dated the day
before last week's vote and reviewed by Reuters.
A Rostec spokeswoman would not confirm or deny the veracity
of the letter when contacted by Reuters. The spokeswoman said
the deal was completed in accordance with international law and
the firm had already received payment.
A spokesman with Mongolia's Foreign Affairs Ministry denied
knowledge of the letter, adding that a visit to Moscow by
foreign minister Tsend Munkh-Orgil this week had no connection
(Reporting by Terrence Edwards in ULAANBAATAR; Additional
reporting by Gleb Stolyarov in MOSCOW; Editing by David Stanway
and Kenneth Maxwell)