Centerra Gold has finally moved out of Mongolia, after failing to reach an agreement with the Government on how to develop the Gatsuurt gold deposit. Their talks go back to almost a decade. Toronto-listed Centerra’s official announcement about the sale of its Mongolian business, including the Boroo gold mine and processing facility and the Gatsuurt gold project, to Singapore’s Ozd Asia Pte for $35 million came on October 12 and has been greeted with rumours, and suspicions.
There has been talk of Centerra exiting Mongolia for more than a year, ever since the company sold its polymetallic project Altan Tsagaan Ovoo to Steppe Gold for $21.78 million in September 2017. Many saw the sale of a deposit with large reserves and ready for operation as a clear hint that Centerra was planning to exit Mongolia, and they have been proved right.
Sale of project, license transfer and such transactions are common practice in international business, but there are things about Centerra’s decision that raise eyebrows. The company is leaving after many years of investment and business in Mongolia, marked by development of the Boroo gold deposit. That it worked and waited for 10 years to obtain the mining licence for Gatsuurt, and still there was no agreement,seems clearly related to its present decision and would send alarm signals to investors that the Government does not welcome foreign investment.
Gatsuurt, which is a very large gold deposit, has always been special, and became even more so in the past decade as so many things happened around it. Every step was marked by its own problems and disagreements, and when these were resolved, others promptly took their place. It must be said that successive governments actively cooperated with the company in finding ways to move forward to put Gatsuurt into operation, but thischanged in the last one year.
Let’s take a brief look at what happened.
Formal negotiations on the investment agreement between the Government and the licence holder company, Centerra Gold Mongolia, began in 2008. Things were moving smoothly when the first roadblock appeared with the passage of “the law with a long name” in 2009, under the terms of which the deposit could not be developed as the licensed area belonged to a forest reserve. The investors sought a way out by requesting that Gatsuurt be listed as a strategic deposit, which would take it beyond the purview of that law but would also make the State a co-owner.
The Government established after the 2012 election submitted to Parliament a proposal to put Gatsuurt into the list of mineral deposits of strategic importance. The proposal was discussed three times before being approved in the beginning of 2015. So now the deposit could be developed, but a new issue cropped up – how much will the State ownership be?After a whole year of negotiations, Parliament decided on 4 February 2016 that the State would own 34 percent interest in Gatsuurt. This was followed by amendments to the Minerals Law enabling the State to collect a special royalty in place of the 34 percent ownership. It was agreed that the payment of royalty would begin immediately as sales began.
It was now left to negotiate the investment and the deposit development agreements. There was progress, with draft papers in place, but the 2016 election intervened before either could be signed. This ushered in a new government which seemed to drag its feet. Another issue had come up in January 2016, when Save Noyon Uul Movement NGO went to court seeking cancellation of four mining licences relating to the deposit on the ground that the two decisions to grant these had both been in breach of licensing laws. Three years and 40 hearings later, the court is still to give a final ruling.
All this made Gatsuurt a classic example of the risks an investor in mining faces in a strongly politicized country like Mongolia. Centerra’s decision to quit is a milestone in the saga but the next chapter will unfold only when the new owner of the deposit, Ozd Asia, of whom nothing is known, reveals its plans on how to overcome strong social resistance, on how to reach agreements with the Government, and on how to react to whatever the court decides on the pending dispute. All these might have deterred a foreign investor but apparently Ozd believes it has nothing to worry about.
Many things about the sale are unclear. Ozd Asia is a brand-new company, registered only on 15 August this year in Singapore. Details are missing on its ownership structure, which naturally provokes dark suspicions about likely links to people in power. Nobody quite believed the Government when it promised in its Action Plan in 2016 to take forward projects like Gatsuurt, as the popular perception was that there was certain to be political interference in anything that would be planned. This fear was strengthened when the newly elected President said in 2017 that he wanted to initiate a law giving the State more power in the gold sector, by allowing the Government to cancel licenses, allowing only Mongolians to mine gold, and criticizing Centerra by name. Along with this, the Human Rights Advisor to the President began to be actively involved in the activities of Save Noyon Uul Movement NGO. Criticism of the Gatsuurt investors was encouraged, putting pressure on them, and most likely forcing them to call it a day, with their reputation besmirched as potential destroyers of the environment.
From being the asset of a publicly listed company Gatsuurt is now owned by a company with unclear registration and ownership, and with no record to judge it by. The website of OZD Capital, of which Ozd Asia is a subsidiary and which most likely put up the money paid to Centerra, merely states that it has investments in Australia, Singapore and Mongolia, and that it focuses on mining and metal assets in emerging markets to bring value to its shareholders and has metal projects in Asia, South America and West Africa. The website http://www.ozdcapital.com.sg/says it has 30 years of experience, but there is not a single word on any project implemented or any specific asset owned.
Centerra was seen as liable to damage our cultural heritage and the environment through its work in Gatsuurt. Now we have got a new company without history, and no evidence either way to show its commitment and standards. We have no means of knowing whether the company would work responsibly. It may very well do so, but the hush-hush way in which the deal has been conducted and announced makes us wonder how it would compare with the previous investor.
Centerra was one of the first foreign investors in Mongolia and introduced the western management style in its Boroo deposit operations, and also the use of modern expertise in the Mongolian mining sector. Boroo set a standard for occupational safety, health, rehabilitation and social responsibility activities.
Centerra Gold Mongolia produced approximately 1.5 million ounces of gold and generated MNT1.1 trillion worth of benefits to Mongolia between 2004 and 2013, of which MNT 8.3 billion was invested in Mandal and Bayangol soums of Selenge aimag.
The new owner should be aware that in the Boroo mine, Centerra’s affiliate Boroo Gold worked in compliance with international standards but the rehabilitation programme is not yet fully complete, and Odz will have to do a proper mine closure once production is finally finished. Boroo mine’s closure expenses will be substantial, and Odz will have to bear them.
We should wait and see before passing judgement on the new owner. The problem is that the way they have become the owner does not inspire confidence that they will do the right thing by Mongolia.
The Gatsuurt mine holds 50 tonnes of gold in about 17 million tonnes of ore. There could well be 26 tonnes more of the precious metal and the mine lifetime would be around 10 years. The project would need a total investment of $215.9 million, while operational costs would be $1,026 million. Estimated sales revenue would be $1,769 million and the state budget would get $432.3 million in tax and other payments. It will have around 1,000 workers.
The agreement to replace state ownership by charging special royalty included the following provisions:
- Licence holder pays special royalty at 3%
- The licence holder can ask for a review of the royalty rates if gold price per ounce falls below $1,100
- The Government can ask for a review of the royalty rates if gold price per ounce crosses $1,400.