President: Mongolia is utilizing its resources, but not effectively www.montsame.mn

Ulaanbaatar /MONTSAME/ President Kh.Battulga has stressed the growing need for optimizing Mongolia's natural resource management policy.

Prime Minister U.Khurelsukh arrives in Beijing www.montsame.mn

Beijing/MONTSAME/ Mongolia’s Prime Minister U.Khurelsukh arrived in Beijing yesterday evening, April 8, to pay an official visit to the People’s Republic of China at the invitation of Li Keqiang, Premier of the State Council.

Czech to provide assistance for winter sports palace www.theubpost.mn

Member of Parliament B.Javkhlan received Ambassador Extraordinary and Plenipotentiary from Czech Republic Jiri Brodsky and exchanged opinions on cooperation in the development of winter sports and the establishment of a winter sports palace in Mongolia.

Russia and Mongolia elaborate new military cooperation program www.armyrecognition.com

Russia and Mongolia are elaborating a new military and technical cooperation program for 2019-2024, Mongolian Defense Minister Nyamaagiin Enkhbold said. According to the Mongolian defense minister, the Mongolian government regards relations with Russia as a priority and is pursuing a policy to establish strategic partnership with Russia.

List of Russian businessmen & companies added to US sanctions www.rt.com

The Trump administration issued an expanded list of sanctions on Friday against Russian businessmen and companies. In all, the Treasury Department included 12 businessmen and the companies they control.

Mongolia to open embassy in Kyrgyzstan www.xinhuanet.com

ULAN BATOR, April 6 (Xinhua) -- Mongolia's State Great Khural, or the parliament, said Friday that it had passed a draft resolution to expand its consulate general into an embassy in Bishkek, capital of Kyrgyzstan.

President receives UK Trade Envoy Julian Knight www.president.mn

President of Mongolia Khaltmaagiin Battulga received today Mr. Julian Knight, the UK Trade Envoy to Mongolia and MP.

Upon welcoming the latter, the President congratulated Mr. Knight for being appointed the Trade Envoy at the order of the UK Prime Minister Teresa May, and wished success. “I do not doubt that your appointment as the Trade Envoy to Mongolia will be a strong impetus to deepening and broadening economic and commercial cooperation of the two countries,” President Battulga highlighted.

Mr. Julian Knight thanked the President for his time and said “Our PM Teresa May is placing a great importance on the 55th anniversary of diplomatic relations of Mongolia and the UK and offered me to work as a Trade Envoy yo Mongolia. I accepted this offer with pleasure. It is a common practice for a Trade Envoy to manage trade relations with 2-3 countries. As a trade envoy, managing the relations with only Mongolia indicates a great gesture.”

He pledged to put maximum effort to broadening bilateral trade and economic cooperation. Mr. Knight shared that he met with the affiliated Minister and discussed cooperation in mining sector, as “the sector takes up a major position in bilateral relations”. Mr.Knight underlined the two countries have full potential to collaborate in diversifying Mongolia’s economy, while mentioning that he is familiar with the President’s commitment to economic diversification.

President confirmed that the two countries have potential to cooperate in mining. However, he said, “it is not preferable to emphasize mining. There is now a big gap between rich and poor, in other words, “resource curse” has befallen of Mongolia. In order to tackle this problem, we have been turning to our other major economic sectors such as tourism and agriculture. Mongolia has more than 60 million heads of livestock, and nearly 10 thousand tons of cashmere is “exploited” every year. This is 60 percent of the world cashmere market. If you are willing to cooperate with us in this area, we have the raw material. In a presence of processing industry and well-managed marketing, the sector is promising enough to become as large as Oyu Tolgoi. It’s safe to say we do not have a competitor in this,” the President said and wished the Envoy to pay more attention to this sector.

Mr. Knight accepted the President’s suggestion and mentioned the possibilities of selling Mongolian-made cashmere products in Great Britain. The sides further touched upon the impacts of the latest trade deals of the US and the People’s Republic of China on Mongolia.

Trade turnover between Mongolia and UK reached USD 689.9 million in 2017, in which exports made up 660.5 million and imports, 29.4 million. This represents 24 percent increase against the previous year’s performance. Between 1990-2014, UK investments worth USD 116.8 million were registered. The amount constitutes for 0.82 percent of total foreign investment in Mongolia. Thus, UK is ranking at 14th place out of 112 countries investing in Mongolia.

Julian Knight was appointed Trade Envoy of the United Kingdom to Mongolia last January. It is a custom for the British Government to appoint a Trade Envoy to represent the Prime Minister in order to activate commercial and economic interaction with another country. The United Kingdom has appointed 30 Trade Envoys, thus far, to manage trade relations with 59 countries.

Trump threatens further $100bn in tariffs against China www.bbc.com

US President Donald Trump has instructed officials to consider a further $100bn (£71.3bn) of tariffs against China, in an escalation of a tense trade stand-off.

These would be in addition to the $50bn worth of US tariffs already proposed on hundreds of Chinese imports.

The proposal comes after China retaliated to that by threatening tariffs on 106 key US products.

The tit-for-tat moves have unsettled global markets in recent weeks.

Analysts have said a full blown trade war between the US and China would not be good for the global economy or markets - and that ongoing behind-the-scenes negotiations between the two giants were crucial.

But market reaction in Asia trade on Friday suggested investors were not too troubled by the latest twist, and that trade war fears were somewhat exaggerated.

In China, Hong Kong's Hang Seng was in positive territory, up 1.3%. Japan's benchmark Nikkei 225 was also trading higher in the afternoon session.

How has this unfolded?
Earlier this year, the US announced it would impose import taxes of 25% on steel and 10% on aluminium. The tariffs would be wide ranging and would include China.

China responded this month with retaliatory tariffs worth $3bn of its own against the US on a range of goods, including pork and wine. Beijing said the move was intended to safeguard its interests and balance losses caused by the new tariffs.

Meanwhile, there had been rumblings the US was preparing to slap between $50bn and $60bn worth of tariffs on Chinese-made goods in response to unfair Chinese intellectual property practices, such as those that pressure US companies to share technology with Chinese firms.

The draft details of those import taxes were released last week when Washington set out about 1,300 Chinese products it intended to hit with tariffs set at 25% worth some $50bn.

China responded swiftly by proposing retaliatory tariffs, also worth some $50bn, on 106 key US products, including soybeans, aircraft parts and orange juice. This set of tariffs was narrowly aimed at politically important sectors in the US, such as agriculture.

In Mr Trump's Thursday statement he branded that retaliation by Beijing as "unfair".

"Rather than remedy its misconduct, China has chosen to harm our farmers and manufacturers," he said.

"In light of China's unfair retaliation, I have instructed the USTR (United States Trade Representative) to consider whether $100bn of additional tariffs would be appropriate... and, if so, to identify the products upon which to impose such tariffs."

He said he had also instructed agricultural officials to implement a plan to protect US farmers and agricultural interests.

The threats sound strident but the actual impact is far from clear or straightforward - and will vary dramatically from product to product.

To get a sense of how things might play out, let's take soybeans as an example.

China, which is a big producer of soybeans itself, also buys about 60% of all soybeans exported by the US.

It uses the product to feed farmed animals, including pigs and chickens, as well as fish. Those animals are in turn used to help feed China's enormous population.

China's demand for soybeans and soybean products has buoyed the price of US soybeans for some time.

But Beijing's tariffs against US soybeans will mostly likely see sales to China fall off, which will in turn hurt American farmers.

Many of US farmers could then be forced to switch to other crops - very few of which are as lucrative.

Soybean producing areas in the US are filled with famers who voted for Mr Trump, and so some of them are now less than happy with their president.

Meanwhile, China will need to set about sourcing the extra soybeans it needs from other countries.

India is one of the world's biggest soybean producers, and analysts there have already pointed to a potential trade war between the US and China as an opportunity for its economy.

Other big soybean producers are Argentina and Brazil, and some studies suggest that is where China will turn to should the current set of proposed tariffs come into force.

But it could end up paying more than it currently does, ultimately forcing up the price of those animals which eat soybean products. So that would mean pork, for example, China's most popular meat, could get more expensive. And food price inflation is something that will worry Beijing.

Beijing Deals
What China sells to the US
$462.6bn

The value of of goods bought by the US from China in 2016.

18.2% of all China's exports go to the United States

$129bn worth of China-made electrical machinery bought by US

59.2% growth in Chinese services imported by US between 2006 & 2016

$347bn US goods trade deficit with China

How long could this last?
China has initiated a complaint with the World Trade Organisation over the US tariffs, in what analysts say is a sign that this will be a protracted process.

The WTO circulated the request for consultation to members on Thursday, launching a discussion period before the complaint heads to formal dispute settlement process.

Meanwhile, under US law, the proposed set of tariffs against about 1,300 Chinese products must now go under review, including a public notice and comment process, and a hearing.

The hearing is scheduled at the moment for 15 May, with post-hearing filings due a week later.

So, it could be some months before the USTR will announce its final findings or any decision on whether or not it will move ahead with the proposed tariffs.

Turkish PM arrives in Mongolia www.aa.com.tr

Turkish Prime Minister Binali Yildirim arrived in the Mongolian capital Ulaanbaatar early Friday for a two-day visit.

Why Oyu Tolgoi deal is not one-sided www.theubpost.mn

The Oyu Tolgoi mine has been the subject of much controversy and division in Mongolia ever since the government inked the monumental 2009 Investment Agreement with Ivanhoe Mines, now Turquoise Hill Resources.

For the past decade, the agreement has been much scrutinized for being disadvantageous for Mongolia. The result has been growing resource nationalism among the public, which several political parties have used to their advantage to establish footing in the political sphere. The conversation on the Oyu Tolgoi agreement has been hijacked by those who polarize the issue by framing the agreement to be completely disadvantageous and unfair to Mongolia. But is the agreement as unfair as it has been made out to be?

The main argument used against the Oyu Tolgoi agreement is that Mongolia only owns 34 percent of a mine that is on Mongolian soil. In the eyes of the public, foreign companies such as Sailingstone Capital and Rio Tinto owning a majority 66 percent stake in Oyu Tolgoi through Turquoise Hill does not seem all that fair. Many hold the view that since it is under Mongolian land, it must be owned by Mongolia. When making this argument, people tend to overlook why Mongolia was able to leverage only a 34 percent stake in the company.

One of the biggest reasons why Mongolia owns only a 34 percent stake is that Canadian based Ivanhoe Mines discovered the mine in 2001. In 2000, Ivanhoe acquired the license to explore the Oyu Tolgoi site from BHP Billiton. At the time of discovery in July 2001, the mine was wholly owned by Ivanhoe.

Although there was speculation in the 1950’s that the area had a massive untapped reserve, ultimately Ivanhoe discovered the site using the exploration license provided by the government. As such, when negotiations began, Mongolia only had the leverage to demand a 34 percent stake, the minimum requirement for mines determined to be strategic.

If the government discovered Oyu Tolgoi using state funds instead of Ivanhoe Mines, Mongolia would have been in a position where it could demand a 50 percent stake in the mine while offering the project to large mining companies such as Rio Tinto. But that was obviously not the case. The reality is, if not Rio Tinto, the government would have needed to involve Glencore or BHP Billiton or any other large mining giant capable of financing such a large project. To date, Rio Tinto has invested seven billion USD in Oyu Tolgoi. The Mongolian government did not have the capacity to finance a project of this magnitude in 2001 nor does it have this capability in 2018.

The bottom line is that Mongolia had no other choice but to give up at least 50 percent of Oyu Tolgoi’s stake to a foreign mining corporation to even begin development of Oyu Tolgoi.

When negotiating the 2009 Oyu Tolgoi Investment agreement, the Mongolian side essentially had to choose between equity and royalty. Choosing royalty over equity meant that the 34 percent stake would be lower but the royalty fees and taxes paid to the government would be higher. This would have helped boost short-term revenue to Mongolia but hurt the long-term prospects of dividends from the mine. The Mongolian side ultimately chose equity, banking on the large dividends that will be distributed once the mine breaks even and becomes profitable. Mongolia’s 34 percent stake in the mine cannot be decreased under the Investment Agreement and the government can in fact increase its stake up to 50 percent after 30 years from 2009.

But time is required for Oyu Tolgoi to recuperate the initial cost of development at the mine. In addition, Mongolia took a share in the shareholder debt that was used to establish the company. Mongolia will pay off this share of debt in the future from cash flow from mine operations. Rio has made it clear that the earliest dividends will be distributed is in 2026, while the Mongolian government expects to receive dividends by 2032. However, a lot of that money will be used to pay off the share of debt totaling 1.7 billion USD at 6.5 percent interest.

The fact that Mongolia will most likely not receive dividends until 2032 and owes money has been a point of frustration for many who oppose the agreement. In response, Rio Tinto CEO Jean Sebastien Jacques explained that Oyu Tolgoi must first break even with the costs of developing the mine and become profitable before distributing dividends.

“First, in order to distribute dividends, a company must be profitable. More than seven billion USD was invested for the Oyu Tolgoi project and an additional five billion USD was invested for the development of the underground mine,” Jacques explained during his visit to Mongolia in January 2018.

“Every investor wants Oyu Tolgoi to profit as quickly as possible and to receive dividends. As I’m sure all of you know, the Mongolian government opted to not invest the amount required from a 34 percent shareholder and decided to cover this investment with its future dividends,” Jacques added.

Even despite the fact that Mongolia has not seen one cent of dividends, Oyu Tolgoi said has paid 1.5 billion USD in taxes, royalties, and other payments. This has made Oyu Tolgoi the biggest taxpayer in Mongolia for the last five years, since it began open pit mining operations in 2013.

Rio has banked on its forecast that both the price and demand of copper will skyrocket once the underground development of Oyu Tolgoi is complete. New technological advancements such as the use of electric cars will help drive demand, Rio says.

Another factor is that no other large copper mines will be turned operational in the coming years. This has allowed Rio to operate on the assumption that demand of copper will outpace the supply. Jacques said that Rio forecasts the demand increase of copper will coincide with the opening bell of the underground mine.

Despite being commissioned over nine years ago, the Oyu Tolgoi mine is still in its infancy, with the opening bell of the underground mine not due for at least another three years. While the case can be made that the Investment Agreement can be improved to better benefit Mongolia, it is baseless to say it is a completely unfair agreement. In fact, based on the position and leverage Mongolia had going into the negotiations, it can even be argued that the current agreement was the best scenario.