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updated 24 May 2010
According to the 2007 Red Book, Mongolia has 62,000 tU in Reasonably Assured Resources plus Inferred Resources, to US$ 130/kg U. The mining sector is Mongolia’s single largest industry, accounting for 55% of industrial output and more than 40% of export earnings.
Mongolia has a long history of uranium exploration commencing with joint Russian and Mongolian endeavours from 1950s involving investment of some US$ 200 million. Initial success was obtained in the Saddle Hills area of northeastern Mongolia (Dornod and Gurvanbulag regions) where uranium is present in volcanogenic sediments. However, the country has been considered to have relatively high political risk associated with investment. One aspect of this was the existence of an eminent domain provision for strategic minerals which involved the possibility of claw-back at the discretion of the government, applied where new exploration covered areas which were previously explored or developed, such as Dornod and Gurvanbulag. Originally this was understood to involve compensation if it were invoked, but this provision may have been abolished in the July 2009 Nuclear Energy Law.
The main uranium prospect is the Dornod open cut mine and undergound orebody, with the surrounding area containing a number of deposits in the Dornod aimag (province) in the far northeast of the country. The main deposit was mined by the Erdes Mining Enterprise, a subsidiary of Priargunsky Mining & Chemical Enterprise from 1988 to 1995. The ore was railed 400 km to Krasnokamensk in Siberia for treatment by Priargunsky. About 627 tU was produced.
Mardai township close to Dornod was built in the 1970s and was reported to house 10,000 Russian workers at the mine with a very high standard of living and commerce. It is now in ruins, also the railway north has been removed and the materials sold.
In 2008 the government established a new Ministry of Minerals and Energy. Then the Nuclear Energy Agency (NEA) was set up about the beginning of 2009 as a government line agency directly accountable to the Prime Minister. In February 2009 the government set up MonAtom LLC to undertake uranium exploration and mining on behalf of the state, as well as pursuing nuclear energy proposals. It will hold the state's equity in uranium and nuclear ventures and so comes under the Nuclear Energy Agency and the State Property Committee. The Radiation Control Authority is a part of this Agency, along with MonAtom. The existing Mineral Resources Authority of Mongolia (MRAM) is expected to work closely with MonAtom and the Nuclear Energy Agency.
In mid July 2009, after consultation with the International Atomic Energy Agency, parliament passed a Nuclear Energy Law to regulate the exploration, development, and mining of uranium and give the state a greater degree of ownership and control of uranium resources. It included transitional provisions dealing with existing mining and exploration licences.
In April 2008 Russia and Mongolia signed a high-level agreement to cooperate in identifying and developing Mongolia's uranium resources, and this aimed to restore and consolidate Russia's involvement in Mongolia's uranium sector. Russia is also examining the feasibility of building nuclear power plants in Mongolia.
During the visit of the Mongolian Prime Minister to Russia in mid 2009, an agreement was signed between the Mongolian Nuclear Energy Agency and Russia's Rosatom corporation. This agreement envisaged creation of a joint venture company between MonAtom and ARMZ to develop two uranium projects in Mongolia in which Russia retains an historical stake: Dornod, and exploring East Gobi further south. A Japanese partner in this joint venture is also envisaged. Rosatom says that the new JV is of particular interest due to its proximity (350 km direct) to Priargunsky operations, allowing creation of a "single infrastructure". Russian aid is expected for railway upgrades throughout Mongolia. The final intergovernmental agreement to set up the 50-50 joint venture - Dornod Uran LLC - was signed on 25 August. The joint venture is to be relieved from taxes and other compulsory payments imposed by Mongolian legislation, because Russian labour is to be used initially.
The Canada-based Khan Resources Inc. (KRI) has had a 69% share in the Dornod project, mostly through a 58% subsidiary Central Asian Uranium Co. Ltd (CAUC), a Mongolian stock company set up by World Wide Minerals at the behest of the government in late 1990s. Russia's Priargunsky Mining & Chemical Enterprise (a subsidiary of ARMZ and Rosatom) and Monatom each own 21% of CAUC, which holds the only uranium mining licence in Mongolia. A bankable feasibility study undertaken for Khan had confirmed the viability of the project, the capital cost estimate being US$ 333 million and first production possibly in 2012. A definitive feasibility study released in March 2009 showed that the project was sound, on the basis of 24,780 tU indicated resources (NI 43-101 compliant), including 20,340 tU probable reserves. Annual production of 1150 tU over 15 years was envisaged.
In July 2009 MRAM suspended, it said for three months, the CAUC mining licence due to alleged violations of Mongolian laws. Then in late August the Nuclear Energy Agency announced that the Dornod Uran joint venture of MonAtom with Russia's ARMZ would develop the project to produce about 2000 t/yr. Uranium would be exported but not necessarily to Russia. In mid January 2010 CAUC's mining licence was restored by MRAM. Khan's exploration licence was unaffected.
Khan had been granted a 3-year exploration licence from MRAM early in 2008 covering part of the Dornod orebody, and was applying to have this converted into a mining licence contiguous with that held by CAUC. In addition, subsidiary Khan Mongolia holds 100% of an exploration license covering an adjoining "Additional Dornod property". In March 2009 Khan was reported as holding 58% of the No.2 deposit (open cut mine) and two thirds of the deep No.7 deposit (via CAUC?), and 100% of the remaining third of the No.7 deposit, which would give it 69% of the overall uranium resource. The company was aiming to negotiate an investment agreement with the government as soon as possible, and engineering was then likely to take three years to mine start up.
On 27 November 2009 ARMZ announced a cash offer to buy all Khan's shares, at a substantial premium on the market. ARMZ said that it believed "the offer represents full and fair value for the Khan shares and provides Khan shareholders with an opportunity to receive liquidity at a significant premium to the current market, as well as value certainty today, relative to the significant political and licensing risks associated with the development of the Dornod property in Mongolia." On 15 December Khan's board of directors unanimously recommended its shareholders reject the offer, describing it as inadequate, failing to recognize the full value of the company, and containing "objectionable" terms and conditions, as well as being "highly prejudicial and opportunistic" and exposing Khan to serious risks.
On 25 January 2010 Khan announced that it had signed a memorandum of understanding with MonAtom to set up a joint venture and resolve the ownership of Dornod. It also creates a framework for developing the deposit and bringing it into production. The proposed corporate structure has MonAtom acquiring a 51% interest in both CAUC and Khan Mongolia, then after a share issue Khan ends up with 65% of the joint venture company, which in turn owns 74% of CAUC and 100% of Khan Mongolia, while MonAtom owns up to 20% of Khan.
A week after this, on 1 February, the Khan directors recommended a full takeover by a China National Nuclear Corporation subsidiary, CNNC Overseas Uranium Holding Ltd. The price was 118% higher than before Russia's unsolicited bid in November 2009, and 48% above what they offered with some implied duress. The Khan CEO said: "We look forward to working with CNNC to build upon the progress we have made in Mongolia towards establishing a stable platform for developing the Dornod uranium project and bringing it into operation. CNNC brings a lot to the table, with its deep expertise in nuclear energy, financial strength and strong political ties with Mongolia." The CNNC bid was extended to 25 May 2010, apparently to allow time for Chinese government approval, but possibly also due to Mongolian government hostility.
However, ARMZ then extended its takeover offer for Khan, citing a Nuclear Energy Agency statement that some provisions of the Khan-Monatom agreement were contrary to Mongolian law and policy. ARMZ asserted that the agreement, "including its provisions on revising and granting a mining license to CAUC, as well as exploration licenses of Khan Mongolia, cannot be properly approved and do not comply with the existing legislation in Mongolia.” ARMZ also said that the agreement contravened Mongolia's international obligations under the intergovernmental agreement between Mongolia and Russia of August 25, 2009, which provides for setting up the JV Dornod Uran to develop the Dornod uranium deposit.The ARMZ bid expired on 1 March 2010.
On 13 April 2010 Khan announced that it had received notice from the NEA that CAUC's mining and exploration licences had been invalidated as of October 2009, purportedly due to the company's failure to address issues identified in July 2009. Khan said it intended to challenge the ruling, and that "The NEA's intention appears to be to invalidate our licenses, as well as potentially those held by other foreign companies operating in the region, with a view to transferring all of the mineral rights and interests in the entire Dornod uranium region to a 'Dornod Uranium joint venture' that is purportedly being established between the Russian and Mongolian Governments, with complete disregard to Khan's rights and interests."
On 21 April Khan announced that CAUC had filed a formal claim in the Capital City Administrative Court in Mongolia challenging the legal basis for the notice received from the Mongolian NEA purporting to invalidate CAUC's mining license 237A and seeking a declaration that NEA's action was invalid. It said that Khan Mongolia was preparing to file a similar claim in relation to exploration licence 9282X, and it had written on 15 April to the Prime minister of Mongolia appealing for his help.
Khan then said that the CNNC takeover remained ongoing and should not be affected by "any expropriation of Khan's properties or assets". However, on 24 May CNNC Overseas Uranium Holdings informed Khan that its cash offer to acquire all Khan's common shares would be allowed to expire following its failure to obtain regulatory approval from the Chinese government. The National Energy Administration, an arm of the Chinese National Development Reform Commission (NDRC), said that the offer was not approved.
Russian return to Dornod
After canceling Khan's licences, the NEA announced that Monatom would develop Dornod in a joint venture with ARMZ and possibly Japanese or Chinese partners, and holding at least 51% of the new entity Dornod Uranium.
Early in May 2010 Rosatom said that it awaited final signing of new joint venture agreements between ARMZ and Monatom, under the terms of the intergovernmental agreement of August 2009 which set the stage for establishing Dornod Uran LLC as a 50-50 JV. ARMZ looked forward to having access to 50,000 tonnes of uranium reserves from which it could produce about 2000 tU/yr. ARMZ estimated that launching the Dornod project would require more than US$ 200 million.
Gurvanbulag
Gurvanbulag, about 30 km west of Dornod, had extensive underground development down to 560 metres in the Soviet era, and was readied for production. The Canada-based Western Prospector Group Ltd has had Gurvanbulag as the main focus of its Saddle Hills project since 2004. A recent NI 43-101 inferred resource figure based partly on Russian exploration to 1989 is 9000 tU. Western Prospector and its Mongolian subsidiary, Emeelt Mines, undertook a definitive feasibility study which showed that the project was barely economic, on the basis of 6900 tU reserves averaging 0.137%U. With radiometric sorting the head grade would be 0.152%U and the mine could produce 700 tU/yr for 9 years. Mine development cost would be about US$ 280 million. It is only 100 km from the Chinese border.
In mid 2008 KRI made a bid to take over the Western Prospector Group so as "to consolidate its position in the Saddle Hills district" but was outbid by Tinpo Holdings, who subsequently withdrew the offer due to political uncertainty. In March 2009 Western Prospector agreed to a US$ 25 million takeover by China's CNNC International, a 74% subsidiary of CNNC Overseas Uranium Holding Ltd and through it, of SinoU. In August 2009, the amalgamation with CNNC was complete and the company delisted in Canada.
In July 2009 MRAM suspended for three months all of the company's uranium exploration licences due to alleged violations of Mongolian laws, but MonAtom appears to be more positive about Chinese equity here than Canadian involvement. In October 2009 it said that CNNC's equity "would be decided soon", but it would evidently be less than 50%. CNNC said it hoped to start mining the deposit within two years.
Canada's Denison Mines has a 70% interest in the Gurvan Saihan Joint Venture (GSJV), with the Government of Mongolia and a Russian partner, and also holds leases though its Mongolian affiliate International Uranium Mongolia XXK (IUM). GSJV has focused on defining ore which is amenable to ISL mining, and it holds interests in several Mongolian properties. In 2007 NI 43-101 resource figures were published for some of these. Indicated and inferred resources of 4400 tU are quoted for Hairhan/ Khairkhan, and 2400 tU for Haraat/ Kharaat.
In 2007 Century City entered into an agreement with China Nuclear Energy Industry Corp (CNEIC), a subsidiary of CNNC, to explore and develop uranium resources on its leases in eastern Mongolia.
Red Hill Energy and Mega Uranium hold a number of exploration licences including the Emeelt, Khashaat and Bagamurat deposits 350 km southeast of Ulaan Baatar, and Jargalan, 500 km west of the city.
In December 2008 Japanese trading company Marubeni acquired rights to conduct feasibility studies on three uranium deposits, including Dornod and Gurvanbulag, developed by KRI and Western Prospector. The company planned to invest US$ 430 million and had signed a letter of intent with Khan. Since it was perceived that the laws of the mining-dependent country had become increasingly protectionist in recent years, Khan Resources then commented that “We are excited by Marubeni’s interest in Khan’s Dornod uranium project and are optimistic about the positive influence Japanese investors have on the Mongolian mining investment environment. Marubeni will work to improve the mining investment climate in Mongolia." MonAtom and Rosatom have both said that a Japanese company, presumably Marubeni, may be involved with the Dornod project JV.
Areva subsidiary Areva Mongol has been conducting exploration since about 2000 and holds extensife tenements in the Dornogobi and Sukbaatar provinces. Areva is considering selling 34% of the company to Mitsubishi.
In September 2009 India signed a uranium supply and nuclear cooperation agreement with Mongolia.
Sources:
Khan Resources web site http://www.khanresources.com/Western Prospector web site www.westernprospector.comwww.mongolia-web.com/miningA 1998 paper on Mongolia is at http://www.world-nuclear.org/sym/1998/mays.htm