Mass firing of Mongolian mineworkers sends message to

UNCLAS SECTION 01 OF 02 ULAANBAATAR 000875

SIPDIS

SENSITIVE
SIPDIS

STATE PASS DOC/FLAVIN/ AND ITA, USTR, USTDA, OPIC, AND EXIMBANK
STATE FOR EAP/CM AND EB/IFD/OIA
USAID FOR ANE
MANILA AND LONDON FOR ADB, EBRD USEDS

E.O. 12958: N/A
TAGS: EINV PREL ETRD EMIN ENRG MG
SUBJECT: Mass firing of Mongolian mineworkers sends message to
Mongolian Government: Deal with mining firms in good faith

Sensitive But Unclassified - Not for Internet Distribution. Contains
proprietary and confidential business information

Ref: 000870 Ulaanbaatar

Summary and Comment
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1. (SBU) One of Mongolia's largest employers, Ivanhoe Mines, will
fire 900 of its domestic and foreign workforce, or some 7.5% of the
12,000 workers directly employed in the Mongolian mining sector.
Ivanhoe cannot afford to pay workers idled by the Government of
Mongolia's refusal to reach an agreement with Ivanhoe on any of its
mining assets in contravention of the new mining law. Ivanhoe fears
political and economic repercussions as soon as soon as news of the
firings goes public. Ivanhoe's workers blame the Government of
Mongolia (GOM) but not Ivanhoe for their imminent firing. The loss
of such high quality, high-paying jobs in such numbers will be a
first for modern Mongolia, an event not seen since the dark days of
early 90's when many state firms went bust and their employees went
jobless in their tens of thousands. GOM officials will likely whine
and gnash their teeth, criticizing and threatening Ivanhoe and
Ivanhoe's new partner, mining giant Rio Tinto with all manner of
dire consequences. If officials were more reflective, they would
see this first firing as a warning that western firms will not dump
money into a nation that ignores its legal obligations to let
companies access the rights guaranteed under Mongolia's new mining
law. Moreover, the GOM should also reflect on the prospect of
thousands of unemployed miners and their families blaming the GOM
for their lost jobs. END SUMMARY AND COMMENT.

Happy New Year, and, by the way, you're fired!
-------------- -


2. (SBU) Coal miners from Ivanhoe Mining, a Canadian firm, held
their annual new year's party on Saturday, December 16. The
Canadian expatriates who run the company pulled out all the stops
for their 28 Mongolian employees. Mountains of food, rivers vodka,
DJs and dancing, a splendid night was had by all. Then a
scrumptious champagne breakfast, and finally the ultimate dessert.
The Canadians announced that all 28 employees, along with the
Canadians, had been fired by Ivanhoe; and so, began what will likely
be the first wave of firings.


3. (SBU) According to Ivanhoe reps, by December 31, 2006, Ivanhoe
will fire nearly 900 employees or 60% of Ivanhoe's 1500 total
Mongolia labor force. To put this in perspective, current mining
activities directly employee over 12,000 Mongolians, and the Ivanhoe
layoffs comprise some 7.5% of this total labor force. Each laborer,
on average, supports a family of five persons, meaning that some
4,500 people are directly affected by the firings. These were good,
well-paying jobs for professionals and skilled laborers; and these
wages will be sorely missed in Ulaanbaatar and in the Gobi region,
where unemployment continues to run high.


3. (SBU) Company representatives explained that because the
Government of Mongolia has refused to negotiate an investment
agreement on the mine or to approve other mining licenses in
contravention of Mongolia's new mining law, Ivanhoe cannot proceed
to develop its properties; and so, can no longer afford to maintain
such a larger, idled labor force.


4. (SBU) Although Ivanhoe let post knew that the some layoff's were
in the works, Ivanhoe had declined to let the GOM or the general
public in Mongolia know its plans, fearing further political
repercussions and punitive action against itself. Post can verify
that GOM contacts do not know of the imminent firings. However,
events in Canada have caught up with Ivanhoe, where investors,
already jittery over the GOM's refusal to deal with Ivanhoe, are
asking Ivanhoe executives to explain what rumors of layoffs mean for
the company's Mongolia operations. Ivanhoe, bound to follow the
provisions of Sarbanes-Oxley, will make a general announcement of
its intentions within the next week.


5. (SBU) According to a reliable Ivanhoe executive, workers are

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somber and aware of what is coming; but do not hold Ivanhoe at fault
for the layoffs. Instead, they blame the GOM for their firing. Of
course, Ivanhoe wants to mine and has made every effort to strike a
deal that would allow it do so. But the GOM has corruptly and
unfairly refused to honor its own laws and follow its regulations to
issue permits and licensees and to negotiate in good faith; and so,
the workers conclude (not without merit) that the fault lies with
Parliament and the bureaucracy and not with Ivanhoe.

Minton