Mongolian Uranium Deposit Update

UNCLAS SECTION 01 OF 02 ULAANBAATAR 000362

SENSITIVE

SIPDIS

STATE FOR EAP/CM AND NP

E.O. 12958: N/A
TAGS: ENRG PREL KNNP SENV EMIN EINV KIDE MG
SUBJECT: Mongolian Uranium Deposit Update

REFS: A) 07 ULAANBAATAR 0238
B) 07 ULAANBAATAR 0267
C) 07 ULAANBAATAR 0630

SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION

CAUTION: CONTAINS PROPRIETARY INFORMATION


1. (SBU) SUMMARY: Western Prospector Group (WP) CEO Eric Bohren
(protect) discussed uranium mining issues in Mongolia with Emboffs
on July 10 and discussed his company's near-term plans and the
uranium mining business. Bohren made clear that Western Prospector,
a Vancouver-based firm, remains interested in Mongolia's uranium and
hopes to process raw uranium into value-added "yellowcake" in
Mongolia. Bohren said Mongolian officials appear to prefer a
"third-neighbor" policy in the mining sector, adding that his firm
remains concerned over possible GOM moves to nationalize uranium
holdings. WP does not favor outright nationalization, which would
see the company lose its property under the currently proposed
51%-state-equity position. However, WP states that it could support
a production-sharing contract model, which was included in the
latest mining-law amendments before Parliament. WP announced that it
has received a purchase offer by a Hong Kong-based investment fund,
suggesting that international interest in Mongolia's uranium remains
strong. END SUMMARY.


2. (U) Eric Bohren, CEO of Western Prospector Group (WP),met on
July 10 with Acting Econ/Comm Head and Econ/Pol Intern to discuss
issues related to uranium mining in Mongolia. Bohren sought general
information about the post-election political scene in Mongolia, and
discussed his company's near-term plans and the uranium mining
business.


3. (SBU) Bohren stated that despite Mongolia's weak legal framework
and stalled mineral legislation, there is still high interest among
investors in WP's Dornod province uranium assets, due to aggressive
Russian, Chinese and Indian plans for expanded involvement in
nuclear power. Bohren hinted that western firms are preferred as
strategic partners, but that Chinese and Russian partners will be
necessary for transportation. In a positive sign from the GOM,
representatives from the GOM signaled to Bohren that the GOM will
not influence WP's decisions on its strategic partners and that they
prefer a "third neighbor" policy with respect to uranium mining.


4. (SBU) In the short term, WP plans to sign strategic partnerships
with companies in three areas: political, financing and transport.
Bohren was reticent to mention the names of potential partners, but
noted that WP was seeking what he called a first-tier firm or firms
from Russia, Japan, the U.S. or other western nations that could
bring values in all three areas, followed by second-tier firms that
had strengths in one or more (but not all three) of the key areas.
He did mention U.S. power supplier Exelon as a potential first-tier
partner, and guardedly referred to discussions with Russian
authorities about transport and processing issues. He specifically
dismissed China and France as mining partners. (Note: French
state-owned nuclear power, uranium mining giant Arreva is active in
Mongolia. End Note.) China was dismissed because of Mongolian
resistance to allowing China any control over Mongolian uranium
supplies. France was dismissed because of concerns about Arreva's
behavior in Mongolia, with which WP does not which to become
associated. (Comment: Bohren and others have criticized Arreva for
being too generous with its hospitality, both in Mongolia and in
France. Bohren referred to wine-soaked meetings held for Mongolian
officials that may have put off some Mongolian officials, who feared
being tarred with claims that they were bought off by the French.
True or not, this perception may exist, and WP does not want to be
stained by it. End Comment.)

Minerals Legislation Outcome Still Uncertain
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5. (SBU) Bohren made clear that he believes that his company's
long-term prospects are strong, and that the main obstacles are
political. Most foreign mining firms still prefer a
production-sharing (versus an equity-sharing) minerals law, and WP
is no exception. If the election results hold, the MPRP's majority
will position Parliament to pass laws more efficiently, but it is
still unclear which direction the next government will take with
regard to mining. Major decisions on mineral laws will likely be
delayed in the near term, while the GOM sorts out allegations of
election fraud.

Western Firm Plans to Process Raw Uranium in Mongolia
-------------- --------------


6. (SBU) Bohren said his company plans to process uranium ore into
the value-added product, "yellowcake", in Mongolia, creating higher
revenues for the GOM. (Note: Yellowcake, uranium oxide concentrate,
is the end product of the mining and milling stages. This is the
form in which uranium is sold prior to further processing into fuel
grade product. End Note.) He contrasted his company's plan against
probable Russian and Chinese plans to process the raw uranium
outside of Mongolia. He believes this will be a selling point for
his firm during negotiations with the GOM. (Note: WP and other
western firms with stakes in uranium have discussed processing ore
into yellowcake and then exporting that product only to countries
with capacity to process the product for nuclear power production --
Russia, the U.S., India, the E.U., and China, among others.
Enrichment of yellowcake in Mongolia has until now not been
mentioned by western firms, but the Russian government -- through
its nuclear power agency Rosatom -- has indicated that it might
consider such processing in Mongolia. Bohren and others dismiss
this possibility as fairy tale. Technical and financial issues
aside, Bohren wonders why the Russians would surrender any control
over downstream processing to a neighbor with absolutely no
oversight capacity. Discussions about a Russian-built nuclear plant
for Mongolia are seen in similarly skeptical light by industry
players. End Note.)

Tinpo purchases Western Prospector Group
--------------


7. (SBU) The proposed purchase of WP by Tinpo Holdings Industrial
Company Limited (Tinpo) on July 15 supports Bohren's contention that
western interest in Mongolian uranium remains strong. WP announced
the execution of a definitive agreement for (Tinpo) to acquire all
of WP's outstanding common shares (about 81%) for C$74 million
(US$73,850,000)in cash. Tinpo is a privately owned investment
company based in Hong Kong, but financed by western investors,
according to Bohren. The remaining 19% will continue to be held by
Anchorage, an American hedge/equity investment fund. Bohren stated
that Tinpo and Anchorage have signaled that they will continue to
implement the strategic development plan crafted by WP's current
management team. In addition, WP will continue plans to align with
potential strategic partners, the GOM and other key stakeholders,
toward the successful implementation of a uranium production
strategy in Mongolia.

MINTON