Post Response to OPIC Request for Comment on WM Mining

UNCLAS ULAANBAATAR 000189

SENSITIVE

SIPDIS

STATE PASS OPIC FOR C. COWAN

E.O. 12958: N/A
TAGS: EINV OPIC MG
SUBJECT: Post Response to OPIC Request for Comment on WM Mining
Company Application for OPIC Finance

Sensitive but Unclassified - Not for Internet Distribution. Contains
proprietary business information

Ref: State 65871


1. (SBU) As per ref paragraph 2, Post supports WM Mining application
for OPIC financing of the Big Bend Placer gold-mining project (BBP)
in Zaamar Soum (county) of Tov Aimag (province). Post has received
detailed briefings of the project aims, technologies, environmental,
and social impacts from representatives of WM Mining, the Government
of Mongolia, and OPIC. Based on what we have learned, we are
confident that the project will comply with both Mongolian and USG
standards for a project of this nature. In addition, BBP has the
potential set a new benchmark for social and environmentally
responsible mining in the controversial placer sector that can raise
how Mongolian officials development and execute both laws and
regulations for this part of Mongolia's mining sector.


2. (SBU) As per ref paragraph 4, Post responds as follows:

--Recent Economic developments in Mongolia that may affect the
project: Mongolia, like most countries, has been seriously affected
by the ongoing economic crisis. Copper exports, a mainstay of the
Mongolian budget, have declined, as have other raw material exports.
The banking sector has all but stopped lending in an effort to
shore up balance sheets in advance of weak loan portfolios. In such
an environment, any legitimate revenue stream, such as BBP, is
welcome by both the government seeking taxes and the public seeking
employment.

--Information Post has on BBP and its sponsors: Post has no
additional information on BPP and its sponsors that it has not
already provided to OPIC.

--Information regarding the mining sector in Mongolia. For such a
small country, Mongolia has a very large set of complex issues
linked to mining. These range from the role of the state in the
mining sector to controversies surrounding the environmental and
social impact of placer mining by large firms and artisanal miners.
However, the placer sector, other than the controversial windfall
profits tax on gold (68 percent for each dollar over USD850 per
ounce),has been stable since 2000. The national , provincial, and
municipal governments understand the placer process and its
implications, and have the capacity to implement regulations to
steer the process appropriately. The public, also familiar if
uneasy about placer mining, accepts the process and its outcomes.
In short, while other mining projects remained mired in political
disputes among politicians and Mongolia's neighbors, such small
scale projects as BBP progress through the system from development
to production. (Note: The poster child for such a dispute is the
mega Oyu Tolgoi copper and gold mining project being promoted by
Canadian junior mining company Ivanhoe Mines Mongolia and
international mining giant Rio Tinto. The project, despite three
separate attempts since 2002 by the GOM and the firms to reach
agreement remains in serious dispute with no end in sight. End
Note.)

--Competitors in the sector: The Mongolian placer sector is
populated mostly by Chinese, Russian, and Mongolian players, with
the lion's share going to Mongolians and Russians. However, BBP
would have no competition among other placer miners -- in the sense
that one gold miner will sell gold at a lower price than another --
because they do not compete in that way for this particular
commodity. BBP's advent into the system will not upset any of the
pricing or sales arrangements typical of this sector's established
players.

MINTON