The uranium shakedown: How Mongolia and Russia conspired against western investors (Part 2 of 3)
In the second installment of the curious case of Khan Resources, we explore Khan’s turbulent history in Mongolia and document a deal with Russia’s leadership to swap Khan’s uranium mines for hundreds of millions of dollars in aid and debt forgiveness.
Even before Mongolia awarded itself the right to Khan’s uranium deposits, the writing was on the wall.
Speculation was rife that Russia was yearning for the influence it once had over Mongolia’s uranium deposits during Soviet times. The ambition was clear from Moscow’s growing control of the international uranium market, for which it already controls 12 percent of global reserves.
Overtures from Russia notched up after Mongolia’s 2008 election, moderately to begin with, and then more forcefully.
In an agreement that year, Mongolia committed to cooperate with Russia in identifying and developing its uranium resources. Vladimir Putin, as Russia’s revolving door Prime Minister in 2009, met with Mongolian President Tsakhiagiin Elbegdorj. Then in May of that year, Putin visited Mongolia for talks on participation in mining uranium. It was only two months later, in July, that Mongolia began expropriating licenses from companies like Khan under the cloak of the New Energy Law.
A month later, Russia’s President, Dmitri Medvedev, paid a visit to Mongolia, accompanied by Sergei Kiriyenko, chief of the Russian state’s nuclear energy company, Rosatom.
On that visit, Medvedev agreed to end a $150 million dispute over unpaid Mongolian debt “to move ahead with the Dornod [uranium] deposit”, which holds over seven times as much uranium as Russia’s total annual production. Tellingly, Khan Resources management was not even invited into the conversation despite the fact that the Canadian company had been developing the Dornod site since 2005 and legally owned 58% of the joint venture.
At the same time, Medvedev generously signed off on a $300 million loan for agricultural development. Prospective atomic and infrastructure deals were also thrashed out.
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Phill Hynes and Mark Burke are analysts at ISS Risk, a frontier and emerging markets political risk management company covering North, South and Southeast Asia from its headquarters in Hong Kong.