Ivanhoe Mines' directors register company's concern about surprise Mongolian government tax measure
15 Maio 2006 - 11:19AM
PR Newswire (US)
MONGOLIA'S PRESIDENT REITERATES SUPPORT FOR A STABILITY AGREEMENT
WITH IVANHOE NEW YORK, May 15 /PRNewswire-FirstCall/ -- The Ivanhoe
Mines Board of Directors has officially registered its concern with
the Government of Mongolia about a new windfall-profits tax on
minerals that reportedly was approved by the national parliament in
a surprise action on Friday evening. The new tax measure was
introduced with little advance notice, and debated and approved in
inexplicable haste. Mongolia's mining and related business
industries did not have sufficient opportunity to review, comment,
or make constructive submissions to all the members of the
parliament before the law was enacted. It is understood that the
Cabinet of the Government of National Unity, formed following a
series of political alliances in January this year, recently had
rejected the windfall-profits tax bill - which nonetheless was
approved by 35 of the 45 parliamentarians who voted, representing
less than half of the 76 elected members of parliament. Reports
indicate that the parliamentary vote means that the government
would impose a tax beginning at 68% when copper prices reach $2,600
a tonne ($1.18 per pound), and when gold reaches $500 an ounce. No
formal text of the new law has yet been received. A letter just
written by the Ivanhoe Board of Directors, directed to the
government through the Mongolian Ambassador in Canada, said, in
part: "First, we are surprised and disappointed that legislation
might be passed without consultation with the industry, and that a
lack of openness and transparency seems to have marked the process.
Second, although we have not yet been fully advised of the details
of the measure, we are worried that it could, unintentionally, have
a negative impact on companies operating in the mining sector and a
negative impact on Mongolia's hard-won reputation as a country open
to productive foreign investment. "The Board of Ivanhoe Mines fully
understands the interest the Government and Parliament of Mongolia
have in ensuring that the people of Mongolia benefit from high
commodity prices, and we fully share that objective. We believe
that there are ways of structuring fiscal and royalty measures that
can meet that objective without in any way damaging the
attractiveness to global investors of supporting the development of
Mongolia's natural resource sector." Mongolia mining laws have
attracted major international investments
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Ivanhoe will seek to clarify the status of the new windfall-profits
law within the context of other changes currently proposed to
Mongolia's tax and minerals laws, such as a potential reduction in
the corporate tax rate. Mongolia's existing laws have successfully
attracted several hundreds of millions of dollars in exploration
and mine development spending and created thousands of jobs for
Mongolians in recent years. Much of the country's present
investment-based economic growth, since the beginning of its
15-year- old democracy, is directly attributable to foreign direct
investment attracted to the country only after the parliament voted
in 2001 to rescind a three-year- old 10% value-added tax on gold
production. That tax had stalled significant expansion of the
country's mineral sector. Virtually all of the $370 million already
invested by Ivanhoe on the discovery and development of the Oyu
Tolgoi copper and gold project in Mongolia was committed only after
the removal of the gold tax. The sudden passage of the
windfall-profits law illustrates to the Mongolian people why mining
companies, banks and financial institutions require stability
agreements worldwide prior to committing significant investment
capital in developing countries. Without a justifiable period of
assured stability, most responsible companies would not take the
risk of funding exploration and the development of new mines
anywhere in the world. While a windfall-profits tax conceivably
might be defensible in certain circumstances in the oil and gas
industry, Ivanhoe Mines is unaware of any country imposing an
excess, or windfall, profits tax on the highly cyclical mining
industry. This new law is particularly surprising in light of the
Mongolian government's pledge late last year to support the
Extractive Industries Transparency Initiative sponsored by the
World Bank. Ivanhoe believes that there is universal support in the
international mining industry for the view that no measure, with
such potentially severe negative implications for the future of all
foreign investment in the development of Mongolia's economy, should
be signed into law without thorough review and due consultation
with affected companies, multi-lateral financial aid agencies and
governments representing the interests of the international mining
community. Domestic and foreign mining companies active in Mongolia
will be discussing their opposition to this tax. Ivanhoe
understands that some of the major international mining companies
presently active in Mongolia held meetings with some legislators
prior to the passage of the bill, cautioning that investments would
be severely curtailed if the parliament approved an ill- conceived
windfall-profits tax. The companies now may invite the President of
Mongolia, who already has criticized what he considers to be
failings of the tax measure, to exercise his constitutional
authority to veto the legislation and prevent the implementation of
the new tax measure. This would permit the development of a more
appropriate, substitute tax measure through a transparent and fair
process that will preserve the benefits of foreign investment in
Mongolia, with its associated widespread job creation and revenues
that can be used to reduce poverty. Statements by Mongolia's
President on new tax and stability agreement
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Speaking on television on Friday night, after the vote in
parliament, President N. Enkhbayar said that a downside of the new
tax measure is that it is "designed only for when the copper and
gold prices always remain high." Mongolia, he said, also should be
thinking of a policy that will provide protection "when the times
are bad," as has been experienced in the past during periods of
very low market prices, when copper mining in Mongolia did not
contribute any money to the national budget. Mongolia should study
and learn from successful policies that have been adopted by other
countries, he said. Measures such as a windfall-profits tax "only
assume the good times. They have the bad times left out. Let's find
a solution where Mongolia wins both during the bad times and the
good times." President Enkhbayar also again expressed his view that
it was necessary for the government to conclude a stability
agreement with Ivanhoe for the Oyu Tolgoi project. Such an
agreement, he said, also should anticipate good and bad times. The
President suggested that a flexible mechanism could be incorporated
into the stability agreement that would provide for a
windfall-profits tax to take effect at times of high metal prices.
"Today, we might say that we will furnish favourable conditions for
investment under these unprofitable conditions. But, if there is a
sudden profit, the conditions will not stay the same. As such, we
could make an agreement with flexibilities incorporated." Following
meetings in March this year, the Government of Mongolia accepted
Ivanhoe's commitments to a series of investment-related initiatives
that would deliver significant benefits to Mongolians. Ivanhoe
proposed agreements that will: 1. Ensure the employment and skills
training of, and provide acceptable minimum wages for, Mongolians
working on the Oyu Tolgoi project. The project is expected to
directly create 10,000 person years of employment during
construction of the open-pit and underground mines and an
additional 38,000 person years of employment during the first 35
years of mining at Oyu Tolgoi. 2. Provide for the production of
long-term electrical power generation in the South Gobi region. 3.
Ensure that Ivanhoe will work with the Mongolian government to
secure the construction in Mongolia of downstream smelting capacity
to add more jobs and value addition to copper production. 4.
Facilitate the listing of Ivanhoe's shares on the Mongolian Stock
Exchange, making it possible for Mongolians to own stock in the
company. In recent months, President Enkhbayar, Prime Minister M.
Enkhbold and a number of cabinet ministers have reaffirmed their
views that Mongolia must maintain and protect a favourable legal
and fiscal framework for attracting ongoing foreign direct
investment. The international financial markets and Ivanhoe's
thousands of shareholders will watch upcoming developments in
Mongolia with keen interest and an expectation that the Government
of Mongolia and the President of Mongolia will modify or reject
this legislation. Conference call contemplated
---------------------------- Ivanhoe Mines, like the rest of the
mining industry in Mongolia, was surprised by the parliament's
abrupt approval of the windfall-profits tax measure. Senior
management of Ivanhoe Mines will be gathering first-hand
assessments of the situation in Mongolia and speaking with other
mining companies, and expects to be in a position to conduct a
conference call for its investors in the near future. Information
contacts Investors: Bill Trenaman: +1.604.688.5755 Media: Bob
Williamson: +1.604.331.9880 Mongolia: Layton Croft + 976 9911-3339
DATASOURCE: Ivanhoe Mines Ltd. CONTACT: Investors: Bill Trenaman,
(604) 688-5755; Media: Bob Williamson, (604) 331-9880; Mongolia:
Layton Croft, (976) 9911-3339; To request a free copy of this
organization's annual report, please go to http://www.newswire.ca/
and click on Tools for Investors.
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