Agreements for uranium in Mongolia

Tuesday, 26 January 2010

Khan Resources' sovereign risk issues in Mongolia are nearing closure after an agreement with the state holding company for uranium mining.

 

A complex memorandum signed off yesterday should lead to the Dornod uranium development going ahead with the state involvement specified by law while still protecting the interests of Khan shareholders, said the company.

 

The Mongolian government unsettled a Khan and a number of other uranium enterprises with an unexpected change of legislation in July 2009. Exploration licences belonging to the firms were suddenly cancelled and companies learnt that they must negotiate with MonAtom to comply with a new Nuclear Energy Law that required the state to hold at least 51% of any uranium mining operation.

 

This was then complicated by a Mongolian move to develop Dornod in a joint venture with AtomRedMetZoloto of Russia, and then by an ARMZ offer to buy up all of Khan's outstanding shares. Khan directors believe their memorandum of understanding with MonAtom solves all these issues.

  

Dornod, where Soviet-Mongolian cooperation saw uranium mining from the 1950s (Image: Khan Resources)

 

At present Khan Resources owns 100% of Khan Mongolia and 58% of a joint venture known as Central Asian Uranium Company (CAUC). The rest of CAUC is mainly split between MonAtom (21%) and an ARMZ subsidiary (21%).

 

A web of transactions will result in Khan Resources owning 65% of a new joint venture company with MonAtom. That joint venture will own 74% of CAUC and 100% of Khan Mongolia. This means that Khan Resources will own only 48% of licence-holding CAUC, while Khan Mongolia will hold no licences and simply operate future mines. Khan was pleased to have rights to name the joint venture's chair, the majority of the board and specify unanimous approval for future fundamental decisions.

 

The swaps and purchases required for this arrangement remain to be carried out, but yesterday's signing means new exploration licences should be issued within seven days, with the licence for Dornod being converted into a mining licence within 45 days. Negotiations on the definitive agreements are to start immediately with the aim of completing before the end of March.

 

The Dornod uranium development now looks good for development, given this agreement and the enthusiasm of both sides. The area has previously been mined and includes indicated resources of over 24,000 tonnes of uranium. Development costs have been put at $333 million for first production around 2012.

 

Khan chairman James Doak said the memorandum of understanding "offers a going concern... [that] will increase our share price closer to its net asset value." The company put the value of the new arrangement at C$2.52 per share, compared to ARMZ's offer of C$0.65, itself representing a 48% premium on market values of the time.

 

Researched and written

by World Nuclear News