September 10 (BDSec) Prior comments from lawmakers implied the issue over Phase 2 financing was something the OT Board could (and should) resolve on its own, allowing underground operations to resume, this does not appear to be the case. In an interview with Economy.News.mn, EOT CEO Ganbold’s comments could not be clearer on this subject: “This is not an issue that Board solves. There are issues to be solved on Board level, and there are issues to be solved on investors’ and shareholders’ level. Hence, Board, directors, management have different levels of decision-making powers. So, I’ll try make decision within my power.” As it relates to resolving the issues that are within his power, Ganbold’s comments were likewise clear and pragmatic: “…I am reading all the documents related to the issue that’s several hundred pages long. Because of the indecision on the issue, both parties faced significant loss. If things continue like this, there will be more loss. Therefore, I’ll strive for middle ground and will find intermediate version. In general, any dispute whether it’s of a family or between big corporations/between nations, there’s never a party that is 100% right or wrong. If one party forced his position on the other, there must be certain degree of compromise made in order to move forward to the solution. If not, more time will be wasted. It’s a lose-lose situation. Therefore, I’ll solve the issue through intermediate version.” CEO Ganbold’s comments reflect a different and more sober reality than recent comments from lawmakers, who were predicting a quick resolution to outstanding issues and a resumption of underground operations in the near term.
Limited Power of OT’s Board of Directors
While CEO Ganbold did not give specifics on how limited his powers to resolve these issues are, he clearly stated involvement at the shareholder level (read GOM and perhaps Parliament) is needed. We have heard for some time that a reaffirmation of the Investment Agreement by the GOM is one condition to resume underground operations, it would appear there is some credence to this belief based on Ganbold’s comments. The OT board is scheduled to meet this week, but investors should temper their expectations for any meaningful progress, since 3 new members were just appointed, which include CEO Ganbold. Time is probably needed for the new members to acquaint themselves with the issues and formulate a strategy, before resolution can be a reality.
Complex Issues and the Need for Compromise
CEO Ganbold’s reference to “several hundred pages” of documents related outstanding issues suggests to us resolution is not just around the corner. We interpret his emphasis on compromise as meaning the GOM is not prepared to cave in order to get quick resolution and that finding middle ground is needed to move the discussions forward. Our sentiment on this subject was reinforced through several conversations with contacts here on the ground in UB. For RIO & OT’s part, it’s difficult to know how willing they are to compromise since shutting down Phase 2 construction in August and laying off 1700 workers, either directly or through contractors. It’s also not clear what outcome will benefit RIO the most, an expedited resolution through compromise, or a more lengthy battle with less compromise? Bear in mind, RIO’s bridge loan to Turquoise Hill (TRQ) is due 12/31/13 and a rights offering is triggered in the event of default.
The News is not all Bad
We caution investors on being too focused on the day to day news commentary regarding the GOM and OT.It’s been nearly a year since these problems began to surface and progress has been made. Asset prices already reflect the current negative outcome and the savviest of our investors are taking advantage, as others capitulate. No longer do we hear calls from the resource nationalist side of the spectrum, demanding 51% of the project, or to renegotiate and/or disregard the ’09 Investment Agreement altogether. Leadership on both sides of the table has been changed, which will hopefully result in a lasting resolution allowing Mongolia to get back to the business of being the fastest growing economy in the world.
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