TORONTO (miningweekly.com) – Toronto-based Khan Resources will launch an appeal in the Mongolian courts within the next few days, in the hopes of overturning a decision by the country's Nuclear Energy Agency (NEA) to invalidate mining and exploration licences held by the company's subsidiaries.

Khan shares dropped 36,5% on Tuesday, after the firm said it was notified that the licences had been cancelled, with effect from October 8.

But CEO Martin Quick told Mining Weekly Online he is confident the decision will not stand.

“They will show that the NEA really doesn't have the legal wherewithal to take licences away willy nilly,” he said.

If necessary, Khan will pursue international arbitration to protect its rights.

Quick said he believes the invalidation of the licenses is in response to Russian pressure on Mongolia to provide access to uranium deposits.

Khan, which agreed in February to be acquired by China National Nuclear Corp (CNNC), said it was informed that the invalidations related to “noncompliance issues” raised last year, which the company maintains it has since dealt with.

According to a statement on the NEA website, however, the agency cited a rule that companies with uranium assets must notify the government of plans to restructure or change control within a certain time.

Khan's main asset is a 58% interest in Central Asian Uranium Company (CAUC), which holds the Dornod uranium project. The company also owns 100% of Khan Mongolia, which has an exploration property next to Dornod.

The Dornod uranium deposit was initially discovered and developed by Russia, and began producing the nuclear fuel in 1988, but the mine stopped operations in 1995, after uranium demand fell off and funds for the operation dried up.

Quick pointed to a uranium exploration and development joint-venture deal signed last year, to much fanfare, between Mongolia and Russia.

Although the agreement did not include much in the way of specifics, the initiative was tellingly labelled the 'Dornod' joint venture.

“There's a lot of politics involved, and rather underhanded politics,” he said.

“I think the goal of Russia has always been, and certainly in the last year and a half or so, to go back into Mongolia and take back the soviet-era uranium mines that were developed there.

“And hopefully get them for nothing by pressuring the Mongolians.”

Last year, Russian State-owned miner Atomredmetzoloto (ARMZ), which owns 21% of CAUC, launched a hostile bid for Khan, which the Canadian junior rejected as opportunistic.

ARMZ backed off the offer in February, after Khan agreed to be acquired by CNNC, citing reports that the Dornod licence could be revoked.

Quick said the company is in constant contact with CNNC, and that the bid has not been affected by the notice of invalidation.

The Dornod project could produce an average of three-million pounds of uranium a year, at a cost of $23,22/lb, according to a March 2009 feasibility study.

Khan has spent about $20-million on the project to date.

Shares in the company fell C$0,31 on Tuesday, to C$0,54 a share, well below the C$0,96 apiece being offered by CNNC.

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