TORONTO (miningweekly.com) – The United Nations (UN) tribunal has ruled in favour of uranium explorer Khan Resources in a $200-million arbitration case against the government of Mongolia, the TSX-listed company said on Thursday.
The UN Commission on International Trade Law ruled on matters of jurisdiction and has dismissed all Mongolia's objections to the continuation of the suit.
Khan alleged that during 2009 the government of Mongolia in concert with a Russian partner took actions that amounted to the illegal expropriation of the company’s mining and exploration permits.
Khan said this took place after the government initially invited and encouraged the company and its predecessors to invest millions of dollars, expertise and resources in the Dornod Aimag uranium project, in north-eastern Mongolia.
The action would now progress to the next phase, in which the panel would rule on the merits of the arbitral claims and the amount of damages suffered by Khan arising from Mongolia’s expropriatory and unlawful treatment of the company.
In Khans’s arbitration filings, the company said the uranium deposit had substantial resources of uranium and a capacity to produce about three-million tons of yellow cake a year, for 15 years.
The established net present value is $276-million, which would be derived from $2.94-billion in revenue over the life of the mine.
Khan said that just as it was preparing to start construction of the mine in October 2009, the governments of Mongolia and Russia in January made a statement that they intended to exploit the resource, and by August, had formed a Dornod Uranium joint venture (JV).
On December 14, 2010, Russian Prime Minister Vladimir Putin and Mongolian Prime Minister Sukhbaatar Batbold signed an agreement confirming the JV, which also effectively confirmed the expropriation of Khan’s project rights.
Subsequently Khan received a notice from Mongolia’s Nuclear Energy Agency in which it said Khan’s Dornod rights had been invalidated, retroactive to October 8, 2009.
Khan initiated the international arbitration suite in January 2011.
"We are pleased that the tribunal has validated Khan's initiatives to achieve recourse to damages suffered by our shareholders. Our treasury is well funded and we will continue to vigorously pursue this action to its logical end to receive value for our investments in Mongolia,” Khan CEO Grant Edey said.
Khan added that it would immediately start preparing for the upcoming merits/damages phase of the proceedings.
Other firms are also currently embroiled in arbitration proceedings with Mongolia, including SouthGobi Resources, which had filed a notice of arbitration on the government, owing to the country’s Mineral Resources Authority’s failure to execute the premining agreements for the Zag Suuj, and certain areas of the broader Soumber coal deposits.
A newly elected conservative coalition government is also seeking to restrict foreign companies from mining Mongolia’s wealth of mineral resources and recently made noises about renegotiating a 2009 government agreement, which gave Canada's Ivanhoe Mines, now controlled by mining giant Rio Tinto, 66% ownership of the $13-billion Oyu Tolgoi copper/gold project.
Canada’s Prophecy Coal is also active in the country.