Khan Resources to receive US$70M to settle Mongolia dispute

The Mongolian government pays Canada’s Khan Resources Inc. to resolve a seven-year dispute over lost mining licenses, signaling a brand new willingness to draw in foreign investment. The shares surged the most intraday on record.

The US$70 million will be paid on or before May 15, according to terms of the agreement, disclosed in a press statement issued by Khan Resources Monday. Full payment will end all outstanding matters related to the international-arbitration award Khan received from a Paris court in March 2015.

Resolution from the case is really a “long-awaited relocate the best direction and additional evidence that Mongolia is trying to obtain itself back in line with foreign investors and investment,” Jay Liotta, chairman from the American Chamber of Commerce in Mongolia, said by email from Ulaanbaatar.

The share rose 26 cents to 73 cents at 11:02 a.m. in Toronto, after rising to as high as 80 cents, the most intraday because the company began trading in May 2012, based on data published by Bloomberg. The shares reached a high of 76 cents in July 2015.

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Mongolia’s foreign direct investment tumbled to US$195.1 million this past year from US$4.45 billion this year. A number of long-standing disputes along with a stop by commodity prices also slowed the country’s growth to two.3 per cent, in contrast to 17 per cent this year. 

Khan’s licenses were stripped in ’09 and it was instructed to abandon its uranium development in the east of the country.

In March 2015, a global arbitration tribunal under the United Nations Commission on International Trade awarded approximately US$100 million to Khan as compensation for the company’s mining licenses. The Toronto-based company had been seeking damages in excess of US$350 million.

The agreement is in the best interest of Khan’s shareholders as “it provides a complete resolution of all outstanding matters on time,” Grant Edey, Khan Resources ceo, said within the statement.

“Mongolia negotiated a very favorable deal for themselves,” Nick Cousyn, chief operating officer for BDSec, Mongolia’s largest brokerage, wrote inside a tweet from Ulaanbaatar.

Andrew Fennell, sovereign analyst with Fitch ratings, wrote within an email that resolution from the dispute is really a “credit positive for that sovereign insofar as it helps to relieve external funding constraints.”

In May 2015 Rio Tinto Group and also the Mongolian government settled a two-year dispute that stalled development of the underground mine at Oyu Tolgoi. In December, a US$4.4 billion project finance package was signed to restart the work.

“The settlement demonstrates the government’s ongoing commitment to improving the investment climate,” Bolor Bayarbaatar, Mongolia’s minister for finance, said in a Khan Resources statement.

Bloomberg News