🤝 THE OYU TOLGOI DEAL | TAX LOTTERY | URANIUM DEPOSITS

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Good morning! We hope this fall finds you in good health and in good spirits. This week might be the last warm days of the year, so enjoy them as much as you can.

🤔 DID YOU KNOW?

🤝 THE OYU TOLGOI DEAL

Oyu Tolgoi (OT), one of the largest known copper and gold deposits in the world, is jointly owned by the Government of Mongolia and Turquoise Hill Resources (TRQ), which own 34% and 66% of the mine respectively. TRQ’s shares are in turn divided between Rio Tinto Group (RIO) and minority shareholders, as shown in the graph above that depicts OT’s shareholder structure before and after the deal. 

What deal, though?

RIO has recently reached an in-principle agreement to buy the rest of TRQ’s shares in OT for $3.3 billion. Notably, the buyout offer previously stood at $2.7 billion, but was rejected as the proposed amount didn’t reflect the full and fair value of TRQ’s stake in the mine.

The latest $3.3 billion bid now awaits shareholders’ approval, which would finally give RIO ownership of TRQ’s 66% stake in OT.

The motive behind the deal

Essentially, RIO is just trying to make things easier. If the bid gets approval, RIO would have to deal with only one partner -  the Government of Mongolia. The disputes the company has had with TRQ and its minority shareholders over the years will finally be out of the picture. 

• RIO’s CEO mentioned that the agreement will simplify governance, improve efficiency and create greater certainty for the long-term success of the OT project. 

• Chief Executive Rio Tinto Copper Bold Baatar also noted that the transaction will simplify the ownership structure of OT and enable RIO to focus on working in partnership directly with Erdenes Oyu Tolgoi LLC and the Government of Mongolia to create long-term value for all stakeholders.

Who’s thinking what? 

• The observer: The Government of Mongolia hasn’t made any substantial announcements regarding the agreement. However, the public is eagerly waiting for its official standpoint as the change in the OT stake of Mongolia’s biggest taxpayer must not be overlooked  - RIO paid $544 million in taxes and royalties in Mongolia last year.

• The opposers: Some TRQ minority shareholders, including its fifth largest investor, Sailingstone Capital Partners, have already rejected RIO’s latest bid. Others who weren’t satisfied with the initial offer haven’t announced their final decision yet.

Anyhow…

If the $3.3 billion offer gets the approval of 66.67% of TRQ shareholders’ votes, the mine’s operation would depend on the decisions of only 2 shareholders, RIO and the Government of Mongolia. Considering they’ve already settled the issues between them, the OT project would definitely continue at a significantly faster pace, with the underground expansion possibly  commencing at the beginning of 2023 - much earlier than expected. 

Nevertheless, there still might be problems regarding the transparency, information sharing and auditory control of the project, but one thing's for sure - the faster OT reaches its full potential, the faster Mongolia’s economy will develop.

☢️ DATA STORY

Although Mongolia accounts for only 2% of global uranium reserves, the country still ranks in the top 10 countries with the most uranium reserves. As of today, over 10 uranium deposits have been discovered in Mongolia, with only few of them currently being actively developed. The most advanced uranium mining development project in Mongolia is the Zuuvch Ovoo project of Badrakh Energy LLC.

🤔 VAT LOTTERY?

Mongolia is one of the few countries in the world that have introduced receipt-based VAT lotteries in an effort to improve tax compliance, increase tax revenue and unmask the hidden economy. Currently, the VAT stands at 10%, with consumers receiving a 2% return along with the chance to win the lottery.  

How does the VAT lottery work? 

In the VAT lottery, receipts act as lotto tickets to win a prize. This incentivizes customers to ask for the receipts when buying something, inducing salespersons to register the transaction on the VAT server.

Is it effective then?

Well, it was, up until the lottery was suspended from April of this year. In fact, the suspension itself proved that the lottery was actually working - since its introduction in 2016, people registered 64% of all issued receipts on average, but that number dropped to 50% after the April decision. 

• More VAT revenue: VAT consistently accounted for at least 25% of the total tax revenue after the launch of the lottery as well - slightly more than it previously used to. 

Version 2.0

Public officials are now talking of reintroducing the lottery. However, there are some changes regarding the distribution of prizes:  

• More receipts, higher wins: If someone who’s registered 1-10 receipts matches 8 winning numbers they will receive ₮1 million, while those who’ve registered more than 51 receipts - ₮20 million.

• More for rural populations: Let’s say you live in Khovd province in Mongolia. The total number of VAT receipts registered in Khovd increases by 20%. If you win ₮30 thousand from the lottery you will receive accordingly 20% more - that is, ₮36 thousand in total.

It looks like the new version of the lottery will favor those who live outside the capital, but also those who spend the most. Considering the largest prize someone has ever won from the lottery was ₮500 million, it can be seen as a once-in-a-lifetime chance for many people to turn their lives around. That’s why the reintroduced lottery may become even more popular among the population. 

🏃‍♀️ QUICK STORIES

📌 Mongolia and South Korea agree to seek closer ties on rare earth supply.  During the recent visit to Mongolia, Foreign Minister Park Jin pointed out that South Korea’s powerful infrastructure and Mongolia’s abundant resources of rare earths and metals should be combined in order to  contribute to the resilience of global supply chains.

📌 Government pays $153m to Mongolian Copper Corporation to settle dispute. The payment stems from a longstanding dispute surrounding the 49% ownership of the Erdenet and Monros mines, which the Mongolian Copper Corporation purchased in 2016 from Russian company  Rostec. The mines are now owned by the Government of Mongolia. 

📌 Prime Minister announces new composition of Cabinet. There are now 21 members in the Cabinet besides the Prime Minister, including 4 ministers without portfolio. 10 members of the parliament were appointed concurring positions in the Cabinet, replacing previous office holders. As a result, 15 Cabinet officials, including the Prime Minister, are now part of the State Great Khural that has 76 members in total.

📌 Mongolian coking coal inflows remain high in China; prices face downside pressure. Daily arrivals of Mongolian coking coal remained at a comparatively high level at China's Ganqimaodu border crossing last week, but trading activities were dull amid a prudent buy stance among coke producers.

🟦 TOP NEWS

1. Mongolia-Switzerland relations and cooperation discussed. (MONTSAME)

2. Iran, Mongolia set to expand economic ties. (Tehran Times)

3. India’s Defence Minister to be on a five-day visit to Mongolia and Japan from tomorrow. (NewsOnAIR)

4. Mongolia set to welcome major studios in film industry tour. (KFTV)

5. Deputy Prime Minister of Thailand to visit Mongolia. (MONTSAME)

🦅 EAGLE FESTIVAL 2022

The Eagle Festival-2022 will be jointly organized on October 1-2 in Bugat soum of Bayan-Ulgii province by the Mongolian Eagle Hunters’ Association, the Ministry of Environment and Tourism, the Governor’s Office of Bayan-Ulgii province, and the province’s Department of Environment and Tourism. Some 100 eagle trainers from 13 soums of Bayan-Ulgii province will participate in the festival.