Mitsui signs deal to explore for gold, copper at Mongolian mine

ULAANBAATAR, April 10 Kyodo

Japanese trading house Mitsui & Co. and Ivanhoe Mines Ltd. of Canada have signed a deal to explore for gold and copper in southern Mongolia, which may have the largest deposit of copper in the world, an Ivanhoe representative said Sunday.

The deal, in the form of a memorandum of understanding concluded on March 30 in Ulaanbaatar, calls for the exploration at the Oyu Tolgoi mine complex, a 6-kilometer stretch of land in the Gobi Desert about 80 km from the Chinese border with high-grade copper as well as gold.

Mongolian officials and Ivanhoe said Oyu Tolgoi has the potential of becoming the world’s largest copper mine.

Mitsui and Ivanhoe said in a statement that they will work together also on mine-related transportation, electrical energy and other infrastructure projects in the South Gobi Region.

They will build a ”state-of-the-art” electricity generating plant plus transmission lines, roads and railways for a region that currently lacks a railway line, the statement says.

The Mongolian government has been encouraging infrastructure development for the largely nomadic and undeveloped country of 2.3 million.

According to the memorandum, Mitsui can purchase equity in the copper-gold project.

Mitsui will also take an equity stake in the Ivanhoe-founded South Gobi Power Development Corp., a Japanese company set up to develop electricity sources, and acquire a ”significant interest” in the Tavan Tolgoi coal development on an Ivanhoe-controlled property 40 km from China, the companies’ statement says.

Mitsui ”is an ideal partner to work with Ivanhoe in building a powerful new engine of economic growth in Mongolia’s South Gobi Region,” said Ivanhoe Chairman Robert Friedland.

Mitsui Executive Director Katsuto Momii said in the statement he is ”extremely excited and happy to be involved in the future development of the South Gobi region.”

The Japan External Trade Organization in Beijing called the Mitsui project one of the three biggest Japanese ventures in Mongolia. The other two are telecom ventures. Japanese company investment in Mongolia totaled 1.1 billion yen as of April 2004.

Specific agreements following the memorandum will be signed later, the Ivanhoe representative said.

Statements from the companies do not name a monetary value or a timeline for the memorandum of understanding, but a Mongolian official said the Oyu Tolgoi mine cost about $8 billion to open and that joint development would begin in 2006.

The project lacks power and transportation support, the government official said. He said Ivanhoe and Mitsui could link to the Trans-Siberian railway or build a separate line. The project will employ about 3,000 people directly and thousands more indirectly, the official said.

Mongolian mines often attract illegal mining by jobless people, according to the International Labor Organization office in Ulaanbaatar. They set up camps, dig pits and pan for gold, often in dangerous conditions, the ILO says.

Ivanhoe owns or controls mining exploration rights covering about 125,000 square km in Mongolia, where it is looking for more copper, gold and coal, its statement said.

Mining was about one-tenth of Mongolia’s 2004 gross domestic product, which grew at 10.9 percent last year, the fastest in three decades. The government believes the country has a huge amount of unexplored coal and mineral resources.

COPYRIGHT 2005 Kyodo News International, Inc.

COPYRIGHT 2005 Gale Group

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