coal2Investor appetite towards Mongolia could be improving amid hopes Ulaanbaatar may be in the process of settling a long-running dispute with mining giant Rio Tinto over the development of phase two of the Oyu Tolgoi mine, allaying concerns over the government’s ability to repay or roll over existing debt.

The government said in early April it had agreed “in principle” to an agreement with Rio Tinto, helping break the deadlock which has thwarted the second phase of the Oyu Tolgoi gold and copper mine. The underground development of the project, estimated to cost around $5bn, has been at a standstill for more than two years due to differences between the two partners over taxes owed, financing and costs from the first construction phase.

The standoff with Rio Tinto as well as falling minerals prices and weakening Chinese demand for coal, have resonated throughout the economy, with foreign investors holding back from committing to new projects until the investment climate becomes more predictable, and prompting a drop in foreign direct investment last year.

“A deal could have potentially transformative effects for the country’s external accounts and macroeconomic position, catalysing billions of dollars in new foreign capital inflows, accelerating economic activity and providing relief to many of the country’s key credit constraints,” ratings agency Fitch said in a note in April.

Source:http://www.oxfordbusinessgroup.com/