Khan reaches settlement deal with Mongolia

09 March 2016

The Mongolian government has agreed to pay Khan Resources $70 million to end a dispute over its 2009 cancellation of the Canadian mining company's uranium licences. Mongolia had been seeking to overturn a ruling by an international arbitration tribunal that it must pay $100 million in compensation.

In July 2009, the Mongolian government passed a nuclear energy law which provided the state with 51% of the Dornod property without compensation to prior owners. The following year, the government refused to reissue Khan with licences for the property, effectively expropriating Dornod from Khan. In response, Khan initiated legal action in January 2011. The company's arbitration filing had sought a minimum of $200 million in compensation, plus fees and interests, based on net present value.

Last March, the Permanent Court of Arbitration in the Netherlands made a final and binding ruling that the Mongolian government must pay Khan $100 million in compensation. However, in July, Mongolia initiated an attempt to annul that ruling.

Khan announced on 6 March that it had signed an agreement with the government of Mongolia "whereby all outstanding matters pursuant to the international arbitration award received by Khan shall be resolved and terminated".

In that statement, Mongolia's finance minister Bolor Bayarbaatbar was quoted as saying, "The government of Mongolia and Khan Resources successfully reached an agreement that effectively resolves all outstanding issues in regards to the international arbitration awards. The settlement demonstrates the government's ongoing commitment to improving the investment climate."

In a separate statement the following day, Khan said that as part of the agreement the Mongolian government will pay it $70 million on or before 15 May 2016. In addition, Mongolia had agreed to immediately "withdraw and discontinue the proceedings to annul the award before the Paris courts". In exchange, once Khan has received that payment, it will terminate "any and all other proceedings" against the Mongolian government.

Khan president and CEO Grant Edey said, "We believe that this agreement is in the best interest of Khan's shareholders as it provides a complete resolution of all outstanding matters in a timely manner."

Mongolia has substantial uranium resources, and Russian company Priargunsky Industrial Mining & Chemical Union carried out open-pit mining at the Dornod deposit between 1988 and 1995. No uranium mining has taken place in Mongolia since then. Post-1995, Canadian company Khan Resources and its predecessor companies took up interests in Dornod, and a full definitive feasibility study on the property published by Khan in early 2009 showed the project to be economically sound.

However, later the same year the Mongolian Nuclear Energy Agency and Russia's Rosatom agreed to establish a joint venture company between the then recently established Monatom and Russian uranium mining company ARMZ to develop two Mongolian uranium projects including Dornod.

Khan closed all of its Mongolian subsidiaries in 2013 and shut its Ulaanbaatar office in June 2014.

Researched and written
by World Nuclear News