Khan files Mongolian court case

22 April 2010

Khan Resources has filed a claim in Mongolia's administrative court challenging the legality of the invalidation of its uranium mining licence by Mongolia's Nuclear Energy Agency (NEA).


The claim was filed by Toronto-based Khan's 58%-owned Mongolian joint venture subsidiary, Central Asian Uranium Company (CAUC). It asserts, among other things, that the NEA has no legal authority to make a decision to invalidate the mining licence and in so doing has violated Mongolian law. Khan Mongolia, Khan's 100%-owned Mongolian subsidiary, intends to file a similar claim in respect of NEA's purported invalidation of its exploration licence.

Dornod 2 (Khan Resources)
Tranquil scenes at the Dornod site (Image: Khan)


The mining licence for the Dornod uranium deposit was the only uranium mining licence yet to be granted in Mongolia. A definitive feasibility study released by Khan in March 2009 showed that the project was sound, on the basis of 24,780 tU indicated resources (NI 43-101 compliant), including 20,340 tU probable reserves. Annual production of 1150 tU over 15 years was envisaged. However, since July 2009 Khan has faced sudden changes in Mongolian legislation, a new energy law requiring 51% Mongolian state ownership in any uranium mining operation, a Mongolian move to develop Dornod in a joint venture with Russia's AtomRedMetzoloto (ARMZ), a hostile buyout offer by ARMZ, and the retrospective "invalidation" of licences by the NEA.
Khan is also making efforts to engage with the Mongolian government directly concerning its treatment at the hands of the NEA. In a five-page letter to Mongolian prime minister Sukhbaatar Batbold, Khan president and CEO Martin Quick has formally protested about the NEA's actions and pleaded with the government to review and overturn the NEA's decision. "Our lawyers are preparing to bring legal action against the NEA to challenge the invalidation notices and other actions. We would prefer not to do so. Litigation will be costly and, we believe, embarrassing to the government of Mongolia," warns Quick, before outlining his case in detail. Khan has said it will pursue its rights through both the Canadian and Mongolian courts and through international arbitration, if necessary.
To date, Khan and its subsidiaries have made capital investments of over $20 million in Mongolia towards the development of Dornod, and the company's plans for operating the project would involve investment of over $300 million, as well as providing employment for hundreds of Mongolians and "significant" royalty, tax and other benefits to the Mongolian government, Quick points out. However, the latest action by the NEA, coming on top of the regulatory uncertainty of recent years, has prompted many Khan investors to sell their shares and driven the company's stock price down by about 45%. "Meanwhile, development of the Dornod uranium project continues to be delayed, not only to the detriment of Khan, but also to the detriment of Mongolia," says Quick.
Chinese offer still stands
Meanwhile, a friendly take-over bid for Khan by CNNC Overseas Uranium Holding Ltd, an indirect wholly owned subsidiary of China National Nuclear Corporation, is still open and has been extended to 25 May. Khan's directors are still recommending shareholders take up the offer, which Khan says is not likely to be adversely affected by the NEA invalidation notices and other recent events in Mongolia.


Researched and written

by World Nuclear News