In a letter on 25 September 2009, Mongolian civil society organisations expressed concerns over the haste of the Mongolian government to formalise a contract with a foreign mining company. The organisations questioned its legality and environmental impact.

In a letter on 25 September 2009, Mongolian civil society organisations expressed concerns over the haste of the Mongolian government to formalise a contract with a foreign mining company. The organisations questioned its legality and environmental impact.

ATTN:  shareholders of Ivanhoe Mines Limited Co. and Rio Tinto International Holdings Limited Co., and the international community concerned about the impact of mining on the environment and ecology

About 50 representatives of 22 civil society organizations and individuals met today at the Puma Imperial Hotel in Ulaanbaatar to discuss the most recent version of the proposed investment agreement with Ivanhoe Mines on Oyu Tolgoi. The participants expressed concern over the Mongolian government’s haste to formalize an investment contract, which has numerous weaknesses
as specified below by economists, scholars, engineers, legal and development professionals.

Taking into consideration the fact that:

• The legality of the mining license itself is an issue that has been under discussion since 2005. According to which the exploration license for Oyu Tolgoi has been purchased by Ivanhoe Mines Limited Co. from BHP Billiton Co at the time when by law it would have been expired as the seller had not applied, nor paid the fee for extension of the license.

ACTION: Meeting appointed persons/entities to file a case with the Administrative Court for a judicial ruling on the issues surrounding the expiration of BHP Billington’s exploration license, its extension and purchase of the exploration license for Oyu Tolgoi by Ivanhoe Mines.

• An environmental impact assessment has not been carried out formally as required by international standards for a minerals deposit of this magnitude in a fragile eco-system such as the Gobi Desert. Regardless of what the Mongolian government requires or does not require, Ivanhoe Mines and Rio Tinto have the obligation under international conventions as well as their own CSR policies to carry out a full and detailed environmental impact assessment.

ACTION: The meeting reiterated the call from meetings of environmental NGOs to the government to amend the laws on land, minerals and mining to require an environmental impact assessment before a mining/exploration license is issued and agreed join efforts to demand a formal international standard environmental impact assessment and/or an audit in the Oyu Tolgoi region.

• The Ivanhoe Mines’ statement of investment implemented to date keeps changing with every new draft of investment agreement and the deep suspicions it brings about in the absence of technical feasibility study the meeting concluded
  that a drastic measure is required.

ACTION: Meeting agreed to send a letter to the government and political parties demanding an independent audit of investment in the Oyu Tolgoi mine to be carried out before the agreement is signed.

• The feasibility study has still not been completed and submitted to the authorities as required by the Law on Minerals.

ACTION: The meeting reiterated the position of the mining engineers and professionals that the government
should not proceed with the signing of an investment agreement in the absence of a feasibility study.

• A constitutional debate initiated by several citizens L. Tsog and B. Lhagvajav regarding constitutionality of the Law on Annulling the Law on Windfall Tax and amendments to the Law on Corporate Tax. The claim of the petitioners that law amendments were designed to fit the needs of the investment agreement for Oyu Tolgoi have been ruled by the Constitutional Court as violation of legislative due process as were submitted by government in haste.

ACTION: Continue constitutional debate on these and previous 2006 amendments to the Minerals Law, package of tax laws determined as unconstitutional by the Constitutional Court Decision #06 dated May 22, 2007.

Information: the proposed investment agreement is based principally on the “Minerals Law of Mongolia” enacted in 2006, the legitimacy of which is still largely questionable. In March 2007 the Constitutional Court has ruled that several provisions in the “Minerals Law of Mongolia” were enacted unconstitutionally. Other provisions of the law (ss. 5.4-5.5) are currently being reviewed by the Constitutional Court of Mongolia, for the third time, for contravening the Constitution.

While negotiating the contract, government authorities of Mongolia have made several steps that contravened the Constitution and other relevant laws. The latest example was the unlawful revocation of the “Law of Mongolia on the Windfall Tax” and unlawful enactment of the amendment to the “Business Entity and Organization Income Tax Law of Mongolia” (Corporate Tax Law).

• The working group appointed by the meeting has delivered a statement to the Mongolian Peoples Revolutionary Party and Democratic Party’s national leadership councils meetings held on September 25, 2009. The statement called upon the two parties to reconsider the decision to proceed with the investment agreement, which does not protect the interests of Mongolia as well as violates many law provisions and principles of fairness and sovereignty of a nation over its natural resources.  A 34-item list of issues and problems identified by professional and the civil society organization was enclosed to this statement. The statement also called upon the MPRP to reconsider its plan to nominate Minister T. Zorigt to run for parliament as this public official is in conflict of interest as he led the government team negotiating, preparing and submitting the proposed investment agreement.

The “Civil Code of Mongolia” specifies that any contract “that breaches the law” (s 56.1.1), contract “based on serious misleading” (s 58), contract “concluded as a result of fraud” (s 59), and contract “made forcibly” (s60) is not enforceable.

We would like to remind again, that the Constitution of Mongolia states that the Mongolian state will not be bound by international treaties and documents which conflict with the Constitution of Mongolia. The Mongolia public will not tolerate or bear the consequences from the acts of corrupt officials.

We highly esteem your companies as important allies in extracting and processing Mongolia’s abundant mineral resources. Thus, we request that as a shareholder you encourage your companies to work with us under the principles of transparency, fairness, law and order to revise the impending contract to ensure a lasting and reliable partnership.