Turquoise Hill Tumbles Amid Precious Metals & Mining Meltdown
Turquoise Hill Resources (TRQ), 51% owned by major miner Rio Tinto (RIO) has continued to tumble toward its secular post-crash low at $7.10 made in late December 2012. When TRQ commissioned its ore concentrator at Oyut Tolgoi in the presence of high government of Mongolia (GOM) officials, they affirmed the lease - royalty deal and praised Rio, foreign investment and their commitment to maximizing their nation's resources. The moment seemed ripe for steady production at this world class site laden with copper, gold, silver and cobalt. After all, Mongolia is expected to get about 71% of the life-of-mine cash flow and Mongolians have 88% of the jobs at the mammoth project. Issues also seemed resolved with SouthGobi Resources (SGQRF.PK) which Rio controls via TRQ (58% share in SouthGobi). But exhilaration was brief: about ten days after a rapid ascent of TRQ shares it began a tumble that preceded the collapse of nearly all precious metal and mining shares in February. TRQ sank to $7.26 on Friday the 15th traded a few pennies below that level February 19. The questions are why and what to expect going forward with TRQ, precious metals and mining generally.
Some of the problem is specific to the foreign investment climate in East and Central Asia. Partly this is rooted in ethnic-historic issues, partly in the geopolitics and finance of recent decades. Insight into how these factors play out is offered by a minor event in Rio's arrangement of its holdings in the area: the sale via TRQ of its $300 million interest in Altynamas Gold's Kyzyl mine in northeastern Kazakhstan to Sumeru Gold BV.
Russia had an operational mine there by 1956. It fell into disuse when the Soviet Union was re-structured. After a February 2012 feasibility study at Kyzyl, Turquoise Hill was proceeding toward renewed development when Rio cashed out to focus more on its Mongolian operations. A key to its struggles there lurk in the seemingly routine boilerplate about its sale at Kyzyl: "completion of the proposed transaction is subject tocustomary closing conditions, including regulatory approvals from the Republic of Kazakhstan's competent authorities."
Let's look at Kazakhstan and what is "customary" in that former Soviet Socialist Republic.
The Altynamas Gold project is near Ust Kamenogorsk (Oskemen) where Russia, China, western Mongolia and northeastern Kazakhstan kiss in a significant geographic crux. Kazakhstan is a "republic" with "authoritarian presidential rule and little responsibility outside the executive branch" as the CIA country overview explains. It is valuable reading.
The president has been around a long time. Nursultan A. Nazarbayev was Chairman of the Supreme Soviet of Kazakhstan S.S.R. for twenty months preceding creation of the new State in December 1991. Then he became President of the republic for the first of his seven-year terms. In May 2007 the terms were shortened to five years with a limit of two consecutive terms. Mr. Nazarbayev however is exempt from this limitation since his "official status" as the "First President of Kazakhstan allows him an unlimited amount of terms." This enables one to appreciate better the language in TRQ's provisional sale of its Altynamas Gold stake about "customary closing conditions, including regulatory approvals from the Republic of Kazakhstan's competent authorities." As to competent authorities, Kazakhstan's "Council of Ministers" is appointed by President Nazarbayev who in 2011's election received 95.5% of the vote; the remaining 4.5% being ascribed to "Other."
Kazakhstan has a bicameral legislature, a Supreme Court (with 44 members) and many political parties but 81% of the seats are held by members of Mr. Nazarbayev's party, Nur Otan ("Fatherland's Ray of Light"). He is the chosen one and those who chose him affect investment, development and the share prices of the companies that make them. Kazakhstan is a crude example of how world management functions.
President Nazarbayev's consultation with representatives of various international advisors help constitute the "competent authorities" that rule on matters like TRQ's sale of its interest in Altynamas to Sumeru Gold. But $300 million is a very small matter compared to TRQ's Oyut Tolgoi mine (34% owned by the GOM) into which Rio has poured $6.2 billion. TRQ itself has a $7.5 billion market cap. Mining legend Robert Friedland began developing the site with his company Ivanhoe Mining which became TRQ when RIO acquired a controlling interest in April 2012. He too poured large sums into the mine and Mongolia and retains a 10% interest in TRQ. But East Asians are chauvinistic, even xenophobic. Those who manage the West into insolvency and social chaos use this nationalism to speed re-distribution of global wealth from West to East. Something similar happens in Europe north to south as part of the predictable malfunctioning of the euro project.
Some of the problem is specific to the foreign investment climate in East and Central Asia. Partly this is rooted in ethnic-historic issues, partly in the geopolitics and finance of recent decades. Insight into how these factors play out is offered by a minor event in Rio's arrangement of its holdings in the area: the sale via TRQ of its $300 million interest in Altynamas Gold's Kyzyl mine in northeastern Kazakhstan to Sumeru Gold BV.
Russia had an operational mine there by 1956. It fell into disuse when the Soviet Union was re-structured. After a February 2012 feasibility study at Kyzyl, Turquoise Hill was proceeding toward renewed development when Rio cashed out to focus more on its Mongolian operations. A key to its struggles there lurk in the seemingly routine boilerplate about its sale at Kyzyl: "completion of the proposed transaction is subject tocustomary closing conditions, including regulatory approvals from the Republic of Kazakhstan's competent authorities."
Let's look at Kazakhstan and what is "customary" in that former Soviet Socialist Republic.
The Altynamas Gold project is near Ust Kamenogorsk (Oskemen) where Russia, China, western Mongolia and northeastern Kazakhstan kiss in a significant geographic crux. Kazakhstan is a "republic" with "authoritarian presidential rule and little responsibility outside the executive branch" as the CIA country overview explains. It is valuable reading.
The president has been around a long time. Nursultan A. Nazarbayev was Chairman of the Supreme Soviet of Kazakhstan S.S.R. for twenty months preceding creation of the new State in December 1991. Then he became President of the republic for the first of his seven-year terms. In May 2007 the terms were shortened to five years with a limit of two consecutive terms. Mr. Nazarbayev however is exempt from this limitation since his "official status" as the "First President of Kazakhstan allows him an unlimited amount of terms." This enables one to appreciate better the language in TRQ's provisional sale of its Altynamas Gold stake about "customary closing conditions, including regulatory approvals from the Republic of Kazakhstan's competent authorities." As to competent authorities, Kazakhstan's "Council of Ministers" is appointed by President Nazarbayev who in 2011's election received 95.5% of the vote; the remaining 4.5% being ascribed to "Other."
Kazakhstan has a bicameral legislature, a Supreme Court (with 44 members) and many political parties but 81% of the seats are held by members of Mr. Nazarbayev's party, Nur Otan ("Fatherland's Ray of Light"). He is the chosen one and those who chose him affect investment, development and the share prices of the companies that make them. Kazakhstan is a crude example of how world management functions.
President Nazarbayev's consultation with representatives of various international advisors help constitute the "competent authorities" that rule on matters like TRQ's sale of its interest in Altynamas to Sumeru Gold. But $300 million is a very small matter compared to TRQ's Oyut Tolgoi mine (34% owned by the GOM) into which Rio has poured $6.2 billion. TRQ itself has a $7.5 billion market cap. Mining legend Robert Friedland began developing the site with his company Ivanhoe Mining which became TRQ when RIO acquired a controlling interest in April 2012. He too poured large sums into the mine and Mongolia and retains a 10% interest in TRQ. But East Asians are chauvinistic, even xenophobic. Those who manage the West into insolvency and social chaos use this nationalism to speed re-distribution of global wealth from West to East. Something similar happens in Europe north to south as part of the predictable malfunctioning of the euro project.
seekingalpha.com
Emmet Kodesh
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