The Government’s preference for full Mongolian ownership of Tavantolgoi potentially restricts access to a source that has drawn strong interest from Western mining companies, according to The Wall Street Journal Asia. Whatever arrangement the Government chooses to pursue — mining contracts or production-sharing arrangements — has implications for mining companies interested in operating in the country, as well as for the Government”s own finances.

Under a production-sharing agreement, mining companies would bear the cost of developing the deposits and share revenue with the Government. While the companies would not own the deposits outright, the terms of an agreement can stretch 15 years or longer and can still be structured in a way that makes them attractive.

Under a contract-mining arrangement, the Government itself would bear the cost of developing the project and hire an outside company to do the extraction work. Opting solely for contract mining on Tavantolgoi or other projects could be a challenge, given the high costs involved and the weak finances of the Government.

Calling the present move “a wholesale shift in government policy”, Alisher Ali Djumanov, chief executive of Eurasia Capital, an investment bank based in Hong Kong with a focus on frontier markets, said, “There are limits on how much the Government can do. If they own 100% of Tavantolgoi, that will put the Government in the driver”s seat. It puts a lot of stress on the ministries. As other mining projects start up, there will be a limit on how many projects the Government can handle simultaneously.”