Mongolia seeks to annul $100m Khan Resources claim

Mongolia's justice ministry said it would seek to invalidate a $100m arbitration claim by Canada-listed Khan Resources, following the breakdown of talks and the death of the company's chairman.

Jim Doak had travelled to Ulaanbaatar to negotiate over payment of the award made by an international arbitration court in March against the government of Mongolia. Khan had pursued the claim after Mongolia in 2010 nationalised the Dornod uranium deposit it was developing.

Doak was found dead in his hotel room on Thursday. Police said there was no indication of foul play. A full autopsy report will be released this week.

Khan terminated negotiations on Thursday. It said it would seek the services of a debt collector instead. After losing the Dornod deposit, the company had ceased to explore or operate mines and had instead focused on the arbitration case.

"In respect of international arbitration, Jim and I and the board had developed a clear and consistent strategy for settlement of the award and for obtaining value for the shareholder. That strategy will not change one iota as a result of Jim's passing," Grant Edey, the president of Khan, said in a statement.

The tribunal's award to Khan was a blow to the cash-strapped nation. Mongolia is struggling with the sharp decline in the prices of its main commodity exports - copper and coal - and foreign investment has plummeted.

The case was one of four arbitration claims Mongolia is facing. Prime Minister Saikhanbileg Chimed told the Financial Times in March that arbitration cases were a "normal" part of doing business for any country.

Khan had originally sought $326m. The basis for the award has not been published but arbitration specialists said it was probably based on the value of the asset at the time of the nationalisation, rather than any calculation of subsequent earnings.

The case was brought through a variety of Khan subsidiaries and drew on precedents set after the collapse of communism in eastern Europe since Mongolia and Canada have not yet signed a foreign investment protection agreement, wrote Canadian arbitration expert Matthew Levine.

Mongolia turned to foreign mining investment, especially from Canada, Australia, and Japan, after the fall of the Soviet Union resulted in the collapse of its Soviet-supported manufacturing industry. But the country has fluctuated between welcoming foreign investment and worrying about giving away its underground wealth too cheaply, especially to Chinese companies.

The nationalisation of the Dornod deposit came after reports that Khan was entertaining a takeover bid from China's state-owned nuclear developer.

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