VZCZCXRO8267
PP RUEHLMC RUEHVC
DE RUEHUM #0875/01 3522354
ZNR UUUUU ZZH
P 182354Z DEC 06
FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC PRIORITY 0610
INFO RUEHMO/AMEMBASSY MOSCOW 1648
RUEHBJ/AMEMBASSY BEIJING 5334
RUEHUL/AMEMBASSY SEOUL 2561
RUEHKO/AMEMBASSY TOKYO 2316
RUEHOT/AMEMBASSY OTTAWA 0371
RUEHML/AMEMBASSY MANILA 1273
RUEHLO/AMEMBASSY LONDON 0071
RUEHVC/AMCONSUL VANCOUVER 0013
RUEATRS/DEPT OF TREASURY WASHDC
RUCPODC/USDOC WASHDC 1142
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC 0425

UNCLAS SECTION 01 OF 02 ULAANBAATAR 000875 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS DOC/FLAVIN/ AND ITA, USTR, USTDA, OPIC, AND EXIMBANK 
STATE FOR EAP/CM AND EB/IFD/OIA 
USAID FOR ANE 
MANILA AND LONDON FOR ADB, EBRD USEDS 
 
E.O. 12958: N/A 
TAGS: EINV PREL ETRD EMIN ENRG MG
SUBJECT: Mass firing of Mongolian mineworkers sends message to 
Mongolian Government: Deal with mining firms in good faith 
 
Sensitive But Unclassified - Not for Internet Distribution. Contains 
proprietary and confidential business information 
 
Ref: 000870 Ulaanbaatar 
 
Summary and Comment 
------------------- 
 
¶1. (SBU) One of Mongolia's largest employers, Ivanhoe Mines, will 
fire 900 of its domestic and foreign workforce, or some 7.5% of the 
12,000 workers directly employed in the Mongolian mining sector. 
Ivanhoe cannot afford to pay workers idled by the Government of 
Mongolia's refusal to reach an agreement with Ivanhoe on any of its 
mining assets in contravention of the new mining law.  Ivanhoe fears 
political and economic repercussions as soon as soon as news of the 
firings goes public.  Ivanhoe's workers blame the Government of 
Mongolia (GOM) but not Ivanhoe for their imminent firing.  The loss 
of such high quality, high-paying jobs in such numbers will be a 
first for modern Mongolia, an event not seen since the dark days of 
early 90's when many state firms went bust and their employees went 
jobless in their tens of thousands.  GOM officials will likely whine 
and gnash their teeth, criticizing and threatening Ivanhoe and 
Ivanhoe's new partner, mining giant Rio Tinto with all manner of 
dire consequences.  If officials were more reflective, they would 
see this first firing as a warning that western firms will not dump 
money into a nation that ignores its legal obligations to let 
companies access the rights guaranteed under Mongolia's new mining 
law. Moreover, the GOM should also reflect on the prospect of 
thousands of unemployed miners and their families blaming the GOM 
for their lost jobs.  END SUMMARY AND COMMENT. 
 
Happy New Year, and, by the way, you're fired! 
--------------------------------------------- - 
 
¶2. (SBU) Coal miners from Ivanhoe Mining, a Canadian firm, held 
their annual new year's party on Saturday, December 16.  The 
Canadian expatriates who run the company pulled out all the stops 
for their 28 Mongolian employees.  Mountains of food, rivers vodka, 
DJs and dancing, a splendid night was had by all.  Then a 
scrumptious champagne breakfast, and finally the ultimate dessert. 
The Canadians announced that all 28 employees, along with the 
Canadians, had been fired by Ivanhoe; and so, began what will likely 
be the first wave of firings. 
 
¶3. (SBU) According to Ivanhoe reps, by December 31, 2006, Ivanhoe 
will fire nearly 900 employees or 60% of Ivanhoe's 1500 total 
Mongolia labor force. To put this in perspective, current mining 
activities directly employee over 12,000 Mongolians, and the Ivanhoe 
layoffs comprise some 7.5% of this total labor force.  Each laborer, 
on average, supports a family of five persons, meaning that some 
4,500 people are directly affected by the firings.  These were good, 
well-paying jobs for professionals and skilled laborers; and these 
wages will be sorely missed in Ulaanbaatar and in the Gobi region, 
where unemployment continues to run high. 
 
¶3. (SBU) Company representatives explained that because the 
Government of Mongolia has refused to negotiate an investment 
agreement on the mine or to approve other mining licenses in 
contravention of Mongolia's new mining law, Ivanhoe cannot proceed 
to develop its properties; and so, can no longer afford to maintain 
such a larger, idled labor force. 
 
¶4. (SBU) Although Ivanhoe let post knew that the some layoff's were 
in the works, Ivanhoe had declined to let the GOM or the general 
public in Mongolia know its plans, fearing further political 
repercussions and punitive action against itself. Post can verify 
that GOM contacts do not know of the imminent firings. However, 
events in Canada have caught up with Ivanhoe, where investors, 
already jittery over the GOM's refusal to deal with Ivanhoe, are 
asking Ivanhoe executives to explain what rumors of layoffs mean for 
the company's Mongolia operations. Ivanhoe, bound to follow the 
provisions of Sarbanes-Oxley, will make a general announcement of 
its intentions within the next week. 
 
¶5. (SBU) According to a reliable Ivanhoe executive, workers are 
 
ULAANBAATA 00000875  002 OF 002 
 
 
somber and aware of what is coming; but do not hold Ivanhoe at fault 
for the layoffs. Instead, they blame the GOM for their firing.  Of 
course, Ivanhoe wants to mine and has made every effort to strike a 
deal that would allow it do so.  But the GOM has corruptly and 
unfairly refused to honor its own laws and follow its regulations to 
issue permits and licensees and to negotiate in good faith; and so, 
the workers conclude (not without merit) that the fault lies with 
Parliament and the bureaucracy and not with Ivanhoe. 
 
Minton