Canadian mining company Khan Resources Inc (KRI) has written an open letter to MP Z. Enkhbold, Chairman of the Standing Committee on Foreign Policy and Security, in which it exposes the Government’s lack of clarity and ARMZ’s obscure manoeuvring surrounding the Dornod uranium project.

Khan Resources Inc stated in its letter that the Company is confident it has fulfilled all its obligations towards CAUC, finding it difficult to understand why unofficial sources suggest that only KRI (58% of shares of Central Asian Uranium Co. Ltd) may have been in breach of the law and should be investigated when there are two other partners in the joint venture.

The Minerals Law of Mongolia was amended in 2007 and the Nuclear Energy Law was adopted in July 2009, recalls the Company, adding it has been making efforts ever since to negotiate with the appropriate authorities according to the new regulations and requirements. On 10 November 2009, it says it submitted applications to re-register 237A mining and 9282X exploration licenses to the NEA in conformity with the Nuclear Energy Law. It also fully collaborated with the representative of the Mongolian government MonAtom LLC (21% interest in the CAUC) in order to ensure the company’s compliance with the new law; and a Memorandum of Understanding (MOU) between the two was signed on January 22, 2010. Furthermore, KRI agreed to transfer 51% of the shares of Khan Resources Co. Ltd to MonAtom free of charge to meet the Mongolian Government’s conditions. Meanwhile, KRI points out that Russian ARMZ (21% interest in the CAUC) made a hostile take-over bid to purchase all of the common outstanding shares of Khan Resources despite the fact it did not obtain any approval from the NEA to do so. The Canadian company also notes the NEA did not make any statement regarding ARMZ’s offer but declared a day before the offer’s expiration (February 1, 2010), that the MOU violated Mongolian laws and should not be implemented. Such a declaration would have led to a drop of KRI’s share price, and would have allowed ARMZ to purchase all of the common shares of Khan Resources for low value, believes Canadian Khan, leaving it no other option under such circumstances but to accept the CNNC offer to acquire all its outstanding common shares at CUSD0.96 per share.

Furthermore, KRI also denounces in the letter ARMZ’s speculative and unsubstantiated comments with regard to Mongolia’s uranium licenses, releasing information about actions having – if ever - yet to take place  and appearing to be telling the Government of Mongolia what to do and not to do. ARMZ’s Chairman was quoted to have said in an interview to Interfax on 27 February 2010 that the Government of Mongolia had revoked and invalidated the licenses of KRI and the company had violated the law, despite the fact that conclusions of the working group of the State Ikh Khural did not state such thing and KRI’s 9282X exploration license had not been included in the list of the licenses violating laws.

Furthermore, Khan resources explained in the letter that the final decision concerning CNNC offer of 0.96 cent per KRI share - almost 50% premium to the ARMZ offer - will be made by shareholders and that, unable to predict what the outcome will be, obtaining prior approval from  NEA makes little sense to the  company. More importantly, Mongolia’s Nuclear Energy Law stipulating that a license holder must obtain its approval if it intends to sell, pledge or transfer its shares to others has been respected, affirms KRI, who states that the shareholders of 237A and 9282X license holders (Khan Resources Mongolia and CAUC) remain the same.

The company also stipulates in the letter that the 237A mining license was issued in 1998 by the Mongolian State Agency according to the existing law, and that the claim by certain NEA officials that KRI “violated” the law, and did not get the Dornod uranium deposit reserve approved is simply not true and misleading. KRI was asked in 2007 to make a re-calculation of Dornod uranium deposit reserves according to Mongolian standards which it submitted in August 2008 to the Mongolian Mineral Council, says the letter. Since the submission, Mongolian government officials have not made any decision, but asked KRI to wait until uranium regulations are issued. In late 2009 Mineral Council experts were appointed and concluded their work. However the Mineral Council meeting was delayed again by the Mongolian government for unknown reasons. In other words KRI concluded in the letter it has done everything it possibly can to have the Dornod uranium reserves approved by Mongolian Mineral Council.