New strategic approach to sustainable mining development

27th of 8, 2012
This text is adapted from the presentation by mining engineer and academic P. Ochirbat at “Mining Mongolia-90” conference.

At aprofessional conference, I should directly get into the topic of sustainable mining development, but I feel it is necessary to recall the past as we observe the 90th anniversary of the mining industry in Mongolia. A German scientist said, “If one knows only the present state of science one knows only half the actual story.”

When foreigners think Mongolians have poor knowledge of mining or that we just recently learnt of it, it is necessary to take them back to several pieces of evidence showing how Mongolians knew enough of mining in the Stone Age, theBronze Age, and the Iron Age. There is abundant archaeological evidence in our land, dating from the ancient Stone Ages,of cave paintings using ochre, derived from mineral oxides.Cave paintings in the KhoitTserheriin cave, Khovdhave been dated to the upper palaeolithic age.

Evidence of small settlements and factories dating from the new Stone Age, where people used flint stone, has been found in Zuukh, Bayankhongor. Another relevant archaeological relic is the“Tomb of Norovlin”. Mongolians started using blazer, which is one kind of iron, around 2000 B.C.E and for 1,000 years bronze has been extensively used in making a wide variety of things. Signs of copper ore mining andsmelting in old times are there in Khalkgolsoum of Dornod, Erdenetsagaan, Ongon, Khongor, Darigangasoums of  Sukhbaatar, Erdene, Mandakh, Dalanjargalan of Dorno-govi, Manlai, Nomgon of Umnu-govi, Guchin us of Uvurkhangai, Biger of Govi-Altai. These have been authenticated by Mongolian archaeologists.

Evidence of mining 5,000 years ago was recently found near theOyuTolgoi copper mine at Khanbogd, Umnugovi. In Mongolia iron ore was melted by a method named “Bukhdarakh”. In this, a chimney was built at a gorge of a mountain and the fire-door faced the wind. The iron ore was put above the firewood and the iron collected when the ore melted down. Mongolian metal experts developed 3 kinds of pumps --Tulman, Avdryn, and Bukh -- that are the precursors of the gaslock compressor and the blowpipe, two of the most important equipment in modern mining.

Mining development in Mongolia suffered with the break-up of the Roman Empire.  Khunns and Kelts, two important Mongol ethnic groups, moved to the west and joined Germanic tribes. Friedrich Engels wrote, “When Germans came from Asia to the west, they brought knowledge of use of metal with them. This knowledge might have begun when they had started dealing with Romans.” This hypothesis has been corroborated in various ways.There is a gammadion symbol on the clothes of aRoman Empire miner in a picture that is included in the 23rd chapter of John Temple’s “Mining in World History”. What does that mean?

Iron works were a huge independent industry in 13th-century Mongolia. The army of the Mongol Empire fully utilised this development. Things that every soldier had to carry included armour, foot stall, horse bit, knife, sword, broadsword, and a sharpener. Obviously Mongolians made these themselves. This is part of the ancient history of Mongolian mining and metallurgical achievements.

Let me now describe the historical stages of modern Mongolian Mining on the way to its 90th anniversary. Among the first goals the Government declared in 1922 was “mining coal in a scientific way and making it the people’s fuel” and, later, in 1940, the Government stated its desire “to provide industrial units with electricity, to extract every kind of mineral and use them all possible ways”.

In the mid-1960s, the Party’s new commitment was “to give citizens and the country industries with efficient electricity and fuel, and to develop power plants quickly”. Many of these goals were achieved and today Mongolia is a country that exports coal, copper, gold, spar, zinc and wolfram. This is huge success story, but it is not over yet. We do not yet have a mining-metallurgical complex making best use of technology.

Our immediate goal is to have enrichment facilities, to process copper concentrate, impure gold and small amounts of cathode copper. Then we shall build units to refine gold and copper, process iron ore and produce steel.
We have to develop our power generation capacity to end dependence on others. It is regrettable that Mongolia imports energy when it has huge resources of coal, uranium, sun, wind, rivers and heat at ground depth. This lack is mainly responsible for the slow development of the mining industry. Before the 100th anniversary of mining comes round,we must take all steps to ensuresustainable development of the sector and to set upas many metallurgical complexes as possible and to become an energy exporting country energy.

How do we do this?

Ten years ago I wrote a book about sustainable development of our coal industry. Coal has become our main export mineral and opening upTavanTolgoiis seeing government and private companies from several countries in a fight for it. The Mongolian company Energy Resource has been remarkably successful in its coking coal mines in UkhaaKhudag and BaruunNaran. They have built mine sites with high productivity, water resource, drainage, apartments and transportation road in just 3 years. Similar development, with railroad connectivity, water resources, and chemical factory is certain at TavanTolgoi.

My recommended strategy was for gasification and liquefaction of coal and my dream is about to come true. The Mongolian government and Thyssen Krupp Udeh of Germany have signed a memorandum about a coal-to-liquid project. We need to actively follow up on this.

We can have spectacular results if we use the coking coal of TavanTolgoito build a large power plant to export energy and a chemical factory.The only investment we need is to turn Mongolian brown coal into electricity to export and into gas and liquid fuel. There is no need to grant any fresh licence to explore for and extract coal. This should be our strategy in the coal industry.
What about other sectors? We need to bringin technology that turns oil shale into gas and other chemical products.Countries that have big deposits of oil shale are working hard on projects that develop them. The USA, China, Brazil, Jordan, Estonia, Australia and Russia are all models for Mongolia in this.

The importance of oil shale was realized 10 years ago and was detailed in the book Strategy of Development of Coal Industry and Ecology. I am glad some progress has been made and private companies have invested heavily in this. MAK is close to building a factory and the Mongolian Science Academy and the Agency of Minerals and Energy have agreed to support a programme of the National Academy of Engineering Science. The programme will lead to a new approach to use of fossil fuels.

The traditional sources of fuel, energy, and heat have been coal, oil, gas and uranium, and among the alternative sources have been the sun,wind, water and heat at land depth. But the order is about to change with growth of ecological awareness. Reducingcarbon dioxide emission from burning coal is possible but the technology is expensive. The economics-based conflict will take long to be resolved, but there is no doubt eco-friendly uses of coal, even as it remains the main resource of energy for a long time, will be more and common. We need to build a large power plant using new technology.

There are reservations on building atomic power plants but they can prove to be a major means to providing the rising world population with electricity. Mongolia is studying how to use its uranium and the International Atomic Energy Agency is aiding us in this, so hopefully Mongolia will learn the ways of proper maintenance and produce safe nuclear power. Both ourneighbours are big users of atomic energy and we have to realise that producingatomic energy will help us become an energy exporting country.
Using the sun and wind is good for those whose energy needs are low andproduction of renewable energy will become cheap as technology improves. This must always be an important part of the Mongolian strategic approach to energy.

What do we have now?

Mining takes the Mongolian economy forward and is the main help in upgrading citizens’ life. In a way, mining gives Mongolia its international identity. Today   giants like Rio Tinto, Peabody, Shenhua, Petrochina, Centerra Gold, BHP Billiton, Areva, andThyssen Krupp are inMongolia, while our miners work with heavy machinery from Caterpillar, Komatsu, Liebherr and Russian factories. This shows how our mining has come to world class level.

Mongolian engineers work at foreign invested mines and Mongolian miners operatemines such as Erdenet, Bor-Undur, Erdmin, Baganuur, Shivee-Ovoo, Shariingol, Aduunchuluun, UkhaaKhudag,NariinSukhait, Monpolimet, Tsairt Mineral. When Erdenet factory opened, 70% of the employees were foreigners. Now 70% are Mongolian.However, at OyuTolgoiMongolian miners are seen only outside. It will take some time for them to learn the skills of working in a depth mine.

It is a happy coincidence that the world class mine at OyuTolgoi, to be the 3rd biggest in the world, has started working in the yearof the industry’s 90th anniversary. Erdenet was Mongolian mining’s pride in the 20th century, and OyuTolgoiwill be our miracle in the 21st century. MAK’s upcoming factory at TsagaanSuvarga will show what domestic investors can do.

Our gold industry would have been huge by now, were it not for the 68% tax. However, I am confident an eco-friendly gold industry will soon flourish again.

Our spar can compete in the world market and be an important export item. The future will see more resources and more markets opening.

A prerequisite for mining development is increased access to raw material. There are three ways to ensure this.
First, a resource map covering 50% of Mongolian territory and on a scale of 1:50000 should be ready in the next 10 years with help from the national geological research agencies and the government.
Second, explorationlicencesshould be granted quickly, once possible sites for minerals in demand are identified. This is linked to the third.
An exploration licencewill be subject to three conditions. No expense will be reimbursed if nothing is found after exploration. The risk will be the investor’s. However, if something is found and the investor does not wish to operate it, he should be reimbursed some of his basic expenses but the mine mustbe put to use. Lastly, in certain casesthe government and some private investor can work a mine as partners.

Building complexes

I have the following suggestions for speedy development.
•    Build a mining complex that utilises the ore fully with use of advanced technology and comes out with the final product for the buyer.
•    Develop OyuTolgoi into a giant mining complex.
•    Build on our own a smelter for the OyuTolgoi copper and a purifying plant for its gold.
•    Do not put all our eggs in one basket. There is no wisdom in expecting one country or one company to do everything here. Different investors should be welcome in different areas such as a copper smelter, a gold purifying factory, a power plant, transportation, etc. If the venture is intrinsically profitable, there will be no dearth of investors.
•    Insist on exporting final products, especially in rare metals.
•    Build a steel plant to utilise our iron ore.
•    Build a mining chemical complex, based on spar, phosphate, zealot and coal.
•    Set up a substructure of mining construction raw material.

Benefits of foreign investment

Mining attracts 85% of the foreign investment in Mongolia. The 17% economic growth is a direct result of mining. Mining products account for 95% of Mongolian export. Foreign direct investment is a major boost to economic development and we cannot discourage it. This investment can be in money, technology, management and marketing or in anything else. The investor takesall the risk and we are certain to get some profit from whatever his outlay.

Investment loans are different inthat the risks are the borrower’s who may end upwith a big debt. Foreign investment is essential for countries with little national capital. Not that we have to jump at every offer of foreign investment.Cash-rich countries want access to raw resources and we have to be careful with such proposals. But given our low capital, and the resultant inability to develop our asset, foreign investment should mostly be good for us.

Our strength is that we have enough resourcesto make any deal profitable for bothsides. Investors look for favourable tax conditions, a stable legal environment, good government, and a free and corruption-free economy. At the moment, sentiments are high against some proposed Chinese investment. We cannot be rigid about anything, but we cannot of course take any risks with national security. Some investment offers will be aggressive in intent and some attractive in content and the government’s wisdom will be seenin how can keep the right balance. We need to develop and mineral resources are our major asset. So we must use them to our advantage.

Analysts predict that the demand for minerals will increase by 25 percent in the coming decades. That makes it more imperative for Mongolia to decide how it will use its advantagein mineral resources into developing its competence skills. National productivity increases only when human resources develop, and the work force has more knowledge and experience, and the ecology is preserved. The result will be growth in social assets which is what we owe ourdescendants.

Our strategy should be to develop
•    Political stability
•    Attractive tax regimen
•    Good infrastructure
•    Stable judiciary
•    Manufacture of final products
•    Appropriate ways of environmental protection.
Development will be meaningful only if the gains from natural resources are distributed equitably. The surplus revenue can be invested abroad, or kept in foreign banks.

Human resource development in mining

In modern business theory human capital is more important than asset capital.Mongolia has a tradition ofdevelopingits human resource, especiallyin mining. Vocational training schools in several sectors were opened between 1939 and 1948 and these have produced a number of outstanding workers and experts.

A new school was established in 1950 to prepare professional miners. Celebrated  industrial workers such A.Barnii, B.Sanduijav, N.Davaahad all studied in Russia and the first Mongolian engineers were G.Tsevegmid andD.Badamdash, both of whom graduated from the Russian Mining University in 1957.

Until 1970 all higher education in mining was in Russia. The Mongolian National University opened its energy faculty in 1961,and the mining faculty in 1972. Hundreds of miners have passed out from there to help develop the industry.
Today’s mineral experts attend the MUST School of Geology, the School of Mining Engineering, theTechnical University inErdenet or in Darkhanor private universities. The number of students who go abroad increases every year.

The MUSTSchool of Mining Engineering is negotiating with universities in Canada, the USA, China and Germanyto enable its graduates to hold certificates from a foreign institution also. Talks are also on to set up atraining programme which will allow Mongolian students to attend a German institute.

Mining once meant courage, stamina, and strength. Now it is all about knowledge and skill. Companies and organisations aim at developing human resources to meet the demand of the times.
To honour miners who helped make mining the leading industry in Mongolia we should call the 90th anniversary “Mongolian miners’ pride -- the 90th anniversary”.What we are observing is not some company’s anniversary but that of the development of modern mining in Mongolia and this was made possible by miners who gave their life’s work to that end. Today 48,000 Mongolians work in the industry. There will be more. Glory beto them.

The ecology factor

We must ensure that any mineral activity -- exploration, building,or extraction –is free from having any harmful impact on nature, the environment,or workers. Manufacturingtechniques should be eco-friendly. Post-closure management of rehabilitation is complicated work, and requires much time and money. The success of a mine will be judged not just by how much profit it made but also by its safety record andcommitment to the environment.

Remedial activity must cover several areas and can take remarkably innovative forms. For example, an open cut mine can be turned into a lake for breeding fish, or an abandoned mine may be turned into a tourist camp.Such things can be seen in China, Australia or Germany. One principle all mines must adhere to is that they should not pollute the air and the water, or irretrievably destroy the land.

This can be done if certain laws of nature are observed without fail. These include:
•    Law of nature resource amount
•    Law of natureresource decline
•    Law of development of the natural system relying on the environment
•    Law of natural capacity decline of commodity products
•    Law of efficiency decline of energy
•    Law of compatibility between resource possibility and manufacturing capacity development
•    Law of increasing circulation of nature’s developed resources.
A sustainable development of mining is eminently achievable, if we have the strength of commitment and conviction and have faith in ourselves.
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