Copper smelter proposed at Khanbogd will need $2 billion to build

5th of 6, 2017
Overturning the previous Government’s decision to build the proposed copper concentrate smelting and refining plant in Bor-Undur soum of Khentii aimag, the present Government recently approved an old suggestion by the Ministry of Mining and Heavy Industry to set it up in Khanbogd soum of Umnugovi aimag. The Ministry has begun to negotiate with possible investors in the plant that will process one million tons of concentrate annually. G.Ider finds out more about the project from B.Baatarsukh, head of the Heavy Industry Policy Department at the Ministry.

Why was the new site chosen, specially after quite some progress had been made on how to resolve the problem of sulphuric acid emission during smelting?
Around 500,000 tons of sulphuric acid would be produced when processing the estimated 524,000 tons of copper concentrate to be brought from Erdenet. Taking this out of Bor-Undur using the broad-gauge railway would be a tough job. Special container tanks would be required, and even then there would be various problems during both loading and unloading this huge amount of toxic substance.

The plant to come up in Khanbogd soum will have double the capacity of the one planned at Bor-Undur. It will process one million tons of concentrate annually, to produce 257,000 tons of pure copper. That should sell for an estimated $2 billion, money that could then be used to process other elements extracted from Oyu Tolgoi’s copper concentrate such as gold (5.8 tons per year) and silver (60 tons per year). OT is likely to move the sulphuric acid by the narrow-gauge railway directly to buyers, entailing no unloading at the Chinese border.

Does this mean Oyu Tolgoi will be connected with the Tavan Tolgoi-Gashuunsukhait railway?
Yes, but the specific details are still to be worked out. Our specialist is involved in the working group established at the Ministry of Road and Transportation.

The expert advice was to identify a long-term market for the sulphuric acid before building the smelter. Has a buyer company been found?
Areva, the world’s leading uranium exploration and mining company, will buy 200,000 tons annually once it starts work on the Zuuvch-Ovoo and Dulaan-Uul uranium deposits in Ulaanbadrakh soum of Dornogovi aimag, close to Khanbogd soum. Erdmin and Achit Ikht, two domestic copper cathode plants, will also use it.

When extracted, the methane between the seams in the Tavan Tolgoi coal deposit can help deoxidise the sulphuric acid. More studies are being done to see how sulphur dioxide can be deoxidised to produce pure sulphur,  the market price of which is around $100.

Will the sulphuric acid not be exported?
It can be, but there are other options for its commercial use. These include production of pure sulphur and of nitrogen fertilizer, or linking the copper smelting project with the one to extract gas from coal. Basically the ammonia obtained during gasification will be mixed with sulphur dioxide to produce nitrogen fertilizer.
Nitrogen fertilizer has the potential to be an important product from Mongolia, but first our Ministry has to study the required technology of production and if it will be viable here.

Is it reasonable to expect the copper smelter to be in operation by 2020?
Construction will take 3-4 years, but first we have to find an investor, and start construction.

The Government wants to own at least 10% of the plant without making any investment. Will that be all its involvement?
There are good reasons why the Government wants to have 10% free ownership. First, the investment agreement between the Mongolian Government and Oyu Tolgoi states that “Oyu Tolgoi shall primarily supply the concentrate in case a copper concentrate smelting and refining plant with State participation is built”.

Second, foreign investors see it as a kind of being under State protection, assuring a favourable legal environment, access to land and development of infrastructure. All these are easier with the State involved as a part owner.
Has a decision been reached on the technology to be used? I remember that specialists at Erdenet favoured the SKS technology from China when the smelter was planned to be built in Bor-Undur.

Yes, this was selected as both operationally and economically the most appropriate after careful assessment of technologies currently in use. However, it will be the investors’ decision, though we shall press for the most reliable, eco-friendly and modern technology.

Oyu Tolgoi submitted a research report on construction of the  smelter on September 1, 2016. Did the contents of this contribute to the change of location?

The report was prepared with help from well-known international companies and comprehensive studies. It assessed and compared the merits of four possible locations – Erdenet in the northern region, Bor-Undur and Sainshand in the eastern, and Umnugovi in the southern. It favoured a plant with a processing capacity of one million tons with the concentrate coming from Oyu Tolgoi, and thought Erdenet would be a good site for a smelter-refinery with a capacity of 500,000 tons, but was not enthusiastic about the suitability of either Bor-Undur or Sainshand.

We are currently most receptive about the 1-million-ton option but are keeping in mind that if and when the Tsagaansuvarga and Kharmagtai deposits start operating its capacity would have to be raised to two million tons.

The Orkhon Govi and Kherlen Govi projects are on temporary hold following some social protests even though their feasibility studies have been completed. Parliament is expected to discuss what to do with them. Could you provide any information on this?
Umnugovi aimag already has, or is all set to have, large industrial projects such as the coal processing and the power plants at Tavan Tolgoi, the Oyu Tolgoi mine, the coke chemical plant, and now the copper smelter. Meeting their long-term water needs from underground sources could pose a problem. The Government wants large plants to use surface water as much as possible, and in accordance with this policy, the Ministry of Environment  and Tourism has been tasked with finding the possible options for the Orkhon Govi, Kherlen Govi and Ongi Govi projects on an urgent basis. The preliminary feasibility study is ready but we need more detailed  studies.

There is talk that a special unit in the Ministry of Mining and Heavy Industry will be made responsible for the smelter project. How will it go about the job?

All Ministries are working together in a coordinated manner on this important project. We shall cooperate with Oyu Tolgoi on a detailed study of the plant’s location in Khanbogd soum, and on the water exploration and other studies.
After that we have to select the investors. We have already received the first offers.

How much will the investment amount be to build the plant?
A smelter and refinery with a capacity of one million tons will require between $1.5 billion and $2 billion. We are looking for investment from abroad from a party with a long-term commitment.

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