Mongolians are happy to endlessly talk about their successes, and to rest on them. Thus it is no surprise that they are still full of how good 2017 was for the mining industry and exports revenue. No one seems to notice that almost no progress was made last year on any of the promised and promising mega projects, and no new major investment is in the pipeline. With no elections due, no change in government likely, and no pressure of debt repayment, will 2018 see an expression of the political will to take these projects forward?
This is the only running mega project, making major contributions to the economy in the 19 months since development of the underground mine, which holds 80% of the deposit’s total reserve, was resumed. Some $1.2 billion will be spent on this work in 2018, while the open pit mine will have $700 million OPEX and $150 million CAPEX.
There was talk of the State Budget Agency reviewing the underground construction feasibility study and the Dubai deal, but nothing much has been heard of either, except that the working group set up for the purpose would be led by parliament member Ch.Ulaan.
If work on the underground mine proceeds on schedule, test extraction will be started in 2020 and the first sustainable production will begin in 2021. Once everything is complete the mine’s production of copper concentrate will rise three-fold. Tavan Tolgoi
The Tavan Tolgoi project is usually mentioned in conjunction with Oyu Tolgoi, but their development has had very different trajectories. While that of OT is right on course, nothing has moved in the coal deposit, except for some easy extraction.
The Ministry of Mining and Heavy Industry (MMHI) stated last year that $3 billion would be spent on construction of a power station and a railway but we still do not know who will spend it and when the spending will start. The IMF expects the Mongolian economy to grow 8.1% in 2018, but this is very much contingent upon development of Tavan Tolgoi.
Investors are worried by the delay and the silence while, even worse, the project itself is being devalued. Chalco of China has been interested in Tavan Tolgoi from the very beginning but there has never been a clear response from the Mongolian side. China’s restrictions on coal imports make it unlikely that Mongolia’s exports will go beyond 30 million tonnes. Perhaps only a deal benefiting a major Chinese company can change this. At the moment, China’s “green” policy frowns upon truck-based transportation of coal inside China, and this makes it all the more important to build the Tavan Tolgoi–Gashuunsukhait railway. However, this railway project may be abandoned if reports that China has proposed to build a heavy-duty road in Mongolia, mainly to facilitate movement of coal, turn out to be true. The main consumers of Mongolian coal are not too far from the border, so the road transport inside China will be minimal, and there would be no need to download the trucks and reload the coal on a railway.
It has been a year since the Mongolian MCS Power Co. and Marubeni Corp. of Japan were named as builders of the 450-MW and $1-billion Tavan Tolgoi power station, but nothing much has happened on the ground. Some 75% of the power generated will be used at Oyu Tolgoi for at least $65 million, while the rest will be for the Tavan Tolgoi mine and other projects in south Gobi.
Last year Mongolbank purchased a record 20 tonnes of gold, 9% more than it did in 2016. The successful completion of the Gatsuurt project will supply 3-4 tonnes more gold to it. The budget amendment of 2017 indicated that the project would be ready to start being implemented, possibly because MMHI had already set up a working group to finalise the agreements on investment and mine exploitation to be signed with Centerra Gold. However, the government has now decided to reconstitute the working group and there was no further progress in 2017. There has also been no word on whether the Mineral Resources Professional Council has completed its review of the feasibility report of the project.
Centerra Gold will be able to use at Gatsuurt its existing infrastructure and operational assets in the nearby Boroo gold mine. This would account for $102 million of the total investment of $320 million, so the actual amount spent in the first two years will be $218 million.
During its mine life of 10 years, the Gatsuurt project will pay $400 million in taxes on estimated sales revenue of $1.7 billion. However, it could very well be that Centerra is no longer very much interested in the project. Throughout 2017, there were reports that it was trying to leave it, maybe because of the uncertainty in the political attitude. u Tsagaan Suvarga
Implementation of the Tsagaan Suvarga project would require $1.089 billion. Mongolyn Alt, which holds the licence, was promised $450 million by EBRD in 2012 to meet initial expenses, but the offer was withdrawn when a dispute over how much stake the government will hold in the project reached the constitutional court. Subsequently, Parliament decided that the Government would not be a shareholder and Mongolyn Alt has signed an investment agreement with the Government. It also expects $680 million of assistance from the German Government.
Progress has been slow, but the project has some significant things to show, all done with the company’s own funds. The 159.4-km long and 220-kV power line from the Oyu Tolgoi substation to the Tsagaan Suvarga substation was completed at a cost of $30 million in June 2017. There has been some progress in identifying water sources, and 98% of the processing plant equipment is ready. The concrete work for the primary crusher, the autogenous mill, and the ball mill is also complete. Production could begin next year. At the moment, the outlook is bright, and if the price of copper and Chinese demand both remain high, and if production of electric vehicles grows apace, Tsagaan Suvarga can hope to be a winner.
Crude oil refinery
Mongolia needs 1.3 million tonnes of petroleum products annually, all of which is imported. The refinery will produce 560,000 tonnes of Euro-4.5 standard gasoline, 670,000 tonnes of diesel, 107,000 tonnes of liquefied petroleum gas, and other products from 1.5 million tonnes of crude oil. The Ministry of Finance hopes to sell all this for $1.2 billion which will bring $150 million in taxes and fees.
The entire $1 billion required for the project is coming from an Indian soft loan, repayable over 20 years at 1.75% interest, with a 5-year grace period. Of the total money, $700 million will go for construction of the plant, and $300 million for construction of pipeline.
The refinery will come up in Dornogobi aimag, though the exact location is still to be decided. There has also been no final word on where the crude will come from. With funding assured, the refinery is likely to be operational before the other big projects. The feasibility study should be ready in March 2018, and the open tender for construction should also be announced around then.
Copper concentrate refinery and smelter
The copper concentrate refinery and smelter, to be built in Khanbogd soum, Umnugovi aimag, would require $1.5 billion. The Government will have at least 10 percent ownership without any obligation to invest. The plant will feed on 1 million tonnes of copper concentrate, to come mostly from Oyu Tolgoi. The plan, therefore, is to synchronise its completion with the beginning of production at the underground mine there.
Following a Government resolution calling for speedy implementation of the project, its feasibility study is being revised, and preparatory work on selection of investors and finalising agreements has begun. The Ministry of Mining and Heavy Industry says 10 companies and financial institutions have expressed interest in the project, though none has been named and no further details have been revealed.
There is also no word on how the vexed issue of sulfuric acid, around 4 tonnes of which is generated when producing 1 tonne of pure copper, will be resolved. There was some talk of Areva Mongolia buying 200,000 tonnes of the acid, but this can happen only if its uranium mine in Ulaanbadrakh soum, Dornogobi aimag comes into production in 2021.
Darkhan-Selenge metallurgy complex
One of the four proposed heavy industry projects is the metallurgical complex in the Darkhan-Selenge area. The feasibility study and environmental impact assessment, prepared by the Canadian company Hatch and the Mongolian company Ecoton respectively, with money from Mining Infrastructure Investment Support (MINIS), were submitted to MMHI in July 2017. The feasibility study puts the cost of the project at $700 million.
The complex will have an annual capacity of 500,000 tonnes of cast iron and 350,000 tonnes of steel and production could start in 2019.