The Mongolian Mining Journal. Sep.2018/ 009
The overall impression at the end of the 16th Discover Mongolia, held in Ulaanbaatar on 6-7 September, was positive for the Mongolian mining sector. The annual international conference is a major platform for wide-ranging discussions on the sector, bringing together investors and members of the Mongolian Government. Companies present their projects on coal, copper, gold and other minerals, and the Government spells out its policies in the sector, while clarifying legal and tax issues. This year’s event was held when the mineral commodities market was in relatively good shape, and the general mood was that, to use an old phrase, Mongolia was again open for business. Even then, foreign participants made it clear that the market recovery was not enough to attract investors to Mongolia; they would wait and see what real actions followed the Government’s conciliatory and welcome words.
As always, the conference was inaugurated by the sector minister. D.Sumiyabazar shared his confidence on two issues: first, that the Tavan Tolgoi deposit would come into economic circulation before long, and, second, that the expansion and development of Oyu Tolgoi would proceed without a hitch.
On the part of Oyu Tolgoi, its CEO, Armando Torres, expressed his faith that the government would continue to support development of the project, which, he reminded the audience, was very much in its early stage. The first sale was just five years ago but even in this short time, OT’s contribution to the country’s economy has been significant. When extraction begins at the underground mine, the economic impact would be much stronger. Underground production is expected to begin in 2020, with expansion work now on fast track.
P.Gankhuu, CEO of state owned Erdenes Mongol, revealed that they are planning to build a briquette plant based on Tavan Tolgoi coal, to meet the needs of ger district households after 15 May 2019, when coal sales within UB would be illegal. There are plans also to build a gold refinery and expand the two Soviet-era coal mines -- Baganuur and Shivee-Ovoo – by selling fresh shares in the Mongolian Stock Exchange. Another priority project is to set up a $320-million steel refinery.
According to S.Ashidmunkh, Head of Economy and Investment at Erdenes Tavan Tolgoi, its IPO on a foreign bourse would come before the middle of next year. That would be a game changer, but ETT is not going to just wait for it. It is aiming to sell coal under the ETT brand name and expects to account for 20%-30% of total Chinese coking coal imports. Other targets in the next five years include a conveyor system in the mine, increased extraction, and railways and paved roads.
The conference also heard how new players are coming up. Oyu Tolgoi and Tavan Tolgoi would retain their primacy but Aspire Mining, Erdenes Resource Development, Xanadu Mines, Steppe Gold and several others mining companies are ready to make their mark. They are already well known in Mongolia, but as they prepare to move from exploration to extraction, they are certain to become household names. According to David Paull, General Manager of Aspire, his company expects to account for up to 30% of Mongolia’s total coal export before long. It is about to raise $15 million from sale of new shares, and there would be a considerable number of Mongolians among its shareholders.
Toronto-listed Steppe Gold plans to extract up to 150,000 ounces of gold per year. Its ATO hardrock gold project is progressing well and its low cost of operation will give the company a big advantage.
Another gold miner, Erdene Resource Development, which recently became the first dual listed company in the Mongolian Stock Exchange, is about to begin extraction at its Bayan Khundii and Altan Nar sites. Its CEO and President, Peter Akerley, revealed that they are working on how to meet some of their power needs with solar power. If they succeed, Erdene Resource would be the first Mongolian mining company to use renewable energy in a big way.
International uranium giant Areva rebranded itself as Orano in Mongolia earlier this year. Orano now holds extraction licences on two projects in Dornogovi -- Dulaan-Uul and Zuuvch-Ovoo.
Some speakers chose to temper the enthusiasm of optimists. Lion Manager CEO Hedley Widdup said the boom cycle has begun but not enough money has so far come into mining. Most of the new exploration is being done by junior companies, who raise money on the stock market while only 30 percent of the investment has so far come from major miners.
Stefan White, Portfolio Manager at Hong Kong-based LIM Advisors, was another who thought that investors were yet to be actively interested in Mongolia. Memories of the Government’s spats with Oyu Tolgoi, the ban on allocation of exploration licences and other such arbitrary actions still linger.
R.Khishignemekh, Senior Manager of International Tax Services at Ernst & Young Mongolia, surprised many with his assertion that taxes levied on the Mongolian mining sector were, contrary to the general belief, higher than the global average.
B.Byambasaikhan, Chairman of The Business Council of Mongolia, co-organizer of this year’s conference, stressed two things in his presentation. The first was that the Mongolian state policy continued to be unstable, and the other was that business associations in the country should cooperate with each other and be united to be able to influence government policy.
Having barely survived the mining bust cycle Mongolia must now make the best of the coming boom. Both the state and the private sector have a role to play in this. The sector minister asserted that the government would not tolerate illegal and irresponsible activities that are bringing down the sector’s prestige. That would certainly raise the people’s faith in responsible mining. Miners must win the trust of the local community, especially on issues relating to water usage and the pastureland. Only such sincere cooperation can lift the Mongolian mining sector from its present rut.