The Mongolian Mining Journal /Oct.2018 /
There is widespread concern at the imminent prospect of Mongolia’s placer deposits being left with no gold. At present their reserves are put at 57 tonnes, and as between 22 tonnes and 25 tonnes are annually extracted from them, the gold is likely to be exhausted by the end of the decade. The country will still have hard rock gold deposits holding 476.7 tonnes of reserves but putting them into economic circulation, and doing this quickly, would not be easy.
Of the approximately 1,500 mining licences issued, 567 are for gold extraction, of which 125 are for hard rock deposits that contain 90 percent of the reserves. According to the Mineral Resources and Petroleum Authority, as of now only five of the 125 licence holders have approved mining plans. As for the 442 licence holders in placer deposits, 123 have submitted their mining plans to extract 30.3 tonnes in 2018, and the rest haven’t submitted any plans.
Two main issues were discussed at the Gold Forum held in early October. The first was how to put hard rock deposits into circulation and the second on how to resolve the issue of the 260 mining licences, including 160 gold licences, that fall under“the law with a long name”. Opinion on the Gold-2 programme was divided, critical comments and words of praise coming in equal numbers. An MRPAM study showed how the amount of gold sold by the entities has been falling every year – from 8.5 tonnes in 2017 to 8.3 tonnes in 2018 and a projected 7.3 tonnes in 2019. This honest admission underscored the necessity of taking quick and long strides in the gold sector. The mining ministry planned to effect changes over a five-year period but it now seems even two years is too long.
The Ministry of the Mining and Heavy Industry (MMHI)wants to develop the gold sector as one of the major engines to reach “Mongolia’s sustainable development goals – 2030”. It realizes that the present dominance of placer deposit extraction will give way to hard rock deposit extraction. It expected this to happen in fiveyears, and in two stages. The net value of the annually extracted gold was planned to be kept above $1 billion.
Things have been going quite smoothly and gold has been annually contributing between $500 million and $600 million to the Mongolian economy. Now it seems the pace of reform has to be much quicker if gold worth the same value has to be extracted.
The challenges facing MMHI have to be met with proper planning and purposefulness. Broadly speaking, they include the following: ensuring that licences, once granted, are used effectively; using advanced technology for exploration;proper coordination among all stakeholders; and taking a clear stand on environmental and reclamation issues.
Gold-2 sets 20 tonnes as the minimum amount of gold to be extracted per year. M.Dagva, Advisor to the MMHI, emphasizes that there is no time to lose in putting hard rock deposits into circulation if this goal is to be achieved. Civil society resistance has stopped the Gatsuurt deposit from moving, even though exploration activities were completed in 2007, resources identified and the feasibility study completed. The Altan Tsagaan Ovoo project also faces strong local citizens’opposition. A high-level government official sees these protests as “competing for the wealth” but whatever the motives, they have effectively stalled progress.
Mongolbank purchased 20 tonnes of gold in 2017, the most ever, thus increasing its foreign exchange reserves by around $700 million. It hopes to purchase 22 tonnes in 2018, worth around $800 million. The gold accounts for 15 percent of our forex reserves. Mongolbank is establishing testing facilities in the two major regions of gold extraction – Darkhan and Bayankhongoraimags – to allow it to directly purchase gold on the spot. The central bank and the Precious Metals Assay Inspection Department are already exchanging information online.
One of the issues discussed at the forum was the expiry this year of the 2.5 percent royalty regulation terms, in effect since 2013, creating concern among extractors. The tax helped instabilizing the macroeconomic balance. However, the260 individuals who offered 66 percent of the gold sold to Mongolbank in 2017 paid the royalty, but did not report their personal income and paid no personal income tax. It helps the entities if the gold is seen as coming from individuals, but both Mongolbank and tax officials admit that this leads to a large amount of tax being lost. The Industry Ministry has submitted to the Ministry of Law and the Ministry of Financedraft proposals to extend the 2.5 percent royalty for a further period of five years, until 2023.
Several questions have been raised on the manner in which the Development Bank has financed parts of the Gold-2 programme. For instance, lending based solely on the licence puts no pressure on the entities to finish their work on time. The borrowers delay repayment and the Development Bank is finding it difficult to finance long-term implementation with short-term resources.
However, gold producers do need loans and Mongolbank, as regulator of the banking sector, is working on developing a policy on lowering interest rates.
With placer deposit resources getting fast depleted there is urgent need to take up exploration in real earnest. The Industry Ministry admitted at the Gold forum that the grant of exploration licences only through tenders has stifled exploration and revealed that a course correction is planned. Both the tender and the application systems will be used to grant licences and 8.5 hectares of land will be the minimum area for exploration. Thematic mapping on a scale of 1:50.000 is covering more territory and mineralization baseline studies are now being conducted nationally to identify large gold regions, but the private sector is yet to fulfil its exploration potential.
Apart from the haltin exploration activities in recent years, gold extraction prospects have also been hit by the practice of issuing exploration licencese to non-serious entities. Several speakers at the Gold forum called for grant of licences only to those who fulfil certain criteria, so that stable and professional work is ensured.
A review of documents at the General Police Department shows that on many occasions a company had rented land or signed agreements for conducting extraction activities even before all paperwork related to the issue of the licence were completed. This is as illegal assale oflicence.
In defence, gold miners blame both the multi-step process and the huge paperwork for loss of both time and money. Local resistance and artisanal mining are two other major concerns for them. Another challenge is the lack of consensus on appropriate reclamation. True, the quality of reclamation work has improved, but everywhere in mining areas one can see abandoned and destroyed land, and dried-up rivers and streams. According to the latest national survey, approximately 4,300 hectares of land have been left without reclamation. This is not surprising as reclamation of a hectare of land costsroughly $25 million. The Ministry of Environment and Tourism has done extensive environmental surveillance work in the past two years to identify regions that require reclamation so that those responsible could be held accountable.