Showcasing a young and ambitious Mongolia

Khaliun Bayar reviews the Mongolian Day at the Asia Mining Congress in Singapore in April.

      With global demand for commodities rising rapidly, particularly in China, Mongolia’s several  world class deposits have been much in the news. The Mongolian Day at the Asia Mining Congress in Singapore in April was meant to showcase Mongolia as a great place to invest in, and speakers stressed its strategic location, the Government’s efforts to attract foreign investment, and the measures being taken to provide a safe business environment.  

      Delegates heard how the Mongolian government planned to develop infrastructure, the present lack of which is the foremost factor limiting the growth of mining and the economy. They were also told how aware it was of the need to have a stable legal and business environment and what moves are under way to provide this. For example, a Concession Law was passed last year allow private sector companies to participate in public infrastructure projects. The country also has a new ambitious railway policy, and will build a railway from Tavan Tolgoi to Russia through Sainshand and Choibalsan. Sainshand will be a hub for mineral processing industries, producing value added items to be exported to international markets through Russian sea ports like Vostochny.

      G.Battsengel, CEO at Mongolian Mining Corporation,  explained to the audience how this route to Russia will be complemented by private railway projects, including those of his own company and SouthGobi Sands, to carry the coal from their mines in South Gobi province to the Chinese border.

      Randolph Koppa, president of  the Trade Development Bank, detailed how the Mongolian banking sector has been changing according to the demands of the times. The large mining companies will bring their capital from abroad,  but small or medium sized ones will be able to access Mongolian banks for funds. TDB itself  can help companies with their IPOs. There are indications that the private sector’s needs for finance will be met locally. 

      Participants from Russia and some international investment banks wondered if, even with all the improvements promised, investors from elsewhere can do as well as Chinese miners have done in the last 3 to 5 years in Mongolia, especially in mining iron ore and sending it to China. Their perception was that Mongolia remained a quite difficult place to do business and the Government needs to do more to reassure and attract international investors.

      Mongolia is a very “young” country, with half its population aged less than 18, and 75 percent less than 35. Mention was made of how Mongolia was developing its human resources so that it can meet the needs of a highly sophisticated labour market in five years. Many Mongolian students receive Australian, German and Russian Government scholarships to study in their countries, while at home the Millennium Challenge Account and mining firms are providing opportunities for them to receive vocational training, particularly in areas related to mining. For example, OyuTolgoi LLC is running technical and vocational training courses to equip up to 3,300 people for mining jobs.

There is more to the economy than mining

      Graeme Hancock, Senior Mining Specialist at the World Bank office in Mongolia, urged policy makers not to overlook the need for economic diversification. Mining now contributes about 30 percent of Mongolia’s GDP, rising from 9% in 2002. Its share of government revenue has similarly grown from 5% in 2002 to 40% in 2010. Things will get better as Oyu Tolgoi and Tavan Tolgoi start commercial production.  Coal last year surpassed copper as the main export earner and the next decade will see Mongolian coal export surge more that 4 times over the 25 million tons in 2010. The euphoria should not blind us to the fact that commodity prices are unpredictable and that natural resources are exhaustible. More important is to have manufacturing industries which will create jobs.

      He also noted that the business climate in Mongolia is quite good, earning it a place in the top third among countries listed in  the Doing Business index prepared by the International Finance Corporation. Where Mongolia scores badly is in its excessive bureaucracy, in corruption in getting permits, and in the time taken for goods to move across the border.
The last is  a combination of an inefficient customs clearance process and the very nature of the infrastructure of border crossings -- particularly on the railway because of the different gauges in Mongolia and China. These border crossing constraints are likely to become much worse as the volume of mineral exports increases dramatically over the next 5 years. Major investments in border crossing infrastructure and processing efficiency are required in order to avoid serious trade bottlenecks which will limit Mongolia’s economic growth potential. Both of these issues add to costs which are a disincentive to new investment.

       Investors already know Mongolia is a land of mining opportunities with almost inexhaustible resources of  high quality, but they will be moved to act only when Government policy is seen to be promoting stability. An example is how the Ivanhoe Mines investment agreement immediately boosted confidence that had hit rock bottom with imposition of the windfall profit tax. Investors see their money as a bird that flies away at the hint of a disturbing noise. Their common perception is that Mongolia is not consistent and so is unreliable. The precondition for absence of  corruption, and social and capital market stability is better salaries for people like government workers, judges, and prosecutors.

Companies that will make Mongolia prosperous

      Six Mongolian companies participated in the conference. Most of them have confirmed JORC or 43-101 resources  and are looking for financing, with four of them listed in foreign stock exchanges.

      Erdene Resource Development (TSE:ERD) has molybdenum and copper deposits locates less than 200 km from the Chinese border. The Zuun Mod molybdenum deposit has 420 million lbs  of 43-101 compliant resource, with more likely to be discovered. Engineering studies have been started by Runge Group which now has an office in Ulaanbaatar. Peter Ackerley, the CEO, told MMJ that they are working on a feasibility study and need more than $500 million in investment.   

      Hunnu Coal (ASX:HUN) is targeting a Hong Kong listing in 2011. It has 90 million tonnes of coal in JORC resource in deposits in the world class coking coal region in the South Gobi. The project is located only 40 kilometres to the south of the Tavan Tolgoi coking and thermal coal deposit and approximately 6 km from the existing coal haulage road to China.
Gobi Coal and Energy Ltd has JORC coal resource of 322 Mt, and is currently in discussions on financing development of the Shinejinst Project so that it can begin production in late 2011. The project is in Bayankhongor province in south western Mongolia, 300 km from the Chinese Border. They have two more deposits in the same province. 

      Haranga Resource (ASX: HAR) owns five iron ore deposits in Mongolia, three of which are now under drilling. In 2009, China Investment Corporation invested $500 million to secure a 34 percent stake in their Selenge Project.  

     Gemcom and Runge have both recently opened their office in Ulaanbaaar.  Erdenet Copper Corporation is the gest Mongolian customer of Gemcom. Others among its 25 clients include Centerra Gold, Energy Resources, MAC, and Baganuur LLC. The last was its first client in Mongolia.

     Centerra Gold owned the Borro mine where mining was finished last year. They want to keep working in Mongolia, on several licenses in the central and eastern provinces. Ian Atkinson, Senior Vice president, told MMJ that last year they invested $8 million on exploration in central Mongolia and this year’s exploration budget in the eastern areas is $5 million.
    
The men who hope they will play key roles

        Three individuals look to the future and see themselves as contributing to the development of the mining sector in Mongolia.   

       Heiko Christoph: We are a German company, specialised in supplying ‘the human capital’. We want to provide a skilled work force for the expanding mining operations. We study and evaluate training systems in use and prepare improvements and  updates, to keep skills always sharp. We cover all areas of mining, including industrial safety and business management.

       Andrey Churin, Managing Director, Coal Business at En+ Group: With the poor state of  infrastructure in Mongolia, I think the  job of developing it is too much and too for any one entity. Building the railway is a major part of the planned infrastructure development, and this, too, is beyond the capacity of one company. The private sector has to be involved in the work, both as investor and builder. The Mongolian government should welcome private sector participation in this giant enterprise. Incidentally, this is what we did in Russia where the Government agreed to build infrastructure on a 50:50 basis with private companies. The current Mongolian situation also calls for such an approach, particularly because the work here is more difficult and challenging.  We have already offered our services.  

      G.Battsengel, Executive Director, Mongolian Mining Corporation: We did not come to this conference to seek funding. Our intention was to spread awareness of the current climate in the Mongolian coal industry among the investor community. I am going back with the conviction that investors are really and truly enthusiastic about the projects and  opportunities on offer in Mongolia, but they are wary of the stability of the legal environment. They see risks in a situation where the rules can be changed in the middle of the game. This is a matter of concern not just to foreign businessmen. National entrepreneurs like us, too, worry about an unstable legal environment. We don’t ask for tax exemption or any such favours, but  just want a level playing field where the rules are clear and not fickle.