In the past 4 to 5 years, one reason of Mongolian economy has become attractive to foreign investors was related to the development of the OT project. Political figures and experts have acknowledged this.
By B.Tugsbilegt
At this time, the project developer Ivanhoe Mines changed its name to Turquoise Hill Resources and its controlling share was owned by mining giant Rio Tinto. Therefore, Mongolia has to deal with Rio Tinto, not only Ivanhoe Mines. Generally, behind the project developer, Ivanhoe Mines, stands Rio Tinto, which is one of the largest mining companies in the world. Now this is already known by all mongolians from Narantuul’s carrier boys to Zamyn-Uud’s cement carrier people. But we are still eyeing the OT project with suspicion. Because there are too many things that need to be reviewed and remain unclear to the Mongolian people.
Currently, the Mongolian Government and Rio Tinto have still not reached a final joint decision on project investment and control even though they have met many times beginning in February. The international press often reports that the future of the OT is cloudy because the Mongolian government wants to increase its share of ownership in the project.
But the OT project is very important for Rio Tinto, not only the Mongolian people. This is clear in a statement by the former CEO of the company, Tom Albanese, in which he said that “Our major projects are Pilbara’s iron ore project, Guinea’s Simandou and the OT project in Mongolia”. As for the first two projects, they are important iron ore deposits. But OT is a vital copper deposit. Rio Tinto knows OT’s real value very well. When the relatively poor Ivanhoe Mines started the project and Rio Tinto was investing it, they were aware that OT was more than copper. OT copper ore contained gold and silver. Today the reserve of silver has increasingly been exhausted in the world. We, however, are talking about what is called OT’s cpper projectt, which not only copper, but a deposit with many treasures. The reserve of copper is over 30 mt, the gold reserve is 1328 t, silver is 7601 t, and molybdenum is 81600 tons.
Surprise explanation of Friedland
A person, who played a major role in the dealing with the investment in OT was Robert Friedland, former Executive Chairman of Ivanhoe Mines. Friedland everywhere appeared he presented the advantages of OT.
During the project’s first stage in June, 2011, Friedland provided the following explanation at a copper market event: “Only revenue from the additional products will repay the investment and even bring in more profits.” He specifically mentioned silver and molybdenum. When he attended the investment forums, he explained that OT is not just wonderful, it is a even giant and a great project. He did not just mean this in a figurative sense. In other words, he was not just talking.
And Friedland said that another advantage is that as one project it would require the least operational costs in the world. According to the operational cost estimate, the cost to extract and process would be over 1500 USD/per ton. Treatment and melting and transportation costs would be no more than 600 USD/per ton. But the total cost is not over 2000 USD/per ton because the OT production process does not include treatment and melting costs. If the project can produce copper concentration for 3000 USD/per ton, it is regarded as having low operational costs. This is another advantage of OT that cannot be ignored.
Comprehensively understanding the real value of the project to Mongolia
Even professors who study Mongolian say they are not yet perfect in the Mongolian language. But to understand the real benefit from OT the state of Mongolia has to be perfect.
But currently it is doubtful that they can understand its real value.
According to the previous estimate, the government will receive a total of 29 billion USD revenue from OT over a 30 year period. This estimate assumes that the average price of copper will be 4408 USD/ton. If the average price of copper is higher, the revenue from OT will be higher. Of course, this estimate includes gold and silver revenue from OT assuming the average gold price will be 600-850 USD/ounce and the average silver price will be 10 USD/ounce. This is a much lower price compared to the long term outlook for the precious metals. But this estimate does not include revenue from molybdenum and other minerals. However, some MPs criticize this estimate as an outdated and unrealistic one, but at the moment there is no other estimate on how much revenue Mongolia will receive from OT.
So, Mongolians have to establish a laboratory to determine the mineral content (copper, gold, silver, and others) included in the ore of the Southern Oyu, Hugo Dummett, and Heruga deposits. Today, however, we see OT as copper; whereas, actually, it is a collection of many kinds of treasures. This is still not well known to the public. The government has to be fully responsible for this work, and cooperate with Turquoise Hill Resources, and Rio Tinto fairly and openly. This work cannot be delayed and it is inevitable that it will take place.
A lesson from the Erdenet
When Erdenet was established in 1978, Mongolia hoped to improve its economy by exporting copper concentration. Ironically, Erdenet’s operation was losing money, not making a huge profit. However, Erdenet copper concentration also includes a high content of gold and silver, which it exported directly free of charge. This added fuel to the flames. Erdenet’s tens of tons of gold and silver were exported to Russia free of charge. Probably some said we can now estimate OT’s gold and silver exports. It is also likely that the value of molybdenum exports. But other kinds of by-products such as cobalt, selenium, rhenium, tellurium, etc can be produced from OT copper ore. These by-products are already high priced in the world market.
Such by-products produced from copper ore is today highly priced per kg, particularly rhenium which is 2600 USD/kg, cobalt which is 20 USD/kg, selenium which is 100 USD/kg, and tellurium which is 110 USD/kg. Those by-products are used to improve steel production. Therefore, they are very important minerals for machine technology industry. Such precious metals in the Erdenet concentration were exported free of charge. This is a very sad fact. Now we are treating OT development as if we have forgotten the Erdenet story. Instead of emphasizing that OT will responsible for one-third of the country’s GDP, we have to guarantee the exploration of the mine’s ore. In addition to OT is possessing a high content of copper treasures, it is near to the market, has low operational costs, and many kinds of other mineral treasures.
Some may tell us that Mongolia reviewed this project carefully. In any case, one thing is definite, in the coming 30 years, we will earn much more than 30 billion USD from the OT project if we consider the above facts. It is vital that we make a comprehensive estimate of how much revenue will come here from the OT project in the 30 year lifespan of the project to the public, make this estimate available.