The draft State policy on the mineral sector, now before the State Great Khural, is likely to be discussed and, many hope, approved during the Fall session. Three independent working groups helped prepare the draft. One of these was led by B.Batkhuu, director of Policy Implementation Department at the Ministry of Mining. N.Aruintuya of MMJ talked to him to know more about the draft.
Your group was responsible for basic research on the general contents on the draft. How do you envisage the mining sector developing in the coming 12 years?
Early on, we decided that the correct order of our work should be the following. First, we would formulate the policy, then write the law based on that policy, then outline programmes based on the law, and finally identify projects to implement the programmes. The policy, thus, doesn’t concern itself with figures and numbers, but marks the direction.
We began by studying the policies of other countries, starting with our neighbours and moving from thereto countries in a similar stage of development as Mongolia. The 10 such countries whose policies we carefully studied included Tanzania and Kazakhstan. We also looked at the policies of advanced economies such as Canada and Australia but didn’t really think of them as suitable models.
We then compared conditions in various areas of the country. Our northern and central areas had been studied carefully in the socialist days, while since the democratic revolution, areas close to the market, or with developed infrastructure have received more attention. This means areas along the railroad have been studied well. We know conditions in the southern region which is close to the Chinese border much better than those in the western region. The south eastern region falls between the two.
As for the environment, the State policy is directed towards protecting forests and river sources. On the map, this would cover most of the northern and central parts of the country. Khuvsgul, Bulgan, Selenge and Khentii aimags have lots of forests and sources of rivers. If that is how the northern part stands, the southern part needs to be linked up with the infrastructure. The water issue is also getting harder in the south. The main source of water is underground and we want to restrict its use as much as practicable. Mining operations in this area must have technology to re-cycle used water.
The draft is designated to protect the northern part. Prospecting work will continue to take place in the south, south east and south west areas and geological survey will continue on the whole territory. 1:1000000 scale mapping is suggested, while 1:200000 scale mapping work is 90 per cent ready. At present, 30 per cent of the 1:50000 scale mapping work is done and it will be 40 per cent in the next four years. These are plans for the near future. More money is needed to improve the quality of detailed mapping, and the MNT4 billion budgeted for 1:50000 scale work last year has been increased to MNT7.8 billion this year and to MNT10 billion next year.
We also recommend issuing licences through the tender selection process. The State will announce areas offered for prospecting, and then float a tender, granting licences to successful bidders. Proper mine closure and rehabilitation will be enforced through enhanced supervision. The State will carry out rehabilitation of abandoned areas.
As I read the draft, mining operations will face a lot of restrictions. Am I right?
Sustainable development calls for a balance between the commercial and environmental aspects of mining. We have to admit that so far in trying to develop mining, we have stressed too much the role of the small-scale, just as China did, with the same result that mining has become a household industry. This is very wrong. We need to have a State policy to discourage smaller mines and support the ger ones. The idea is to develop systematically, not to restrict everything.
The Minerals Law passed in 1997 allowed those who came first to get licences first. This was right at a time when the economy was in a critical state and there was a need to attract investments. The law did lead to foreign investment coming in and to the launch of Oyu Tolgoi. This was no curse but was an achievement. Many other foreign invested companies took the risk and did prospecting here. Many of them didn’t find anything. We never talk about them, but only about those few that were successful. Our policy was not wrong but we erred in not understanding that some time we had to say, “That’s enough, now let’s slow down.”
Today, we need systematic and planned prospecting. Since there are so many seriously interested in this, selection has to be through tenders. And if a prospecting company does find something, it will have superior rights.
The draft Minerals Law initiated by the President has been withdrawn, as the general opinion was that it was more suited to more developed countries. However, there will have to be amendments to the Minerals Law passed in 2006 which is now in force.
The issue of deposits that are strategically important continues to be controversial. Your draft also doesn’t have any clear definition. What are your recommendations?
Radioactive elements (U, Th), rare earth elements and underground water are to be considered strategic despite the size of their reserves. Some countries pay more importance to what they have in greater quantity. After long discussions we decided to follow their logic and included coal, copper, iron and gold as our strategic minerals. This may change during parliamentary discussions. I agree that the current way of defining strategically important deposits is wrong, and should be changed.
The President favours including iron ore in the list of strategically important minerals. Our fluorspar resource should also, by your logic, be there. If we go on like this, everything will be strategically important, won’t it?
We are talking about two different things here. Radioactive minerals, rare earth elements and underground water will be strategically important because of what they are, no matter what their availability is. The other consideration is the size of reserves. Copper, coal, iron and gold will be included in this category. That is not to say all deposits of these four minerals will be declared strategic. How to define the term in law is a different issue. Different countries have different practices. Copper is strategically important in Chile but, still, only the gest deposit belongs to the State and the others are in private hands.
We came across a study that revealed that in countries such as Qatar, Saudi Arabia, Chile, Kazakhstan and China, which have all developed hugely in recent years, State ownership in major deposits is minimum 50 per cent. Of course it’s not just about State ownership. It can also be the domestic private sector. But countries where State ownership is less than 50 per cent are not developing as much. This includes several African countries. When we say State ownership, we’re not talking about MPs owning deposits. For example, in Saudi Arabia, businessmen are members of the board of the gest mining company.
It was a very interesting study, done by university professors. We came across it when we had almost decided to list only radioactive minerals, rare earth elements and underground water as strategically important and leave the others. The general principle of this study is now included in the draft. The implementation mechanism should be determined after studying the examples of these countries.
The draft policy says production of yellowcake (uranium powder) will be supported. Just what would be done?
Yes, the draft does recommend support for yellowcake production. We preferred the term radioactive mineral to just uranium. Almost every country has radioactive minerals, but in many the amounts are negligible. Mongolia’s resources are one of the highest in the world. We are not going to process this resource in Mongolia because of safety concerns. Nor will we build an atomic power plant. We shall only produce yellowcake for export. There are several uranium deposits other than the Mardai deposit that was operated during socialism.
The President has strictly prohibited underground storage of nuclear waste and establishment of atomic power plants. Yellowcake doesn’t require isolation or enrichment of uranium. Uranium can exist in any mineral, anywhere. It’s dangerous when it’s isolated and enriched, but not in its natural form. The difference is crucial. We will support yellowcake production, and those against this must understand that science tells us there is no risk in this.
You said the document is not interested in providing numbers and figures. But one article says there will be restrictions on mining coal with sulphur ingredient higher than 1.5 per cent and a total ban on mining coal with sulphur ingredient higher than 3 per cent. Does this not go against what you said?
This is a rare instance of when we used specific figures. Incidentally, we suggest exactly what the practice in China is. If we aren’t specific about what will be allowed, those who are cast away from China will come to Mongolia. There was a time when almost every household in China did some mining, and everyone processed copper at home. There were also too many small steel plants. Then the government closed down all the small plants, and supported the ger ones by implementing such restrictive policy. We do not want such small plants to come to Mongolia. Another article which gives a specific figure is about the minimum area on which geological surveys will be made annually.
Some would have liked the draft to specify the names of projects that are planned...
It’s not necessary. Other countries don’t do such things. If a new deposit is discovered, the policy will need to be changed.
A JICA study says that if too many deposits in Mongolia are mined at the same time, the supply of coal will exceed demand. Isn’t it necessary to regulate extraction to prevent this?
I said earlier that programmes will be decided upon, and such details as you mention will be covered in these. For example, Russians are buying our spar, but it’s not reaching Japan and Korea where the demand is great. Thus, a programme for spar exports will have to be formulated. There are 200-300 licences for coal, but the export amount determined by the Feasibility Study Report is 200 million tons. These things will be regulated by the relevant programme. A policy cannot concern itself with such issues.
A suggestion submitted by a scientists’ team led by Ch.Khurts was very detailed, with articles covering almost all specifics about a deposit. It came close to a policy document in Tanzania which seeks to increase the national GDP by 10 per cent. We invited an expert with the help of the World Bank and had him examine our draft. He agreed that a policy document should set out principles and was not an action plan.That is why we have avoided including specific numbers in the draft. The basic research team, along with the scientists’ team, met Mining Minister D.Gankhuyag, and discussed every article of the draft with him. Only then was it submitted to Parliament.
What changes do you envision in the Minerals Law?
Strategically important deposits will be redefined, and selection through tender would be made the way to grant licences.
Will these and other amendments come after passage of the policy document?
I don’t think so. Once radioactive minerals are defined as strategically important, they will be regulated by the Nuclear Energy Law. I don’t know if there will be need for another law on rare earth elements or if there will be an additional chapter in the Minerals Law. That’s to be discussed later.
I didn’t see much about value addition and processing in the draft policy, even after all the clamour for them?
I studied these issues carefully when I was Director of the Mining and Heavy Industry Policy Department. Honestly speaking, Mongolian conditions make it very difficult for processing plants to be viable. It’s especially true for Sainshand Industrial Park. That project was initiated by the Ministry of Road and Transport with an eye on the planned railway. We had told them of our reservation that such a project should not be announced, as they did, without any feasibility study. Intentions have to be backed by proven capacity. We didn’t go for a confrontation as supporting the railway policy was also important as a bid to lessen our dependence on neighbours.
Now Bechtel Corporation of the USA has submitted the results of its study on Sainshand. These say only four out of the nine plants planned to be built at Sainshand could possibly work, but will not be commercially profitable. These are the copper, iron, coke and cement plants, and none of them would be able to make a profit without government subsidy. This support can be in the form of total tax waiver.
Judging strictly by economic merits, the Sainshand Industrial Park is a mistake. But it is also true that there seems to be no other way to take an ambitious policy leap. Our railway policy will continue to be influenced by our two neighbours. A few plants will be built at Sainshand, but finding markets for the coke is important. We can take Oyu Tolgoi’s copper there for enrichment, but iron should remain in Darkhan.
The gest risk for us is from China. Our relative sizes restrict our options. However, China’s policy is not directed at Mongolia, but has global application. In the 1980s, China accounted for 47 per cent of the total world production of rare earth elements, with the rest coming from the USA, Russia and Australia. Then China reduced the price of rare earth elements and made the sector unviable in other countries, gradually claiming 97 per cent of the global market share.
They have been doing the same in copper. Copper smelters work in two ways: extracting the copper and purifying it. Smelting copper is a very harmful and costly process and advanced technologies developed to minimise the damage are making the cost even higher. China has established so many copper processing plants, and has reduced costs drastically, forcing smelters in other countries such as Chile, the USA and Australia to bankruptcy.
Does this mean that a copper smelter would not be commercially viable in Mongolia? Would making copper concentrate be easier and more sensible?
As I said, the commercial unprofitability of a copper smelting plant would be largely because of Chinese policy. Producing copper concentrate is much easier and, in the present case, more profitable. Our thinking is this: China won’t buy the copper cathode we produce for it has lots of processing plants of its own. Therefore we will need to process the copper cathode once again. If we smelt the cathode, then many small plants can be established to make final products like Erdmin does. Then it will be profitable.
An iron plant will be more efficient than a copper smelter. Iron was the main industry that helped South Korea develop. Every country needs iron. If the government uses part of the bond sales proceeds to build an iron ore wet processing plant, we can, over time, build the next-stage plants.
What about the Burenkhaan deposit?
It should be operated.
Since it is in the Northern region, will this decision not be against the policy for that region?
It is not in the policy area. As you may know, I was governor of Khuvsgul aimag. The 50th parallel divides the aimag into two near equal territories. There are no mineral deposits north of that line, where the main rivers have their sources and Lake Khuvsgul is located. And the area is full of forests. Therefore I prohibited any mining activity north of the 50th parallel when I was governor.
However, Burenkhaan is located south of the 50th parallel, 80 km from Lake Khuvsgul. I went for prospecting work with Russians in that area. The Ongilog deposit is located right by the lake. Khuvsgul aimag doesn’t need many deposits. What it has -- Aspire Mining’s coal deposit, the molybdenum deposit and the Burenkhaan phosphorus deposit -- is enough for this area.
To go back to what we were talking about, the gest problem in building a copper smelter in Mongolia is the extraction of sulphur during the smelting process. Since sulphur is very harmful to the environment, it is prohibited to dump raw sulphur anywhere. It has to be processed in a special way and this produces sulphuric acid. It, too, is very harmful and there are only a few ways in which it can be purposefully used. Erdmin uses small amounts of sulphuric acid that way.
For one, it can be blended with phosphorus to make fertiliser. I think China will buy it because its northern region is in great need of fertilisers. However the transport cost would be very high, but much would depend on the location of the smelting plant. It can be in Erdenet, Choir or in Sainshand. Even if it’s in Sainshand, there won’t be much profit because of the changes in the railway gauge.