The Mongolian Mining Journal /Apr.2022/
Gold exports have risen sharply in the last two years and reached more than a billion dollars. Gold exports are expected to get a big share in total exports again this year, offsetting the inevitable decline in exports of coal and other minerals. B. Tugsbilegt, reporter of MMJ, talked to A.Bilguun, Vice President for Business Development of Erdene Resource Development Corporation, about what Mongolia should pay attention to support the gold sector in the future.
Global gold prices are rising. Do you think the high prices would have a positive effect on the Mongolian economy? What can a country like Mongolia, seeking economic recovery, do to take full advantage of favorable market conditions?
The recent rise in gold prices is unlikely to have a positive effect on Mongolia. First, the rising gold prices mean high inflation around the world. For Mongolia, which imports most of its consumer goods, this is affecting costs.
Second, despite the increase in gold prices, Mongolia produces only 20 tons of gold annually, which doesn’t have much impact on economic growth. However, it will significantly contribute to expanding the Bank of Mongolia’s foreign exchange reserves. In 2021, China was the world’s largest producer with 320 tons of gold, followed by Russia with 300 tons. Domestic gold production will play an important role in stabilizing the MNT exchange rate and keeping inflation at lower level.
During this time when the export of coal, one of the country’s main export commodities, fell by 44% (2021), the short-term solution is to raise gold production, which will increase foreign exchange reserves and stabilize the dollar rate. In order to increase production, it is also necessary to accelerate gold exploration, boost geological reserves, and provide real support within the legal framework.
The central bank is pursuing a policy of supporting companies working with hard rock gold deposits. What are the opportunities for companies working on the main deposits to receive this support? What should the government focus on to support gold companies?
Currently, our gold industry has two main advantages and two main weaknesses. One advantage is that gold prices are very high and it’s relatively easy to raise funds from international investors due to the recent breakthrough development at the Oyu Tolgoi project. Another advantage is that it is possible to discover new high-grade hard rock deposits in Mongolia because our gold mining is still based on placer deposits. The weaknesses include the approval process by the government agencies. All ministries and agencies of the Government of Mongolia, except for the Ministry of Education, Culture and Science, are directly involved in the approval process of gold mining operations, and it is possible to block the project using any excuse. Second, there is a political risk that some civil society organizations might spread false information about the project and mislead the public which would result in halting gold mining projects.
The Ministry of Mining and Heavy Industry announced at a recent conference on “Accelerating the Development of Geology and Mining Sector” that geological exploration will be increased. What needs to be done by the government in the gold exploration sector?
The first step is to increase the granting of licenses. Exploration has come to a standstill in recent years due to the small number of exploration licenses issued. This will affect mining activities in the medium term. It takes a minimum of 10 years to discover a deposit. It also takes 15-20 years to develop the deposit. As long as exploration continues and known reserves increase, mining activities will never stop.
The average cost of discovering a medium-sized gold deposit in the world is $130 million. In Mongolia, too, exploration is very risky and requires huge amounts of funding. Foreign investment is essential for companies operating in this sector, as it is difficult to fully finance them from domestic sources. The government needs to create an investment friendly environment. However, this requires a stable and predictable legal framework and investment security, which could be trusted by foreign investors.
The launch of the Oyu Tolgoi underground mine undercutting in January was a major development for attracting foreign investors. However, more needs to be done to attract foreign investment and achieve concrete results.
The gold sector played a larger role in exports over the past two years. This year, gold exports and trade will play an important role in overcoming the post-epidemic crisis. How do you see the future of our country’s gold industry? Will it be able to sustain its role in the economy? We know that placer reserves are declining. Can hard rock deposits help regain the lost ground?
The number of gold deposits discovered around the world is decreasing every year. This main reason is rising costs and declining investments into exploration. Out of 100 mineral deposits discovered annually in the world, around 40% are gold deposits.
However, it should be noted that not every deposit discovered can be used. Only 75% of the total discovered deposits are used and it takes 15-20 years to move from discovery to mining operations. Therefore, in the future, the gap between gold supply and demand will only grow, and gold prices are expected to remain high for a long time.
In the last 10 years, Mongolia was not able to conduct exploration work and significantly increase its hard rock deposit reserves. It is possible to fully replace placer deposits with hard rock reserves, and create a more industrialized gold sector with less environmental impact than placer deposits. Unfortunately, we have not been able to conduct exploration work and establish new reserves for ten years. To see the potential of Mongolia’s gold industry, it would be enough to take a look at our two neighbors, who are world leaders in gold production.
Analysts predicted a slight decline in gold prices during the post-pandemic recovery at the end of last year, but the Russia-Ukraine conflict completely changed the situation. Does this mean that gold prices will keep growing? Even if the two sides reach an agreement, the unstable situation will continue for some time due to Western sanctions. In addition to increasing gold purchases by central banks, demand for gold investment funds is likely to increase. What do you see happening in the gold market?
Gold prices will stay high for some time to come. This is due to the sanctions and impact of the conflict between Russia and Ukraine, as well as disruptions in the supply of goods around the world, as well as rising inflation. In general, people’s confidence in cash is declining. Investment in gold is unlikely to fall until geopolitical issues subside and the global economy reaches the growth of pre-epidemic levels.
The ICMM and the World Gold Council announced plans to introduce green solutions in the gold sector and pursue greenhouse gas-free mining. What challenges does the mining industry need to address first to adopt green technology and responsible mining practices?
Not only gold, but all mining sectors are successfully implementing responsible mining practices and green solutions. Companies place a high value on ESG - environmental, social and governance - standards. The government of Mongolia and state agencies ensure that stakeholders and investors generate minimal environmental impact, improve rehabilitation and closures of mines, and increase benefits to society. This means greater accountability of mining companies.
One of the obstacles facing our country in the development of responsible mining is the local community. Key issues and activities that need urgent attention include explaining to the local community the differences between responsible and irresponsible mining, increasing investment and benefits, enhancing transparency, and jointly monitoring the mines, and environmental rehabilitation with stakeholders.