The increasing number of conferences and forums in Mongolia and overseas to discuss the country’s mining industry indicates how Mongolian mineral resources are attracting more and more international attention. The focus in many of these events is on how to move these minerals from landlocked Mongolia to international destinations. Coal has become the country’s most dominant export item and thus plays an important role in its economic growth, but it fails to fetch the right price as there is no infrastructure to send it to international markets.
Coal giants gathered in Ulaanbaatar on April 7-8 for the inaugural McCloskey Mongolian Coal Conference. Over 170 representatives from overseas seeking to invest in Mongolian coal were among the participants, who also included foreign ambassadors. The experience of other countries in resolving their infrastructure problems was a recurrent theme. We give below brief summaries of what some participants said at the meeting.
Gerard McСloskey, founder of McCloskey group:
Demand for coking coal to go up and up
The current situation in Japan will have an impact on the world commodity market. Will nations continue with their plans to change over to nuclear power generation, or will coal-based plants get another lease of life? Japan cannot keep its earlier promise to reduce carbon emission by 25 percent if they build coal power plants. China will review its program. Germany and Britain will most likely shut down some of their nuclear plants. All this makes it very likely coal for electricity will be much more in demand.
Numerous coal deposits were explored in Queensland in Australia in the early 1960s, leading to the rapid development of the mining industry there. To me, it seems that history will repeat itself in Mongolia. New coal basins have been found also in South Africa, Zimbabwe and Mozambique. China has invested in Colombia to transport coal from South America along the Panama Canal. Companies are building railways throughout South America. Indeed, new railways are coming up in every corner of the world, not just Mongolia.
Russian coking coal producers will be increasing their output and plan several new rail links to reach this coal to Asia Pacific countries. Russian Railway has plans to increase its existing freight bearing capacity. Sea ports like Vostochny and Nakhodka will have to be expanded. I think we shall be hearing more about Zabaikalskay port in the near future.
Mongolia’s two neighbours use different railway gauges. Botswana is a landlocked country like Mongolia and also exports coking coal. It has built a narrow-gauge railroad to send the coal to Namibia in the west side, and a broad-gauge one to reach Zimbabwe in the east. There may be a lesson for Mongolia in this.
In Canada and Australia, the governments run the railways and is thus responsible for rapid and timely moving of coal to sea ports for export. This makes it easier for miners. In some other countries, like Colombia for instance, both the government and the private sector own railways.
Giant producers are changing plans as coking coal prices rise. For example Rio Tinto has said that 48% of its coal output will be coking coal. Not just China, Russia and Ukraine are also buying more coking coal. Steel manufacturers have insatiable hunger for coking coal. I am sure Mongolia is taking note of all this to decide on its coal sale strategy.
Zuan Yan, analyst at Bejing Shinhua infolink:
Mongolia well placed to be a major player Mongolia’s has massive reserves of good quality coking coal, and will have many interested buyers. China is the nearest among them and is also the world’s largest consumer of coal. Its rapid economic growth will continue, which means demand for power will grow exponentially. This and the needs of its steel producers will make China import more and more coal, and Mongolia looks set to be the second largest supplier of coal to China, after Australia. The present railway network in Inner Mongolia does not have the capacity to bear the increased load, and China plans to spend 230 billion yuan to upgrade it.
Anthony Milewski, vice chairman, Sharyn Gol:
Mongolia will need its own port in Russia The cost per ton of carrying coal from Sharyn-Gol to Vladivostok and Vostochny will be between USD53 and USD57, which is quite competitive, but only if coal prices do not fall. We are not sure, however, if Vladivostok will have the capacity to handle all the increase in freight. Since sending coal through Russian territory is viable, we need our own port terminal in Russia for our exports from there. Several sea ports in Russia have terminals owned by its coal producers, and we are seriously considering having a similar one of our own to export Mongolian coal to Japan, South Korea or India. There is talk that the Japanese-Korean-Russian Railway consortium vying for the Tavan Tolgoi contract has plans to build a port in Sovetskaya Gavan in the Khabarovsk area.
Pius Fischer, German Ambassador:
The banking sector needs to be stronger in Mongolia Bilateral trade between Mongolia and Germany stands at $140 million, an insignificant amount given Germany is the third gest exporting nation in the world. German mining professionals have for long been among the finest in the world, but we do not have companies strong and enough to compete with Peabody, BHP Billiton or Vale. However we supply a considerable quantity of mining equipment to companies in Mongolia. We have expressed our readiness to help expand the Mongolian railway network. In the area of finance, Deutsche Bank is among those chosen to arrange for the Erdenes-Tavan Tolgoi IPO. A German mining consortium is among the bidders to operate the eastern side of Tavan Tolgoi.
Mongolia is changing rapidly from being a predominantly nomadic society to a modern, industrialised and powerful mining country. Its economic future is bright, though one third of the population lives in poverty. One problem may be the Mongolian banking sector, which is not prepared to provide world class services and may hamper economic growth.
Jonathan Addleton, US Ambassador:
Mongolia must ensure good governance and transparency The volume of Mongolia-U.S. trade has been growing, and that is the best way to strengthen bilateral ties. The supply of mining equipment is a major part of U.S. exports here. Wagner Asia is one of best examples of how businesses have developed in Mongolia. Peabody is among the leading contenders for the Tavan Tolgoi bid.
I’ve been in Kazakhstan, South Africa and Cambodia, all three countries rich in mineral resources. Mongolia’s literacy level and its women’s contribution to social life give it a special strength. Its proud history and unique culture are also key assets. Mongolia should be serious about curbing corruption, and ensuring good governance, transparency and environmental protection. And it should learn from the experience of other countries which have grown by developing their mining industry.
Victor Samoleinko, Russian Ambassador:
Our main interest is to build railways in Mongolia This year marks the 90th anniversary of Mongolian-Russian diplomatic relations, so we have been partners for long. Russia is the most significant country for Mongolia. Three Mongolian- Russian joint ventures are pillars of the Mongolian economy.
Without a new railroad, coal from Tavan Tolgoi cannot be sold at the optimum price. That is why Russian Railway has united in a consortium Russian coal producers, Korean state controlled companies and Japanese traders to bid for Tavan Tolgoi. Russia is also upgrading its own railway network, to meet the increasing needs of its domestic producers. We shall also be building several port terminals in the Far East.
Some speakers have said that selling the coal straight to China is more profitable for Mongolia. I don’t want to argue with them, but the Government here has taken a decision and now Mongolia needs a cheaper way to reach its mineral output to international markets. Mongolia will be offered a 52% discount on tariff for export freight transiting through Russian territory. This means transport costs from Tavan Tolgoi to ports in the Far East will not be much higher than those from Tavan Tolgoi to ports in China. I want to emphasise that our main interest is to build all new railways in Mongolia, and Tavan Tolgoi is just a sub project.