Opinion
Copper will take the crown from coal in 2018
2018-02-02
N.Ariuntuya
For Mongolia, 2017 ended as the year of Mr Coal. Economic growth surpassed expectations mainly because coal exports earned revenue beyond projection, despite an unanticipated slowdown in the second half of the year. Given the total reliance of our economy on the mining sector, we need a positive minerals market to come out of the economic crisis fast. We were lucky in 2017, but what lies in store for us in the year that has begun?
Coal is unlikely to repeat its performance, but not to worry. Copper seems destined to save the day for us, with prices going higher, and observers expecting the positive trends in the mineral commodities market to continue, and maybe even getting stronger. It is reasonably safe to assume that 2018 is going to be the Year of Copper.
The 2018 State budget expects MNT1.7 trillion of revenue to come from the mining sector, of which MNT1 trillion would be from copper. The red metal would surely bring in much ger revenues in the coming years, as an expanded Oyu Tolgoi produces more and Tsagaansuvarga starts extraction. Mongolian copper producers are sure to grab the golden opportunity.
There is a catch, though. Mongolia’s unfortunate experience has been that when the market is good, and both Oyu Tolgoi and Erdenet seem set to make money, some people do not like it and create trouble for the mining companies, leading to instability in their operations.
Political mischief making around Oyu Tolgoi has already begun. Seeds of mistrust and suspicion are being carefully sown by fresh criticism of the Dubai agreement, with Deputy Minister of Mining and Heavy Industry D.Zagdjav, leading the charge. Thundering in a local media interview that “There is a limit to our patience”, he warned that if Oyu Tolgoi does not make its promised contributions to society and the economy, and does not “fulfil its contractual obligations, its operations must be stopped. I shall fight for this to the bitter end.”
His senior Minister, D.Sumiyabazar, was quick to make it clear Zagdjav’s views were his own and “the Deputy Minister’s position is not the Government’s position”. He also warned that if Zagdjav continued to be publicly against the Government stand, “I shall have to ask for his resignation or dismissal”.
These were strong words, but their effect was somewhat diluted as Minister Sumiyabazar also revealed that a working group has been working on proposals to be submitted to the foreign investors to reduce the interest rate on the loan the Mongolian government took from them to pay for its share of investment expenses. He also said a review was being made of the benefits from the project and promised more information on this “when the time comes”. He himself favoured a new Board for OT, he told media.
All this makes it clear that the Government is preparing to begin fresh negotiations on the terms of the Oyu Tolgoi agreement, to extract more benefits for Mongolia. Every time this has been tried it was at the cost of progress with the giant project. The most recent led to work on the underground mine development being stalled for almost two years. At that time the market was not so positive, and Rio Tinto was not in a hurry to settle the issue, strategically preferring to be idle for the duration of the bad time. But finally, an understanding was reached and the expansion project was on course.
There can certainly be issues between shareholders but it is as certainly possibly to discuss them without obstructing work. It is in the interest of both parties to reach a fair and amicable solution without impeding operations in any way, particularly at a time when the market is good. A dispute between a reputable global company and a national government must not be allowed to degenerate into a street fight. In vying with each other to be seen as more populist, our two major politicial parties have not merely stalled any progress on mega projects, they have also made the people lose interest and faith in such projects, including Oyu Tolgoi, and this is what would make it so easy to create a disruption there.
At present, we have only Oyu Tolgoi to lift Mongolia out of its economic hole. It is the showpiece that persuades investors to have faith in our country. “Another guarantee of the (Mongolian economic) recovery is the ongoing $6-billion underground development project at Oyu Tolgoi” is how an article in this issue sums up the situation. Underscoring the importance of copper to the economy right now, MMJ has made the metal this issue’s focus, in the hope that Oyu Tolgoi and Erdenet will continue to be operated in a businesslike manner, away from harmful politicking.
The dispute over the 49 percent ownership of Erdenet is likely to pass beyond the country’s border this year. Public confidence in Erdenet was rattled by the Government announcement earlier this month that the State would take over full ownership of the company, with a certain part of the shares to be held by the people. Many now wonder if Erdenet would go the way of Erdenes Tavan Tolgoi. All will depend on how the Government handles the issue, if it has learnt anything from its past failures or if it makes the same mistakes. Inside this issue you will find suggestions by stock market expert D.Achit-Erdene on how such mistakes can be avoided.
Other major attractions in this issue include B.Tugsbilegt’s article on what recently brought Rio Tinto CEO Jean Sebastien Jacques to Mongolia for his second visit in 18 months, a comparison of royalties paid by Erdenet and Oyu Tolgoi, an interview with the head of the copper smelter project unit, and what pure copper producers Erdmin and Achit Ikht think about the smelter.