G.Iderkhangai
The revelation by the Mineral Resources and Petroleum Authority that for quite some time now there has been no new registration of any western investor in the exploration sector merely confirms what is common knowledge. Serious and tenacious American, Australian and Canadian investors have left Mongolia. They have moved to countries with fewer risks, the major ones among these being political instability, a volatile legal environment, and shifting terms of investment.
Today, a total of 3,066 (as of Feb.2019) mining and exploration licences are owned by 1,888 entities, of which 16% are joint ventures and just 6% foreign invested. Companies from China, Singapore and Hong Kong account for 60% of this 6%. Broadly speaking, they would all be Chinese companies.
In a way, it is good that our neighbour sees working in Mongolia"s exploration sector as a safe bet, but given the underground wealth we possess and which languishes without seeing the light of day, the government must take firm steps to attract Western investors with proven expertise and successful track record.
The best possible sector to attract foreign investors is minerals exploration. In an interview in this issue, the CEO of MIBG, A.Bilguun, points out that discovering a new deposit in Mongolia would bring in returns not to be expected anywhere else. However, we seem to be saying just the opposite.
The 1997 Minerals Law opened wide the doors to investors in the exploration sector, and investment increased from year to year, peaking to MNT320 billion in 2011 and 2012, from MNT115.6 billion in 2007, only to stand at MNT 132.4 billion in 2017.
In 2009, the number of exploration licences was 5,177. However, the sector had been punched by some of the 2006 amendments to the Minerals Law and by the 68% windfall profits tax, only to be knocked out by President Elbegdorj’s ban on grant of licences in 2010. The authorities justified the ban as an effort to protect the land from the "aggression" of mining, as licences at the time covered more than 40 percent of Mongolian territory. However, no one has accepted responsibility for the resultant decline in investment and the downturn in the exploration sector.
The geology and exploration sector was stagnant for the five years of the ban, with a dramatic drop in investment, and brave and strong investors leaving the country. Of course, there were external factors also, such as falling prices of minerals around the world at that time, but the exodus of investors and the drying up of investment could have been avoided if Mongolia had acted sensibly on its internal resources.
In 2015, exploration licences started to be issued again, and some fresh investments were made, lighting a candle of hope, but next year the application system was cancelled, and in 2017, exclusive use of tender bids with strict criteria to grant licences began. This has not proved to be very effective or popular and the sector is demanding resumption of the application system, but the Government has been non-committal. In mid-2018, the sector Ministry talked about amending the law to bring back the application system, but nothing came of it.
Both exploration and investment are likely to slow down if we persist with the present system of granting licences exclusively through a selection process, mainly because the mechanism is time consuming with multiple stages. There are very few domestic companies with the resources to cross the high threshold and bid at the tender, leaving the floor free for only those with financial power, and coming often from non-mining sectors. The government is happy that it has achieved its goal of putting MNT 20 billion from the exploration sector into the budget in 2018, but it is more important to quickly take an equitable decision on the growing demand for returning to the application system or at least allowing it under certain conditions. At present, geologists appear to act like "hired workers" for the investors participating in a tender. It is quite a case of he who pays the piper calling for the tune.
Things are made worse by the lack of detailed information on the areas offered, and also by allowing only selected areas to be explored. The work of geological mapping must proceed faster if we want investment in new areas, with the potential for new deposits to be discovered. The catch is that lower investment means lower resources to do such work and the less such work is done the lower the investment.
Altogether 132 new deposits were discovered in 2012, 207 in 2013, 171 in 2014, 116 in 2015, 102 in 2016, 95 in 2017, and a slightly higher 106 in 2018. However, 42 of the deposits discovered last year were of gold, while only one was of uranium.
Incidentally, uranium exploration has almost been abandoned following protests by misinformed local communities that uranium mining is toxic. This development has emphasized the need to improve the legal environment related to radioactive minerals. Uranium is just another mineral, so it should be regulated in the same manner as other minerals are by the Minerals Law. The present unsatisfactory legal environment has led to stagnation in the uranium sector, which at one time spent around $40 million annually on exploration work. It is also time to put into economic circulation deposits prepared for use, such as Dulaan-Uul, Zuuvch-Ovoo and Khairkhan.
To go back to gold, the large number of deposits discovered is a direct result of the Gold 2 programme giving a boost to exploration and fresh studies. However, these are all placer deposits where extraction is easier and cheaper, and so their mineral contents are at a risk of being depleted in just two years. Faced with that prospect all our efforts must be concentrated on the discovery of primary gold deposits.
This is not to suggest that the government ignore exploration of other minerals like rare earth elements, and coloured or mixed metals. Actually, the stress should be shifted to finding minerals other than coking coal and such common ones, and to earmark areas where prospecting and exploration for them might be most successful. Ideally, geology and exploration work should be much ahead of extraction, but as the Deputy Director of MRPAM, M.Enkhjargal, says in an interview in this issue, enough is not being done at the state level to make that happen. Indeed, most of all the recent deposits registered were discovered with private capital used in exploration.
According to figures issued by MRPAM, the number of valid licences as of 31 December 2018, was 1,405 in exploration and 1,673 in extraction. That there was more of the latter than of the former clearly indicates that the sector is more focused on mining a deposit rather than on discovering new deposits and thus increasing national resources and laying the groundwork for the future.
Another significant development in recent years often goes unnoticed. Once extraction begins, most mines do not any longer pursue fresh exploration to extend mine life. An honourable exception has been Erdenet Mining Corporation, which last year reported that continued geological and exploration work had found enough new resources to increase its mine life by a further 20 years, meaning it would be active for another 60 years from now. One wonders how many other mining companies would follow the way shown by Erdenet.
Despite the bleak scenario of investment in the geology and exploration sector, some companies are trying hard to attract foreign investment. You will read in an interview in this issue how state-owned Erdenes Methane is looking for foreign investment in the exploration of coalbed methane.
This year is the 80th anniversary of the development of Mongolia"s geological sector. The Ministry of Mining and Heavy Industry intends to mark the occasion by revising the Law on the Subsoil and establishing the National Geoscience Database (NGD). We wish it success on both counts.
