Asgat gets a new owner but is it ready to be mined?

E. Odjargal

On January 7, 2019, G. Zandanshatar, Head of the Cabinet Secretariat, issued directives tothe Ministry of Mining and Heavy Industry (MMHI) and the Mineral Resources and Petroleum Authority (MRPAM) to transfer the ownership of the Asgat polymetallic deposit from Mongolrostsvetmet to the state-owned Erdenes Mongol. Claiming that the deposit would now be the property of “three million Mongolian citizens, all of them shareholders of Erdenes Mongol”, he noted that Mongolrostsvetmet incurred no loss when it lost the licence, since prospecting and exploration work on Asgat had been done with state money. He also asked for the deposit to be put into economic circulation before Tsagaan Sar, failing which senior officials of Erdenes Mongol would be charged with incompetence. 

Under an agreement signed between the People’s Republic of Mongolia and the Soviet Union in 1973, Soviet geologists conducted prospecting and exploration work in a Mongolian area about 100 km inside the border. A phosphate deposit was discovered in Khuvsgul, a gold deposit in Dornod and a silver deposit in Bayan-Olgii in the north-west of Mongolia, where it borders with the Altai Republic and Tuva, Russia.This last is the Asgat Deposit, located 170 km from Olgii, the center of Bayan-Olgii aimag, and 70 km from Nogoonnuur soum and 110km from Tsagaannuursoum where there is a transmission base. 

The first geological survey of the Asgat deposit was made by a Soviet team in 1976. Since then, Mongolian geologists have conducted general geological prospecting, done preliminary assessment of some ore zones and also discovered new ore zones. 

A joint Mongolian-Soviet team drilled the surface and took various underground samples from 15 ore zones spread over a 25-sq-km strip and found silver, copper, antimony, and bismuth. It reported the deposit reserves as:

Source: B. Bat-Erdene, a geologist

The deposit also contains lead (490 tonnes), zinc (2,092 tonnes), arsenic (4,229 tonnes), gold (356 kg), and cadmium (8.9 tonnes). This is why, despite the preponderance of silver, Asgat is formally known as a polymetallic deposit.

The presence in more than acceptable quantity of arsenic and antimony, both poisonous, is a major reason why the deposit has not been mined until today. B. Bat-Erdene, a geologist, says the present processing technology available in Mongolia is not able to separate these two from the ore. He has read that an Australian company can provide the technology, but cost will be a major consideration. It will also be necessary to take fresh ore samples.

Experts feel that it would be possible to have a small plant to annually process up to 70 tonnes of underground ore, but quite a few ecological issues would have to be cleared first,such as avoiding toxic emission from the processing plant, and disposal of the waste.  There is talk that the processing would be done in Nogoonnuur soum, close to the deposit, which has a Chinese metal processing plant currently idle. If modern and eco-friendly technology is imported from the West, it will have to come through Russia, which could also be a problem. 

Asgat is in north-west Mongolia and is part of a deposit which spreads over the border into Russian territory. The Russians are interested in some sort of joint mining on the whole cross-border deposit. One problem for Mongolia is that at present, the only access to the Mongolian part of the deposit is from Russian territory. If Mongolia goes it alone, with any kind of third-party cooperation, the Russians can close the road. In that case Mongolia would have to dig a tunnel through a mountain. These possible complications will have to be carefully considered before making any big move. 

The mining licence of Asgat was transferred in 1993 to the Mongolian-Russian joint venture MongolRosTsvetMet. Asgat Silver LLC was set up in cooperation with a US company but this made no progress. Then MS Asgat LLC was set up in collaboration with the Altai Republic of the Russian Federation. This, too, did not take up mining.  In 2006, Polymetal, a leading Russian company in silver mining and owning large petroleum, coal, gold and copper deposits, offered to invest in Asgat. The Mongolian Government found merit in the bid, on several considerations, and in December 2006, a memorandum of understanding on establishing Asgat Polymetal as a joint venture was signed in Moscow. One month later, the Parliament of Mongolia approved a list of Mongolian deposits of strategic importance, which included Asgat. 

This did not allow any foreign investment in it and in an interview with MMJ in 2018, I.V. Azizov, Russian Ambassador to Mongolia, noted that while it was unfortunate that the joint venture could not be established“the Russian side is ready to consider and study all potential and concrete proposals on putting the Asgat Deposit into operation”. It is thus clear that the Russians are still interested. Senior Mongolian political leaders have on several occasions expressed the view that cooperation with Russia is the most practical option in mining the deposit. Now that the Government is sole owner, things might finally move. But there is no possibility of putting the deposit into economic circulation before Tsagaan Sar. 

Is 100% ownership reason enough for the government to try running such a large project? Its lack of experience should persuade the government to involve the private sector in a big way, maybe totally staying away from actual operations. Adequate revenue can be assured by imposing certain special taxes.  But investors will not be interested if they are not sure how the government will act in the long term, and this is where our ill-tempered leaders do not command trust. 

The biggest concern, however, is the present low price of silver. From a peak of $50/oz in 2011, today it has fallen to $15/oz. Selling the estimated silver output from Asgat at this or similar price would not bring in more than $4 billion, less than the likely cost of extraction, given its hard geological structure.Even if prices go up, as they are expected to, the start of sales should be at the right time. Committing to start work in a month sounds courageous but is hardly sensible.