In 2020, the Bank of Mongolia (BoM) bought 23.6 tonnes of gold, 8.3 tonnes more than in the previous year, helping raise the country’s foreign exchange reserve to $4.5 billion, 4.2 percent more than what it was a year earlier. The amount of the difference is enough to meet import needs of the country for 11 months. P. Erdenetuya, Director of the Treasury Department at Mongolia’s central bank, tells L. Nomintsetseg more about how the BoM buys precious metals and how it plans to support gold mining.
What steps were taken to ensure more gold sales last year?
These included incentives to miners such as prepayment, long-term loans, and easier repayment terms – all aimed at boosting gold production. In addition, the Financial Regulatory Commission (FRC) issued licences to those trading in precious metals to formalize their activities. The BoM opened offices in Darkhan-Uul and Bayankhongor aimags, with assaying facilities and also the means to put digital signature on the results, and this helped miners to carry on operations and sell gold.
What has been the effect of increased gold buying on our foreign exchange reserve?
The precious metals we buy are sent for purification at a refinery registered with London Metals Exchange, and then monetary value is put on them. This usually works out to between $700 and $800 million every year and this amount becomes part of our foreign exchange reserve. In 2020, this amount reached $880 million. In the last five years, the BoM has purchased approximately 100 tonnes of gold and thereby put $3.7 billion into our foreign exchange reserve.
Did you face problems because of the pandemic?
We changed some procedures. Individuals, companies and commercial banks were allowed to keep precious metals with them for longer without any penalty, before submitting them for assay at the BoM, and then also for sale. This is one reason why our December gold purchase figure was so high. Pandemic-related restrictions have made movement of gold and their transport by air more expensive and more time-consuming, but we hope to return to normalcy before long.
What percentage of the gold sold to you came from companies?
About 60 percent. Most companies and individuals sell through banks. So far it was difficult for citizens with gold to sell to prove how and where they got it and so the BoM had problems with the royalty but now, with their registration at the FRC, all traders have evidence of origin. We have started to sell silver and gold -- of 999.0 purity and with clearly documented origin -- in the form of small balls and bars which meet international standards to individuals and companies who make jewellery items.
Lending by Development Bank of Mongolia to gold mining companies has been reduced since the responsibility was transferred to the Ministry of Finance. In 2020, you disbursed MNT120 billion in soft loans to them under the Gold-2 programme. What impact has this had?
Many of our long-term financing measures include repayment in gold. This has raised production capacity and as of November 2020, five times more gold was exported than in the same period of the previous year. The revenue earned was $1.7 billion, which was a great help in reducing Mongolia’s balance of payments deficit. We shall continue with the financing in 2021.
What is your gold purchase target in 2021?
We expect more companies to avail themselves of our loans, and look forward to increased gold output. Prices should also be high. We expect to be offered 23 tonnes of gold this year and more in the coming years. Precious metal purchase includes not just gold but fine silver also. The BoM has an agreement of cooperation with Erdenes Silver Resource and there should be some progress in its implementation this year.