By G. Iderkhangai
A good model of cooperation in the minerals sector
On July 10, 2021, the management and personnel of Erdenet Mining Corporation, a state-owned enterprise, received the honorary title of National Hero of Mongolia from U. Khurelsukh, the President. When the Head of the State started his first business trip to the local community from the Orkhon aimag, he handed over the award to the managers of the corporation. This is a matter of special honor. In the presidential decree, the past, the present and the future of the Erdenet Mining Corporation were described well in a few words: “Having recognized the support and endeavor of the Erdenet Mining Corporation, a construction development of the XX century, to and for Mongolia’s prosperity, growth and development of its economy and mining sector, strengthening the human resources of the sector, allocation of state budget, overcoming the economic difficulties caused to the households and economic entities in the condition of the COVID-19 pandemic and its significant contribution to the development of the country, the title of a National Hero of Mongolia is awarded and achievements made by its staff and total miners who have tirelessly worked for the development of the mining sector and the increasing its efficiency in the country’s economy are highlighted and praised.”
In 2000, the Government of Mongolia honored the corporation as a leading construction development for the XX century and on the occasion of its 35th and 40th anniversary, it received an Order of the Red Banner of Labor and Order of Sukhbaatar. For the 19th time, Erdenet has led the TOP 100 business entities selected annually by the Mongolian National Chamber of Commerce and Industry (June 27,2021). In fact, it is impossible to express how important or how large the impact of the Erdenet Mining Corporation mining complex is to Mongolian social and economic life in a few pages or even through tens of books. Several years ago, representatives of Codelco Corporation, a Chilean world leader in copper production visited the Erdenet Corporation and exclaimed that “It is a leading corporation in terms of social responsibility, creating a beautiful modern city and developing a comprehensive policy around a favorable working environment and safety.”
There is a monument to the Erdenet Ovoo hymn. The founders who sang “Erdenet Ovoo is in good appearance. It is the face of this century” are the honored ones who launched the large mining construction development in a wild steppe in Khangal soum, Bulgan aimag. The original Labor Heroes recognized amongst the first mission holders are still respecting and worshiping the Erdenet Ovoo. Senior miners remember that the development of the Erdenet complex was the largest investment project implemented in the Member Countries of the Council for Mutual Economic Assistance (MCCMEA) at the end of 1970’s and beginning of the 1980’s. A total of six hundred structures including work plants, residential buildings and cultural facilities made up the complex. This was in accordance with the feasibility study mutually agreed upon by Mongolia and the Soviet Union with total investment of 595 million rubles (USD600 million). About 30 percent of the total was spent for financing residential and community infrastructure such as apartment buildings, hospitals, schools, kindergartens, a sports palace, cinema, hotel, food processing factory, electricity transmission lines, railway, and roadways. About 40 Soviet Union research and design institutions participated in producing the design of the Erdenet Mining Corporation complex and over 10,000 builders from 180 towns and cities from fifteen republics participated in the construction project. In addition, about one thousand young Mongolians, assigned by the Mongolian Revolutionary Youth Union, came there from Ulaanbaatar and Darkhan city to assist. The supplies and raw materials for the construction of the Erdenet Mining Corporation came from 17 Soviet Union ministers and departments, and the 462 factories and economic entities operated under their authority. From Mongolia, fourteen ministers engaged in the construction development by strictly pursuing their roles. From this perspective it is possible to see how gigantic the construction of the Erdenet Mining Corporation was. It can be seen how carefully Mongolia addressed the mining and minerals issue by setting high requirements.
A highlight from the Erdenet Mining Corporation was the example set by the cabinet ministries, relevant organizations and their staff worked hard and honestly together in cooperation under an integrated policy and management for the construction development of the Erdenet Mining Corporation. In particular, was the receiving of reserves report, the feasibility study, establishing agreements on regulating Erdenet Mining Corporation’s operations and implementing them for the interest of the homeland. Registration of the reserves of the copper balance of the northwest section of the Erdenet Copper-Molybdenum Deposit discovered by the Mongolian and Czech geologists in the end of 1960’s and in the beginning of 1970’s. On December 15, 1972, history was made with the approval of the 4,230 million tons of the copper balance reserves and 89.0 thousand tons of molybdenum. This launched the construction of the operations facilities and sent numerous future specialists to the Soviet Union and to the MCCMEA for training. Between 1973-1978 the construction was completed and included an open pit mine with a capacity of producing four million tons of ore annually, a processing plant (with one section), a maintenance shop, a central boiler, a garage, a warehouse, buildings, and facilities occupying forty-five thousand hectares of land.
The mine site also included a complex of thirty-five residential and commercial buildings which came into operation on December 14, 1978. The 394-million-ruble development was commissioned in a ribbon cutting ceremony by Yu. Tsedenbal, Chairman of the Council of Ministers of the People’s Republic of Mongolia, and I.V. Arkhipov, Deputy Chairman of the Council of Ministers of the USSR. A historic photo of this event is enshrined in the archive of the Erdenet Mining Corporation. Over time the operation was expanded and on June 25, 1980, the second stage of the processing plant with a capacity of eight million tons of ore per year was commissioned. On February 21, 1981, it was further expanded to produce ten million tons of ore per year, and again in June up to twelve million tons. In November 1983, production again increased to sixteen million tons per year, and finally in 1989 up to twenty million tons. By 1994, the plant was working at its full capacity and had recovered its initial investment within 8 years.
Consequently, Erdenet Mining was able to acquire many supporting facilities to meet is material demands. For example, it was able to get steel ball grind material from the Darkhan Metallurgical Plant by supplying copper concentrate as payment for its loan from Japan. It was able to access explosives by acquiring the Khutul Cement Plant and expanding it to include the Erdenet Metal explosives factory.
Erdenet Mining industrial complex has spawned many other businesses in the area. For years Erdenet has been conducting research on the extraction of oxidized and low-grade ore from its processing plant using advanced technology with minimal environmental impact. Several new companies have resulted from this research. Erdmin Company produces 2500-2800 tons of cathode copper annually (25 percent is owned by Erdenet Mining Corporation), Sibcable Energy which produced about three hundred tons of copper wires with content from Erdenet, and Achit Ikht company which produces over 10,000 tons of cathode copper low grade ore per year. Erd Sulj company (with 100 percent investment from Erdenet Mining Corporation) has been the sole supplier of work clothes to its employees for many years.
Projects to be implemented under 15-year development strategy
The development of the leading XX century mining corporation can be divided into the following phases:
1. Exploration phase (1963-1970)
2. Construction development phase (1970-1978)
3. Operational expansion and reform phase (1978-1990)
4. Managerial and economic reform phase (1990-2000)
5. Technological reform phase (since 2000)
Before the Oyu Tolgoi Copper-Gold Mine was commissioned into operation, Erdenet accounted for one-third of the Mongolia’s budget revenue. There had been sensational news that the mine was near the end of its lifespan resulting in concerns over the future of Erdenet City should the mine close. When presenting the award, the Head of the State highlighted that this had been a vicious act from a profit-seeking interest group. They had publicly announced Erdenet Mine reserves were nearly depleted, and it was incapable of sustainable profitable operation in order to devalue the state property and illegally acquire it. From 2017-2020, the company spent 29 million USD on geological exploration resulting in the discovery of new ore deposits that would permit the company to operate for at least 70 more years.
In 2019, the Government appropriated the company and made it a 100 percent state owned. An act which received divided public support. This decision significantly increased its sales revenue and contribution to the state budget through prudent management policies, increasing production levels and reducing costs. In 2020, it extracted thirty-four million tons of ore and processed 32.5 million tons. This is the largest volume of ore mined and processed in the history of the complex. In addition, Kh. Badamsuren, General Director of the state-owned enterprise EMC, highlighted that with the investment of MNT700 billion, the largest investment in its history, it was able to generate over MNT1 trillion in revenue for the first time. The MNT1 trillion is an eightfold increase of the forecasted revenues in 2016. During that year, it had succeeded in neutralizing the loss of revenue from declining copper prices by increasing production of 11,700.0 tons of copper concentrate and 934.12 tons of molybdenum concentrate. As of the first quarter of 2021, operation capacity increased to 143 percent and as a result, sales revenue exceeded projections by 38 percent and its net profit by 2.5 times.
As of May 2021, the company paid off MNT487.9 billion of the totally projected MNT612 billion payment for the citizens electricity, heating, water, sewage, and solid waste removal fees until July (under the government order). Now the payment of the fees has become the responsibility of the EMC until the end of 2021. In order meet this payment demand Erdenet has resolved to reduce operational expenses, freezing some investments, having online tenders, and introducing a single window policy in its import trade.
How does EMC envision and plan for its future? The title of National Hero of Mongolia is an award in recognition of the past and present accomplishments of the company and its plans for the future. Its production and economic development over the last 20 years has been developed in five-year plans. In 2018 it developed its first 15-year long-term development strategy has been approved and implemented. In other words, its economic planning has risen to the level of the international standards. The key objective of its development until 2031 is to improve its operational capacity by introducing innovative technology with low operational cost and high productivity. This will increase the profitability of the plant by reducing the primary cost of its commercial product. In order to increase copper and molybdenum ore reserves, reduce costs and expenses while increasing competitiveness, the EMC will focus on two directions. One is the implementing technological reform projects and the other focuses on increasing its capacity to manufacture value-added products.
In the framework of the Project on increasing the copper and molybdenum resources, an investment of USD68.7 million will be made over the next15 years. This will be used to continue the exploration of the deposit, upgrading resource classification, performing detailed geotechnical drilling and as a result, potentially increasing operational reserves for future development. The aim is to keep operating at full and providing uninterrupted mining of copper and molybdenum ore for the next 40 years.
A project on introducing flow technology in the open pit mine cycle is also underway. In international mining practice flow technology is used when the depth of an open pit mine exceeds 150 meters. Currently the depth of the open pit mine of the EMC has reached 195 meters. The flow technology will be introduced to the open pit mine cycle in two phases: in 2021, for soil transportation and in 2022, for ore transportation. The projected investment will be a total of USD68.4 million to implement this project. In addition, an investment of USD230 million will be made towards the expansion and upgrade of the processing plant. The corporation itself will invest in bringing its semi grinding shop into operation and upgrade the floatation equipment in stages. Once completed these projects will create the opportunity for reducing ore processing cost increasing its sales revenue.
The Project of building an oxidized and low-grade ore processing plant using heap leach technology, will permit over 10 years the processing of forty-seven million tons of oxidized ore and twenty-five million tons of commercial ore to produce 7,000 tons of cathode copper per year. It is possible to increase the production capacity up to 10,000 tons of cathode copper per year by using the reserves of oxidized ore stockpiled during the implementation of the project. Also, EMC has begun the preparations for building a hydrometallurgical plant capable of producing 6,500 tons of cathode copper per year in order to independently process the oxidized ore extracted from the EMC’s mine.
It is also necessary to mention the development of smelter for processing copper concentrate. At the request of EMC, Oyu Tolgoi LLC and Hutch LLC of Canada conducted study on the potential location of a copper smelting and processing plant. Six locations from three regions of Mongolia were identified, and among them Erdenet was determined as the most suitable. Although a facility producing sulfuric acid is seen as more economically efficient, the version of producing elemental sulfur was selected as it was determined there was little chance for supplying foreign countries with the sulfuric acid and there is limited domestic demand. The project for the expansion and upgrade of the maintenance shop, began in 2017and is scheduled for completion in 2021 for a total investment of USD21.7 million.
With successful implementation of the projects included in the EMC long term plan, additional resources will be found within the strategic boundary of the Erdenet Ovoo, and its lifespan will be extended. Also, it will create an opportunity for increasing operational profitability and stability eventually by reducing the mining costs up to 20 percent, and the ore processing cost by 10 percent. Moreover, the EMC management will consider increasing the range and quantity of its import-substituting products by 70 percent and thereby reducing the outflow of foreign currency by 20 percent. As was included in the 2017-2031 long term plan, EMC will increase ore processing capacity up to thirty-five million tons by 2023. From 2018-2022 it plans to extract a total of 178.4 million tons of ore, supplying 155.7 million tons of ore to the processing plant and stockpiling 22.7 million tons of high oxidation ore. It is estimated that the average content of copper in the ore processed in the plant from 2018-2022 will be 0.463 percent, and 0.455 percent over 2020-2022. The increased copper ore and concentrate production will lead to significantly increased export volumes.
Following the Cabinet meeting on May 5, 2021, a mining-metallurgy-chemistry complex Bayan-Ondor soum of Orkhon aimag has been approved. It is estimated that the new development including a copper smelter, oxidized ore processing, sulfuric acid and emulsion blasting agent plants will generate MNT46 trillion in revenue. Pre-tax profits of MNT3.9 trillion will be earned and MNT1.4 trillion in taxes will be paid within the first 20 years. From this perspective it is expected that the EMC contribution to the country’s economy will increase significantly.
Erdenet Mining is an academic mine with great intellectual resources
It is proper to look at Erdenet not just a mining company, but also as a place where Mongolia’s mining top scientists and researchers were developed. Actually, it is a company which has created and developed huge intellectual potential and become a vast knowledge resource. There is an Erdenet Complex institute named after Sh. Otgonbileg. This Technology Institute plays a historical role in preparing national experts for the mining sector in Mongolia. It has trained over seventy thousand qualified professionals, engineers and technicians for EMC and other large mining companies. This is evidence that EMC has become a significant intellectual resource. In addition, it is important to highlight EMC’s long-standing responsibility to is employees, the community, and local social issues. This began with the provision of apartments to its employees and their families. This tradition continues with the latest example, the Uukhaichin (Miners) Apartment Complex 1,2 and 3 is under construction and will provide housing for 1372 families. Since 2011, the Person-Precious Stone Program has been under successful implementation.