Recent news
More gold from Oyu Tolgoi expected in 2021
Turquoise Hill Resources has announced increased 2021 gold production outlook, and filed an updated technical report for the Oyu Tolgoi Project (OTTR). Gold production outlook for 2021 has increased to a range of 500,000 ounces– 550,000 ounces from 450,000 ounces – 500,000 ounces, the result of initiatives that have brought the higher grade gold bearing ore from the South West pit forward into 2020 and 2021.
Way cleared for Mongolia building Tavan Tolgoi power plant
The first major mining-related headline since the ruling party’s return to power came on June 28 when Rio Tinto announced that the Government, Rio Tinto and Turquoise Hill Resources had reached an agreement on the preferred domestic power solution for Oyu Tolgoi that clears the way for the Government to fund and construct a power plant at Tavan Tolgoi. This renders infructuous the TTPP Power Source Framework Agreement signed in 2018. The parties have also agreed to conclude a power purchase agreement by next March. Construction will begin by July 1, but the target date for the commissioning of the plant has been pushed back a year to 2025, with no explanation for the delay.
Projects awaiting progress
The rise in the stock price of mining companies working in Mongolia and registered abroad -- such as Xanadu Mines, Mongolia Energy Corporation (MoEnCo), Mongolian Mining Corporation (Energy Resources) and others -- is a welcome indication that foreign investors expect stability here following the MPP’s return to power after a landslide victory in last month’s election. The highest growth the Hong Kong Stock Exchange was recorded by MoEnCo, and though the others did not match its 400-percent rise on a single day, shares of Energy Resources and SouthGobi Resources (SouthGobi Sands) also have risen by between 32% and 45%. It is now up to the new Government to make sure that investors’ confidence is not misplaced.
Banking reforms left to next Government; and banks under the present
Banking reforms would have to wait. The Spring session of the present Parliament, its last before members to its successor are elected, ended without completing discussions on them, presented as part of an economic package. Members of the Government were keen to make some progress on the reforms, and so was the IMF as part of its Extended Fund Facility package, but time was against them.
The ante was being upped even before the session began, with Prime Minister U. Khurelsukh saying on 27 March that the time was ripe to change the way the country’s commercial banks worked, warning that “if banks don’t accept our suggestion to reduce their lending rates, we shall have to take stern measures to see that this is done.” Finance Minister Ch. Khurelbaatar followed this up on 14 April, when he said in Parliament that after two years of calling for banking sector reforms and asking for Parliament’s permission to let foreign banks work in
Court ruling used to change width of TT-GS railway gauge
What with the pandemic and the excitement over the election, an important decision taken by the last Parliament just before its final session ended did not receive adequate attention. Following a Constitutional Court decision that Resolution #64 adopted by Parliament in 2014 had violated the Constitution it was resolved that the 267-km Tavantolgoi-Gashuunsukhait (TT-GS) railroad would have a broad gauge, thus closing a debate that had been going on for years.
MPP easily wins the political battle; the economic front is more difficult
The eighth parliamentary election was held successfully on June 24 and what the 73.64 percent of the total electorate voted for is now known. This was the first election since major amendments were made to the Constitution, though this might not have had any direct bearing on the voters’ choice. At 606, the number of candidates was the most ever, though almost nobody from outside the two major parties won. Some candidates were arrested on charges not directly related to the election.
The new Parliament has 76 members, as before. Of them, 62 are from the MPP -- three less than in the last parliament, but still giving the ruling party an overwhelming numerical strength -- 11 from the DP, one each from the Right People Electorate Coalition and Our Coalition, and one independent.
MBA head wants government money to help banks give loans
What has so far been the impact of the COVID-19 situation on the banking and financial sectors? What future risks do you see?
The quarantine imposed by the Government has been good for preventing the virus from spreading but it has also reduced mining output and thus led to lower exports. Trade, travel, transportation and almost all other sectors have been hobbled, and this has in turn caused uncertainty in the banking sector. According to the Bank of Mongolia, repayment of 54,000 loans worth MNT3.5 trillion has been stalled. Banks make up about 90 percent of the financial market in Mongolia, and if this unavoidable failure in repayment of loans continues, banks will have their profitability reduced and assets depleted, forcing them to dip into their reserves. Since almost everybody’s income has been affected, people have no disposable funds and so banks are getting far less deposits. They will issue fewer new loans.
IPO preparations must be completed, says Kh.Narankhuu
Erdenes Tavantolgoi Mining (ETM) was formed with the status of a daughter company of the state-owned Erdenes Tavantolgoi JSC with the specific purpose of facilitating the long-talked-about IPO. Kh.Narankhuu, Director General of Erdenet Mining Corporation from 2000 to 2007 and a former Member of Parliament, was brought in as CEO to oversee the complex and multi-faceted work of preparing documents and material required by the stock exchange and also to woo investors. Now that the IPO has been put on hold and ETM itself is being wound up, Narankhuu opens up to G. Iderkhangai on what the past months were like. Given his status in the mining sector, his views command special respect and he does not disappoint in this long-ranging conversation.
“We need to be realistic and re-do the budget”
You are right. When the state budget was discussed at the end of last year, there was much to be optimistic about. The aimags in the Gobi were allocated substantially higher budgets than those that had lower incomes. The budget revenue was calculated differently, with tax revenues included. As part of the reform of taxation laws, the social insurance fee had been increased, but the budget revenue figures show that receipts from this would be 42 percent less.
Things were expected to be quiet until after the end of the parliamentary election, for foreign – and domestic -- investors would decide on their plans only after knowing what the next government looked like. Commodity prices were high, and we all hoped for a quick end to the China-US trade war. All this has now changed.
COVID-19 and mining outside Mongolia
One after another, mining companies around the world -- big or small – have been announcing since mid-March temporary suspension of their operations or, in some cases, reduction of production. The decisions were taken as governments worldwide imposed total or partial lockdown of their national economy in an attempt to contain the spread of COVID-19. Almost everywhere all non-essential activities were suspended. Mining provides many essential items of daily use, but it was defined as non-essential in countries such as Mexico and Peru, though Australia, Argentina, Brazil and Chile were among those which did not follow suit. Jurisdictions like Quebec shut down mining as a non-essential activity but made a volte face only weeks later.
The real battle will be after the election
The Parliamentary election is going to be held in times of difficulty for candidates, voters and the country alike. The popular observation that the MPP is in power when there is a mineral boom while the bust phase of the cycle keeps a DP government company was proving to be true until some time ago when mineral prices started going down. The MPP’s campaign boast was expected to be that it had revived the economy left ailing by the previous government, but that is unlikely to resonate with the voters now. Several scandals such as the one around the SMEs Development Fund have also dented the MPP’s reputation, but, on the other hand, people admire its success in ensuring that there has been no loss of life in Mongolia from COVID-19 and acknowledge that while the coronavirus situation continues to batter the economy, the government cannot be faulted for this.
Coal export limping back, but “normal” is far off
Note: All figures in this report are from data released by the National Statistics Office and cover the period 1 January to 15 April.
Mongolia’s total foreign trade turnover reached $2.54 billion, a drop of 30.9% YoY. Exports accounted for $1.18 billion of this and imports for $1.36 billion, down 43.7% and 13.7% respectively. The foreign trade deficit of $175.9 million was mainly because of the dramatic decline in mineral exports.
The last days of the period under review showed some improvement in coal and oil exports, but this is only when they are seen against the situation in most of March, when exports were almost stopped. Any return to the pre-pandemic levels is still a long way off.
Rio Tinto plans big to go green
In keeping with its position as the world’s second biggest mining company, Rio Tinto has been taking several bold steps to halt contributing to climate change. With the divestment of its last coal project in 2018, it became the first major company to have no fossil fuel asset. This was also when Rio released its first climate change report titled ‘Our approach to the climate change 2018’. This has now been followed by “Our approach to climate change 2019”, which was released in February this year. In this Rio sets out its goal of achieving zero emission from its operations anywhere by 2050. That would cover both direct and indirect emission – in scientific parlance, Scope 1 and Scope 2 emission. CEO Jean Sebastien Jacques has said that the company will spend up to $1 billion in the coming five years on strategizing and getting ready to take up projects to reach the lofty goal.
No extravagant promises, big parties told
The first parliamentary election after the amended constitution comes into force on May 25 has been scheduled to be held on June 24, but there are some who want it to be deferred until the Coronavirus threat recedes. All contesting parties will campaign on the basis of their action plan which have first to be cleared by The National Audit Office. During its check this office found that all three major parties, and several of the others in the fray, had gone overboard in making promises. It promptly rejected their plans and asked the parties to submit by 25 April revised action plans that kept within the parameters of the law.
“New laws on use of state property according to the amended Constitution is the priority”
Known to speak his mind, B. Lkhagvajav trained as a lawyer and holds a doctorate in business administration. He was President of the Mongolian National Chamber of Commerce and Industry and has been a member of the Supervisory Board of the Bank of Mongolia. In a long-ranging interview with G. Iderkhangai, he peppers his views on the present with snippets from the past, all to express some concern about what the future holds.
At one time you used to regularly speak out when something significant happened in the mining sector, but for several years now, we have missed your strongly held and bluntly expressed views. What has kept you silent?
You are right. I have refrained from speaking on mining matters since, say, 2010, after expressing my views regularly between 2006 and 2010 when the OT agreements were being discussed.
Shares are of real value only when they can be traded
The Mongolian People’s Party promised in 2016 that the 1072 shares of Erdenes Tavan Tolgoi held by every citizen would be “made alive and valuable”. The announcement by the company in February that it would distribute dividends before the parliamentary election was welcomed by shareholders -- most of whom would also vote in the election -- as a step in that direction, but for the MPP promise to be truly fulfilled, it is not enough to pay dividends. To be “alive”, the shares must be free to be traded in the stock exchange. Only then would citizens know that they own something “valuable”. The “small” Tavantolgoi, a company treated as A-Grade by the Mongolian Stock Exchange, earned a net profit of MNT52 billion in 2018 when it sold 1.8 million tonnes of coal.
Petro Matad focused on getting exploitation licence
Following the success of the 2019 Block XX drilling campaign which resulted in the discovery of oil in the Gazelle 1 and Heron 1 wells, as well as Heron 1 delivering one of the highest flow rates ever recorded in Mongolia, Petro Matad Limited, the AIM quoted Mongolian oil explorer, is now focused on securing the exploitation licence required under the production sharing contract (PSC) to enter into the development phase on Block XX. The company has been advised by the Mongolian authorities that there is support at the highest levels of Government to grant the licence, as the Government recognises that Petro Matad has been the country’s most active oil explorer in recent years and that the success of its 2019 exploration efforts is very well timed in light of the Government’s commitment to the construction of a domestic oil refinery.
“We no longer have any long-term plan to develop our mining sector”
I have been in the geological sector for 34 years and have worked in both the state and private sectors, as also in research organizations and foreign investment companies. I never left geology, even in the difficult years of transition to the market economy. After graduating in 1986 from the State University in Irkutsk in the then Soviet Union, I started my career as a specialist in the Institute of Geological and Mining Production and Research in what was then called the Geological and Mining Ministry. Here I did some Mongolia-related research under the guidance of Dr. J.Byambaa. Then I was a researcher with the Institute of Geology of the Academy of Sciences, and a specialist in charge of the Mongolia-related studies when the Mineral Resources Authority was founded. I am proud that I have worked closely with Mongolia’s best of the best scientists.
Government sees no crisis; we do
Preliminary statistics for the first quarter show that the first turbulence of a coming crisis is being felt in the Mongolian economy. Foreign trade, which had grown slightly in the first two months, declined from mid-March. Exports that bring dollars to the domestic market fell by almost 50 percent. After a two-month standoff, mineral exports, including coal, are unlikely to reach the 42 million tonnes projected in this year’s budget. Due to declining coal supply, copper has become the leading export mineral. Although Oyu Tolgoi’s copper concentrate shipments continued, exports fell by 13 percent. Meanwhile, copper price hit $4,685 on the London Metal Exchange, its lowest since 2016. In the 2020 consolidated budget, copper price was estimated at $5,991. Although mineral exports have declined overall, the supply of iron ore with railway access has retained its growth. Currently, the budget revenue has been disrupted by MNT275 billion.
Action on the ground needed to realise Vision-2050
One of the key objectives of the long-term development policy Vision-2050, which the government has submitted to parliament for discussion and approval, is to put Mongolia among the top ten countries in the world in terms of happiness and freedom from corruption. Among the other goals of what the Prime Minister has called the “most ambitious” roadmap for national prosperity, are expanded use of innovation and technology-based knowledge, economic diversification, green development, raising the GDP by 6.1 times, and taking annual per capita income to $15,000.
If these goals are indeed achieved in the next 30 years, Mongolia would have a seat at the table of the world’s developed countries, of which the top ten today are Singapore, the USA, Hong Kong, the Netherlands, Switzerland, Japan, Germany, Sweden, the United Kingdom and Denmark. According to the World Economic Forum’s 2019 Competitiveness Report, Mongolia ranks 102nd out of 141 countries considered.
