25.04.2011, mining in mongolia: challenges and opportunities, mr. graeme hancock
TRANSCRIPT
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Mining in the Mongolian EconomyProspects and Challenges
Dr Graeme HancockOil, Gas and Mining Policy DivisionThe World Bank Group
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Introduction
The economy is growing fast
• One of the most successful transition economies
• Active democracy in a cohesive and peaceful society
• Economic growth has been fast – on the back of mining
• Mining 2002 2010
• as a % of GDP 9% ~30%
• as a % of Exports 30.4% 91%
• as a % of Govt Revenue 5% 40%
• China accounts for ~85% of Mongolia’s exports
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Annual Mineral Production
of Main Commodities (2010)
Copper 130,000 t 26.6%
Gold 5.1 t 6.2%
Molybdenum 1400 t 1.8%
Zinc 55,000 t 4.6%
Iron Ore 3.5 Mt 8.7%
Coal 16.6 Mt 30.3%
Fluorspar 376,000t 2.0%
Oil 2.0 Mbbl 5.3%
Most commodities (except gold) on a steep growth profile
Mining (and Oil) accounted for approximately 91% of
exports
Commodity Exports % of total exports
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High Mineral Potential
Mongolia has some 8000 mineral occurrences
200 operating mines although most are of relatively small scale alluvial gold operations
Most mineral occurrences are only now being evaluated by modern mineral exploration techniques
A significant pipeline of new projects at advanced stages of exploration
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Gold Potential
A significant number of gold prospects exist and a large number of gold mineral occurrences
Production has fluctuated as a result of both technical and political issues
Placer Gold operations are declining in importance as producers, and this trend is expected to continue
Small scale mine production is significant
Gold production stifled in recent years by tax policy – expecting recovery after repeal of WPT
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Artisanal and Small Scale Mining
Up to 100,000 ASM miners during summer
months
Mostly alluvial gold and coal mining
Poor environmental and safety record
Public concern over lack of rehabilitation and
mercury pollution of streams
Sector requires formalization and development
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Coal Potential
Coal potential of 150 billion tons in 300 known occurrences in 12 basins
Some 20 billion tons of proven reserves of both lignite and high quality coking and thermal coal
In 2010 the coal sector produced approx 25 million tons and exported 16.6 million tons of coal to China
Mongolia remains heavily dependent on coal as a primary energy source producing 93% of total heat and electricity generation
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Major New Developments
Development of large scale projects including OyuTolgoi, and the Ukhaa Khudag and Tavan Tolgoi Coking coal deposits (~6 bn tonnes coking and thermal coal) will likely propel mineral exports to in excess of 98% of total exports in the next two to three years
Significant total capital requirements for operations totaling over US$8.5bn (excluding Shivee Ovoo)
In addition capital costs of supporting Infrastructure (approx $5.5 bn) will challenge the Government’s capacity to raise financing
Opportunities for PPPs and private sector investment in support services and businesses although Government is yet to successfully develop these opportunities
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Issues and Challenges for
Mining Sector Development Ongoing Legal/Policy Uncertainties
The 2006 Mineral Law requiring State Equity holdings in “Strategic Deposits”
The Windfall Profits Tax on Copper and Gold Production of 68% (repealed on 1 January this year)
The Sliding Scale Royalty
Application of arbitrary coal prices to combat transfer pricing
Uncertainty has reduced incentives to explore for large scale resources and more focus has been on smaller projects which are unlikely to be classified as “Strategic”
Other than OT and TT No other Strategic Deposit is moving towards development
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Issues and Challenges for
Mining Sector Development
Political / Administrative Issues
Delays in TT Project Investment Agreements and contracts and approaching elections adding to uncertainty
Tying of NE rail development to TT will likely result in delayed development as this will result in substantial new contract negotiations – on rail as well as TTShared access agreements etc need to be negotiated –not covered by existing regulation - adds uncertainty
Incomplete Regulatory Framework with sometimes arbitrary decisions from Government Agencies
Ongoing role of the Erdenes MGL LLC and it’s capacity to fund new equity stakes
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Issues and Challenges for
Mining Sector Development Future infrastructure constraints to exports loom large
• Slow decisions on energy sector development with
new projects expected to require substantial new
generating capacity (initially 600-1000MW)
• Congested Border crossings are a major constraint to
new exports of bulk commodities
• Rail issues continue to be a real challenge
• Slow decisions on approvals to build and operate
railway lines to China for coal exports
• Confusing signals concerning rail gauge
• Confusing signals over rail route selection
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Possible Coal Export Routes
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Possible New Railways in Mongolia
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IFC Doing Business Ranking 2010
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Issues
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2004 2005 2006 2007 2008 2009 2010
Mongolia International rankings
TI Corruption Index Fraser Institute mineral policy ranking
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Comments and Questions
“Small” Tavan Tolgoi Mine – South Gobi
