April 2017

Country Snapshot: Mining in Mongolia

  • By AusIMM

Despite some progress, bureaucratic obstacles continue to prevent further development of Mongolia’s significant mineral resources

An underdeveloped minerals sector with significant potential

Mongolia is a mineral-rich country in Central Asia that boasts significant proven deposits of gold, copper, iron ore and coal. As of January 2010, 1130 mineral deposits and 7668 mineral occurrences encompassing 80 different commodities had been discovered and recorded in Mongolia. These deposits contained:

  • 3290 t of proven gold reserves
  • 60.7 Mt of proven copper reserves
  • 1.7 Bt of proven iron ore reserves
  • 26.8 Bt of proven coal reserves (which makes Mongolia one of the top ten countries in the world for coal reserves).

The minerals industry is a crucial part of the Mongolian economy, accounting for 18 per cent of GDP, 68 per cent of industrial output, 81 per cent of export earnings and employing 40 000 people. The Mongolian government estimates that the country’s untapped mineral wealth is worth approximately $1.3 trillion.

The Oyu Tolgoi mine in the Gobi Desert region of the country is one of the world’s largest and highest-grade copper and gold mines. The mine, which is jointly owned by the Mongolian government (34 per cent) and Turquoise Hill Resources (66 per cent, of which 51 per cent is owned by Rio Tinto), is currently undergoing a $US3.5 billion underground expansion that will increase its copper output to more than 500 000 t/a.

In the past, foreign mining investors have found it difficult to gain meaningful entry to the country because of strict foreign investment rules. However, in an effort to boost its minerals industry, the Mongolian government passed a new law in November 2013 that eliminated former restrictions on foreign investment, reduced governmental approval requirements for foreign state investment and introduced a more transparent investment process.

Since then, the government has further demonstrated its commitment to expanding the Mongolian minerals industry by repealing the moratorium on the issuance of new exploration licences and extending the maximum period for an exploration licence from nine to 12 years. In 2014, the Mongolian government also allocated MNT10 billion (~US$5.5 million) to various geological projects, which was an increase on the MNT7.3 billion (~US$ 4.8 million) that it allocated in 2013.

The Mongolian government is also committed to expanding geological mapping in the country, with a plan to expand the proportion of the country mapped at a scale of 1:50 000 from 31 per cent in 2014 to 40 per cent by the end of 2016.

Bureaucratic wrangling hampers minerals industry expansion

While the Mongolian government has made some progress towards making its minerals industry a more attractive prospect for foreign investors, the country’s bureaucratic processes often prove to be convoluted and opaque. For example, the Mongolian parliament is often responsible for determining whether a minerals deposit is strategic, rather than professional civil servants with appropriate training and qualifications. In addition, Mongolia’s bureaucratic processes have been known to change with little notice, with government departments unexpectedly altering requirements and procedures.

A key example of the difficulties faced by foreign investors in Mongolia is the development of the Tavan Tolgoi deposit, which, with estimated reserves of 7.5 Bt, is one of the largest untapped coal deposits in the world. In 2011, a group comprising US company Peabody Energy, China’s Shenhua and a Russian-Mongolian enterprise won the right to begin development of the deposit, but just two months later, the deal was blocked by Mongolia’s National Security Council.  In 2015, a separate agreement with a foreign consortium to develop Tavan Tolgoi was again blocked by the Mongolian parliament.

However, worsening economic conditions in Mongolia may force the government to be more receptive to foreign investment in its minerals industry. Between 2011 and 2013, Mongolia’s economy was one of the fastest-growing in the world, with annual growth rates averaging 13.8 per cent over the period. However, growth has slowed significantly in recent years and is expected to be less than one per cent in 2016. A large part of this has been due to lower commodity prices, which have a disproportionate effect on Mongolia’s economy due to its heavy reliance on the minerals industry.

Mining companies looking to enter the Mongolian minerals industry will also face challenges associated with the country’s extreme climate, with winter temperatures regularly falling below -40°C. Other challenges include a lack of technical expertise and skilled labour in the country, underdeveloped electricity, water and road infrastructure, and the fact that Mongolia’s two nearest shipping ports are located 1344 km and 4037 km from the country’s capital city in China and Russia respectively.

Feature image: Mongolian landscape. Photo by Ludovic Hirlimann. Used under CC BY 2.0

All information in this snapshot came from the following sources:

Australian Trade Commission, 2015. Mongolian mining projects report 2015 [online]. Available from: www.austrade.gov.au/ArticleDocuments/5804/Mongolian-Mining-Projects-Report.pdf.aspx

Central Intelligence Agency, 2016. The World Factbook: Mongolia [online]. Available from: www.cia.gov/library/publications/the-world-factbook/geos/mg.html

Jamasmie C, 2016. Mongolia readies to revive its giant Tavan Tolgoi coal mine [online], Mining.com, 9 September. Available from: www.mining.com/mongolia-readies-revive-giant-tavan-tolgoi-
coal-mine/

Mongolian Ministry of Mining, 2015. MRAM information circular: news, facts and figures from the geology and mining sector of Mongolia [online]. Available from: www.bgr.bund.de/DE/Themen/Zusammenarbeit/TechnZusammenarbeit/Downloads/1094_Circular2015.pdf?__blob=publicationFile&v=2

Thomson, J, 2016. Rio Tinto suspends shipments to China from Oyu Tolgoi mine, Australian Financial Review, 4 December. Available from: www.afr.com/business/mining/rio-tinto-suspends-shipments-to-china-from-oyu-tolgoi-mine-20161204-gt3mfw

US Geological Survey, 2016. 2013 Minerals Yearbook: Mongolia [online]. Available from: minerals.usgs.gov/minerals/pubs/country/2013/myb3-2013-mg.pdf

 

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