Future of Mongolia’s mining sector

Mongolia is set to be a second fastest growing economy in 2013, with 13% GDP change on a previous year (Economist Intelligence Unit). With the growth primarily being driven by Chinese need for resources, Mongolia is in the best location to meet Chinese demand, lying across northern border of China.

At 1,564,116 square kilometres, Mongolia is the 19th largest and the most sparsely populated country in the world, with a population of around 2.75 million people. Nevertheless, the country is predicted to hold vast resources of minerals. Mongolia sits on the northern edge of the Precambrian Siberian Craton and is part of the Central asian orogenic Belt, which contains many lithotectonic terranes that were accreted during Paleozoic and lower Mesozoic times.

GDP forecast for 2013 with Mongolia at 2nd place with ~13% change on previous year. Courtesy of economist.com.

Mineral resource potential

The country has high potential for Cu-Mo porphyry discoveries, the number one examples being Rio Tinto’s Oyu Tolgoi discovered in 2001 by Ivanhoe Mines (now Turquoise Hill owned by Rio Tinto). The deposit is geologically composed of Silurian-Devonian andesitic and basaltic rocks with interbeded terrigenous rocks. In Oyu Tolgoi, 24.7 million tonnes of copper and 1087 tonnes of gold are expected to ensure production for well over 50 years. Coking coal deposit, Tavan Tolgoi is also world largest coking coal deposit currently developed in Mongolia, being another flagship project next to Oyu Tolgoi. Gold deposit occurrences are widely described in Mongolia, creating good exploration potential, especially as the country has become more open in recent years for mining investments.Moreover, REE deposits are present, hosted in similar setting to the Chinese deposits lying across southern borded i.e. felsic and alkalic rocks of late Paleozoic, early Mesozoic, and late Mesozoic. Mongolia has large proven reserves of fluorspar, in 2010, Mongolia was estimated to be the world’s third ranked producer of fluorspar after China and Mexico, producing both acid and metallurgical grades. There are more than 600 deposits and occurrences of fluorite in Mongolia.

A view of the Oyu Tolgoi mine in Omnogov province, Mongolia.

Mineral Laws and current uncertainty

The 1997 Mineral Law formed by newly elected goverment in 1996 brought more consistent and effective mining rules for Mongolia, subsequently attracting foreign investment in the sector. However, the law implemented in 2006 called for higher taxes and growing resource nationalism. At the moment state may own up to 34% investment in the mine and if state participate in exploration costs up to 50%. The Oyu Tolgoi, owned jointly by: Turquoise Hill Resources / Rio Tinto (66 per cent) and Erdenes Oyu Tolgoi LLC /state ownership (34 per cent) is generally regarded as flagship project proving that projects can be undertake by the foreign companies in Mongolia with success. Nevertheless, it should not be overlooked that Mongolia’s politicians have tried already twice to grab more than 34% of the project ownership. “The country’s parliament is considering a radical new mining bill that seeks among a raft of other onerous provisions, a controlling stake in all foreign-owned mines.” 

Beside the current risk of change in the mining policy, the country is doing well in the investment rankings. In this year’s WorldBank’s “Ease of Doing Business”, Mongolia moved up from 88 to 76. Mongolia also moved 26 places in Transparency International’s Corruption Perception Index.

It is impossible to predict current government will continue with positive changes in the mining polices that shaped the international investment landscape of the country since 1997 or will go down the road of further nationalization. Foreign investors want to see a settled, workable framework for developing new projects and current uncertainty may pose stagnation in investments.  “At stake are two of the richest prizes in mining – copper and gold mine Oyu Tolgoi already in start-up and a portion of the Tavan Tolgoi met coal deposit.”

Mongolia photo by National Geographic.

Mongolia photo by National Geographic.

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