14
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World Coal
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August 2015
Industry View
Industry View
M
uch has been written about the
Mongolian government and
Rio Tinto’s recent agreement over the
Oyu Tolgoi copper deposit. But while
the Oyu Tolgoi agreement is positive and
welcoming news for the country and its
3 million people, I feel that its significance
has been greatly exaggerated. In itself, it
is not a silver bullet for the Mongolian
economy, foreign direct investment or the
mining industry. But it is a much needed
first step: one step in a long journey.
Mongolia’s economic
rollercoaster ride
To grasp just how significant the fall of
Mongolia’s economy has been you only
need to look back over the last 5 yr. In 2010,
it burst onto the world economic stage as
mining started to have a much needed
positive impact. Then in 2011, Mongolia
stunned the world of economics by having
the world’s fastest growing economy and
the world’s most improving currency.
The mining boomwas in full swing and
everyone wanted to invest and be part
of it. Foreign direct investment soared,
unemployment was low and Mongolia
looked to be the mining and investment
capital of the world. But it was short lived.
As fast as Mongolia burst onto the global
economic stage, it faded away. Awave of
anti-foreigner hysteria backed by political
interference in the investment law, has
seen Mongolia’s dream run come crashing
down.
Coal is a significant
opportunity for Mongolia
Mongolia has some of the largest mineral
deposits in the world of coal, copper,
gold, molybdenum, fluorspar, uranium,
tin and tungsten deposits, among others.
If Mongolia is to reach its full mineral
resource potential, it cannot rely on
Oyu Tolgoi alone. It should be noted that
Oyu Tolgoi will not be in full production
for at least another 6 yr. Therefore Mongolia
must also fully develop all of its resources –
and most importantly its vast coal deposits.
Oyu Tolgoi has overshadowed another
major development in Mongolia’s mining
industry: the completion of the Tavan
Tolgoi coal tender. The Tavan Tolgoi coal
deposit is located south, in the Gobi Desert.
It is 540 km from the capital city of
Ulaanbaatar and 240 km from the Chinese
border. It contains in excess of 7 billion t of
high‑quality metallurgical and thermal coal
reserves. It has been described as one of the
largest untapped coal reserves in the world.
In December 2014, a Tri-Consortium of
China’s Shenhua Energy, Japan’s Sumitomo
and Mongolia’s Energy Resources won the
tender to develop the Tavan Tolgoi deposit
in Mongolia. Several months on and this
US$4 billion project is stalled in
negotiations. The main sticking points are
the outstanding loan to the
Aluminium Corp. of China and the
Build‑Own‑Operate‑Transfer railway
agreement. This could be a mirror image of
the protracted Oyu Tolgoi agreement and
stall the economy further. Tavan Tolgoi is a
major mining project for Mongolia and it
could provide approximately 30 – 50% of
Mongolia’s GDP. However it is much more
important, as it is the litmus test for all of
the other mining projects that are yet to
commence. Failure to successfully develop
Tavan Tolgoi in the short termwill further
erode the confidence that international
investors have in Mongolia and may result
in a continued restriction of foreign direct
investment. Mongolia does not have the
wealth to develop its mining industry; it
needs foreign direct investment. It also
needs the expertise and experience of
foreign individuals and companies, to
ensure that the industry develops
efficiently and sustainably. International
mining can and will assist strengthening
Mongolia’s economy, provide much needed
jobs and the development of local
businesses.
Conclusion
The announcement of the agreement with
Rio Tinto with regards to the Oyu Tolgoi
copper project is very positive news for
Mongolia. However, it does not signal
an immediate return to a very strong
Mongolian economy or an immediate go
ahead for the development of Mongolia’s
mining industry. It is one step in a long
journey and the Mongolian Government
has much work ahead to rebuild
Mongolia’s economy and international
reputation.
The mass exit of foreign investors and
their funds will not be solved overnight. It
may take years for foreign investors to
regain confidence in Mongolia and return.
To ensure a return of foreign direct
investment and a prosperous and
sustainable economy, the Mongolian
government has three main tasks:
1.
Formalise the Oyu Tolgoi agreement so
that it has no more debate and delays.
2.
Formalise the Tavan Toligoi agreement
and ensure that it commences in the
near future.
3.
Secure the return of foreign direct
investment and Mongolia’s reputation
as a fair and stable business
environment.
If these three objectives can be
completed, Mongolia will have a great
platform to build a robust economy and a
bright future for its growing population.
Author
Russel Taylor has over 20 yr of experience in the
coal mining industry as a mining engineer, project
director andmining executive. Most recently, he
was Executive Vice President and Project Director
at Reliance Coal Resources in India.
ONE
STEP IN A LONG JOURNEY
Russell Taylor
