Policy - Strategic Deposit

Twenty billion USD of the two “Tolgoi’s”

2019  |  December   |  025

The current Government is taking the toughest stance on the mining and geological exploration industries since perhaps the time of the Bogd Khan. In its history of almost 100 years, the industry has never been in such disarray and uncertainties. Despite calling for investments and development, this Government is the perpetrator bullying the mining sector – the largest engine of the economy. Compared to its recent moves where licenses and properties have been confiscated, the populism we’ve seen in the preceding years seems almost childlike. Such poor judgment is currently stirring the mining sector.   

It’s important that both sides should be satisfied at the end of the negotiation

Meanwhile, the public is cheering for this policy without using the “true scale” – whether the policy would be our “savior” or would it be our “undoing” that would set our lives back another decade. Investors, however, have already moved on from Mongolia who doesn’t even have its tenth basket anymore, towards wherever lucrative opportunities exist. In these times, the few remaining businesses in Mongolia are trying their hardest to gain the global market’s attention. The most promising among them is the “two Tolgoi’s” that are expected to bring in 20 billion USD together in the next ten years. Mongolia’s mining and business sector prospects in the near-decade inevitably rely on these two.

Erdenes Tavan Tolgoi Mining’s growth

Once a beacon of hope for many years, the company’s solutions and decisions have failed to meet expectations. There’s no doubt that if its IPO listing is successful and manages to raise one billion USD despite being behind schedule, investors would receive an important letter on their hands that says “from Mongolia”. By being listed at the Hong Kong stock exchange, the new company Erdene Tavan Tolgoi Mining would far exceed other state-owned enterprises in terms of governance and operation. Mongolia has much to gain rather than to lose, should this happens.

With that said, investors only care about two questions – Is it stable? Is it profitable? The number that peaks their interest is the ever-growing coal export volumes by Erdenes Tavan Tolgoi JSC. Coal production increased by five million tons compared to last year and reached 16.1 million tons in 2019. In other words, an almost 50 percent upwards performance at the Chinese market where coal imports are regulated by policy to maintain growth as low as possible would surely attract the attention of investors. The joint-stock company gained one billion USD in sales revenues in 2019 and net profits since the start of operation are worth one trillion MNT. Considering that it maintains this track in the next 10 years, the company has huge potentials and reserves to bring in 10 billion USD of sales revenues until 2030.  

Oyu Tolgoi’s “new deal”

Oyu Tolgoi is a company that can generate at least 10 billion USD in sales revenues for the next ten years. The company’s financial statement reported a sales revenue of 6.7 billion USD within five years or between 2013 and 2018 since its first concentrate export shipment. In 2018 alone, annual revenues were 1.2 billion USD.

It seems like yesterday when the foreign direct investment was pouring into both mining and exploration sectors. No one can argue that the main driver was Oyu Tolgoi’s operation. In today’s time when investors already fled the country, the few remaining are also keeping their hope as Oyu Tolgoi hasn’t yet been shut down.

The Parliament resolution on “representing Mongolia’s interests in the Oyu Tolgoi mining project” was understood by everyone as a right decision requested by the Parliament on one hand and the other, as a decision to continue Oyu Tolgoi’s operation under a new rule without shutting down the project. Both sides must be satisfied at the end of the negotiation. The new deal should update the main principles of jointly operating this major reserve that affects the entire domestic economy with investors. As these investors would decide whether or not to book their tickets to Mongolia only after this new rule becomes clear, the Government needs to be responsible and act swiftly.  

Because these important events surrounding the “two Tolgoi’s” happened in 2020, this year has a high potential to be written in history as a turning point for Mongolia’s mining sector development. It’s up to us to fully take advantage of these two opportunities and embrace whatever amount of capital flow that comes after. 

It must be emphasized that in addition to the minerals these companies sold, the infrastructure they built also has enormous economic significance. For example, Oyu Tolgoi's power lines and the railway funded by Erdenes Tavan Tolgoi JSC are sure to provide benefits not only to the mining industry but the entire economy at the same time.  



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