Mining revenues did not fall short

2019  |  December   |  025

Mongolia used to export USD 473 million worth of goods 25 years ago. Out of which, USD 291 million were made up of copper and molybdenum concentrates of Erdenet, USD 50 million - cashmere, USD 40 million - fluorspar of Bor-Undur, and USD 31 million - textiles. Just these 5 items amounted to 80 percent of total exports. In comparison, the iron ore export alone added up to USD 576 million in 2019, which is over USD 100 million higher than the total exports of 1995.

This continued for a decade until a huge opportunity of export expansion was given to Mongolians, who were living off of the same old Erdenet, Bor-Undur mines, animal husbandry goods, and cashmere that had an annual income of about USD 400-500 million. That was China’s economic growth in the last 15 years. China’s economy saw double-digit growth, significantly expanding its consumption and giving a growth opportunity for Mongolia’s export.

But the country lacked the knowledge about whether it had sufficient commodity resources, and was in need to create the legal environment to draw investments to explore and exploit the resources. The 1997 Law on Minerals was targeted to explore mineral resources and tap on investments in this area. It is without a question that the law had its impacts in drawing foreign investors’ interest in Mongolia’s minerals sector.

The businessmen that first saw the export opportunity of tapping on China’s unlimited demand for minerals were B.Nyamtaishir and D.Bat-Erdene. MAK  and Ajnai Corporations started exporting coking coal from Mongolia in 2004-2005. Ever since the Russian Zil-130 truck connected to a trailer started transporting coal from Tavantolgoi and Nariinsukhait residual deposits, Mongolia’s coal export is now being measured at USD 17.3 billion. While the coal export was only USD 49 million in 1995-2005, it jumped to USD 17.3 billion between 2006 and 2019, displaying a 353 times growth. During this time, the copper concentrate export, which was about USD 2.14 billion /1995-2005/, saw a sudden jump to USD 18.2 billion /2006-2019/.

The key products that made up the majority of Mongolia’s export in the last 25 years can be seen from the graph. Out of the total export revenue of USD 67 billion in 1995-2019, minerals /with the exemption from gold/ amounted to USD 50.6 billion. The copper concentrate exports from Erdenet and Oyutolgoi totaled USD 20 billion and the coal industry - USD 17.3 billion.

Mongolia started exporting zinc and crude oil in 2005, and iron ore in 2007. The export revenue of these three has already exceeded USD 10 billion. Cashmere export, which was Mongolia’s key export item before the mining boom, brought in USD 3.6 billion, and the meat exports - USD 553 million. This is the base indicator of the last 25 years.

Since the Mongolian Government issued a bond in the international market and became able to draw investment, a total of USD 4.3 billion worth of bonds were issued in foreign markets in the last 7 years. The bond financing was spent on supporting the infrastructure, manufacturing, and light industry. But the mining revenue remains over 12 times higher compared to these sectors. This explains how mining revenue does not fall short.

 Mongolia’s economy expanded by over 10 times in the last 25 years. Economists split this growth into three periods of transition /1990-1994/, change and recovery /1995-2003/, and mining-based growth /2004 - present/. Numbers and figures describe these periods more clearly. The average annual GDP growth of Mongolia was 9.1 percent in 2004-2014, and the key driver was the mining sector.

It could be said that the drastic jump in mining export was, on one hand, the results of China’s economic growth, and on the other hand, was of the 1997 Law on Minerals. Although the law was approved in 1994, it had to be amended three years later to make it more liberal. As a result, the process of issuing exploration licenses became easier, which called in investors.

The 1997 law had the biggest impact on exploring many golds, coal, and fluorspar mines. Thanks to the fact over 6000 exploration licenses were being granted annually back then, Mongolia was able to study at least a little bit about its underground resources. The exploitation licenses that cover less than 4 percent of the country’s total territory is a very low indicator. If we were to maintain economic growth and double the GDP per capita in the next decade, we need to find the next Oyu Tolgoi or Tavan Tolgoi and put it to economic circulation. But there is no chance of finding another big deposit when the exploration licenses have been suspended.

Anyone without any knowledge of the matter would understand that the base indicators of economic growth, budget revenue, and export revenue were all thanks to the mining sector in the last 25 years.  



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