The vital sector

December 27th, 2017


529   0

9 min

The mining sector is a vital sector for Mongolia. Mongolia has a sparse population and has no goods but minerals to export except cashmere, wools and meat etc., a few products from animal husbandry. Thus, Mongolia is trying to accumulate the initial capital through exploring and extracting our mineral resources.  Only then can Mongolia diversify its economy. It means that Mongolia will have certain products or services that can compete on the international market, which can only be the fundamental bases for long-term growth and development.

Unfortunately, not only we have not yet accumulated that initial capital, but also we are deep in big foreign debt. So far the nation is doing just politics. As a result, poverty, unemployment, and the brain drain are increased significantly. Our public governance is so weak that we have not been able to properly manage our huge mineral resources. A handful of people are gaining profit from mining wealth. Desertification in and migration from the countryside are rapidly growing. In Ulaanbaatar, we do not have jobs, but we have traffic jams. There are so many old cars and unemployed people barely noticeable among the dark and disastrous air pollution. So, it is time to discuss the mining sector properly.

Mineral exploration 

The first of two main activities in mining sector is mining exploration. Every country tries to map its country’s minerals fully. First, they use geological, geochemistry and geophysical surveys and draw a general map of geology. Then companies do the detailed exploration for the particular areas of interest. Mongolia will finish its complete full geological survey map on a scale of 1:200.000 by 2020. Also, the prospect map on a scale of 1:50.000 for ore belts and basins will be drawn for 40 percent of the country’s territory by 2020, and for 50 percent by 2030 from the state budget.

We need foreign investment for more precise mapping as we have such a big landmass. In order to attract foreign investment, we need to create a favorable business environment that also should be competitive compared to other countries trying to attract investment. Foreign investors come to Mongolia not just to explore minerals, but they come also to extract and make a profit if they find  mineral resources, provided that the related mining licenses are also guaranteed.

Once mineral deposits are found, even more investment, maybe ten times more than exploration investment is needed for proper evaluation of ore reserves. It requires hundreds of wells, drillings and thousands of core product analyses by independent labs. It takes years of hard work to make finally assess the ore body structure and estimate of reserves.

The junior or smaller companies usually do this work by financing the project through an IPO on international stock exchange. After proper valuation of the reserve by internationally accepted methods (like JORC etc.,) the major or large companies buy out those junior companies’ exploitation and mining rights (licenses) and start mining. When the ore deposit reserve is small, junior companies can do mining work by themselves. The Ministry of Mining and Heavy Industry of Mongolia collects all the exploration and extraction data and makes one large geological database.

Mineral Extraction

The second part main activity in the mining sector is mineral extraction. After deposit evaluation, the extraction process starts upon creation of the relevant infrastructure. The extraction period depends on the size and formation of the deposits, and it can generally continue from a few years to several decades. During the extraction process, companies should damage the environment as little as possible and reinstate the environment as closely as possible to the conditions prior to mining. From the beginning of extraction, the government should collect some money for a rehabilitation fund to use for recovery.

Mining extraction requires large capital and financial investment and companies make money only after few years. Thus, the long-term stability of the legal and business environment is critical for the mining extraction business. If the deposits are large, it requires also large infrastructure development such as electricity, water supply, and railways. For financing large mining projects, companies raise funds from the international stock market by offering their shares (IPO). Investors calculate all the risks of the project and the company, and invest usually stage by stage. In this way, large, experienced and well-known international mining companies usually do implement large mining projects successfully.

According to MONTSAME, Mongolia had attracted 19 billion US dollars since 1990 and 80 percent of the investment accounts for the mining sector alone. In the mining sector, there are 13 thousand companies from 112 countries, led by the Netherlands, China, Great Britain, Singapore and Canada. 38,000 people have been employed, 80 percent of which were Mongolian nationals. 

New trends in Mongolian mining

It is hardly possible to imagine the Mongolian economy without the mining industry today, even after our government is being frequently replaced, and our laws and regulations are being amended all the time. For the first 11 months of this year, government tax revenue reached 1.4 trillion tugriks from the mining sector through 9 kinds of taxes. This is 20 percent of the state budget. Budget income from the mining sector has doubled and reached 764 billion tugriks compared to the same period last year. For the first ten months of 2017, 80 percent of total exports came from the mining sector. Mineral export has grown by 1.5 billion US dollars, 85 percent of which is contributed by coal alone. 

Mining policy and governance are both not very clear in Mongolia. That is why we have observed many conflicts in this sector. The main reason for the conflicts is that the central government is not giving royalty shares by law to local communities. So some mining companies are initiating projects for development of local communities. For instance, Oyu Tolgoi LLC (the largest copper mining project in the country) has been spending 5 million US dollars every year for local development through an NGO named the “Gobi Oyu Development Fund” since 2015. Representatives from South Gobi aimag, local leaders and the company decide how to spend this money. There are 13 members in this decision-making team, called a Partnership Committee. They have built two kindergartens, two gyms for schools in Dalanzadgad soum, a medical center for Bayan-Ovoo soum, a school, a kindergarten, an animal health center for Khanbogd  soum,  and a building for Manlai soum’s steam boiler. They have implemented many projects in Khanbogd soum, such as purifying drinking water, building an arboretum and greenhouses for vegetables in 2016.

The World Bank is implementing a 4.2 million US dollar project called “Improving groundwater management in the South Gobi region” with a grant from the Australian government. It is a good way to resolve conflicts between local people and mining companies, and it plays an important role to implement smart water management. There are 29 river-basins in Mongolia. Now there is a new database center for three of them, which collects information such as deepwater quality, level and volume of underground water flow, and the variations of water level through 114 boreholes. 

The Canadian Boroo Gold Mine open pit, occupied the territory of 92.7 hectares of land and it was impossible to make a complete biological and technical rehabilitation, so the local soum authority requested rehabilitation of the land next to the mine area (environmental set-off project) with same ecology. Now they are rehabilitating 160.4 hectares of pasture land and 45.7 hectares of forest ecosystems, instead of 77.5 hectares pasture land and 15.2 forest ecosystems, which the mine had impacted.

The social responsibility of Mongolian mining companies is improving and we now need to increase the public awareness. Many other problems in this sector can be solved with increased  public participation. A.Bat-Orgil


Like the article?

Comments (0)

0 people (0%)

0 people (0%)

0 people (0%)