The Prospectors & Developers Association of Canada (PDAC) holds its annual convention in Toronto at the beginning of March every year. The 2018 convention and exhibitions saw 26,000 participants from 125 countries. It is where the mineral industry investors, professionals, executives, prospectors, local government and community representatives, and government delegates gather to exchange information and discover avenues of cooperation. The convention also reflects how the commodity market is faring and how mineral prospecting and exploration are going.
In the week of the convention Toronto’s hotels are fully reserved while its catering and transport industries are tested to their full capacity. PDAC President Glenn Mullan mentioned in his opening remarks that the Convention injected 17 million dollars into Toronto’s economy this year, adding 1,000 jobs. This certainly appers to be where many mining businesses make their start.
While the Toronto streets had chilly winds blowing in from Lake Ontario, the convention halls and exhibition rooms were full of warm energy. Many PDAC participants noted that the commodity markets had been going against the wind for a few years, but that now the winds were becoming more favorable. PDAC 2018 was evidence that those winds are again blowing in the right direction.
Mongolia’s mining sector and investment
Mongolia had a relatively late entry to the international commodity market, but has made strides in a short amount of time. While doing so, the name ‘Mongolia’ has been drawing both positive and negative comments. This year our government held its annual Mongolia Mining Forum in a meeting hall at the Toronto Intercontinental Hotel on 3 March. This investor forum attracted 270 attendees, which was double the number from last year.
D. Sumiyabazar, Minister of Mining and Heavy Industry, delivered the opening remarks of the Mongolia Mining Forum. He emphasized the Canada-Mongolia agreement established to protect and support investment, the support provided by the Canadian government on improving the legal environment for Mongolia’s mineral resources sector and strengthening its institutions, and Mongolia becoming only the second country in the world to have met the extractive industry transparency standards (EITI Standard). He also noted that the Mongolian government is working to improve the investment environment. From Canada’s side Pamela Goldsmith-Jones, the Parliamentary Secretary to the Minister of International Trade, addressed the audience. There were over 60 attendees from Mongolia, including two MPs, government delegates, and private sector representatives.
The Mongolia Mining Forum was also attended by executives of mining companies that have already invested in Mongolia and started operating. These executives presented about the operations they have, reflected on the reality of business environment, and suggested opportunities for improvement. There was a wide range of companies, including Erdene Resources Development Corp (20 years of experience in Mongolia), Xanadu Mines Ltd (10 years in Mongolia), Aspire Mining LLC, and Steppe Gold (preparing for listing on the Toronto Stock Exchange despite being founded very recently). The executives from these companies gave presentations and answered questions from investors. There are now 11 companies who operate in Mongolia and are listed on the Toronto Stock Exchange.
Investors have gained more confidence, having heard that the Oyu Tolgoi underground development (managed by large global miner Rio Tinto) is tracking well against its schedule and with Rio Tinto appointing a Mongolia Director and establishing its own unit, which will focus on exploration.
However, investors wanted to get more clarity on issues such as Mongolia’s mining policy, constantly changing regulations, local communities becoming more negative about mining because royalties do not go to them, the issuing of exploration permits being suspended, and a lack of clarity on when and how the mega projects such as railroad and power plants will be implemented and how state-owned companies will attract foreign capital to progress them. Such issues are preventing Mongolia from competing with countries like Peru, Ecuador, and Chile on the PDAC stage.
International commodity market and copper
The TMX Group has said that half of the world’s mining companies listed on the market are connected to the Toronto Stock Exchange. The number of companies listed on the Toronto Stock Exchange (TSX) and the Toronto Venture Exchange (TSXV) increased by 73 per cent, and the market capitalization of mining companies grew by 12 per cent, last year. A total of 1,211 mining companies are listed on these two stock exchanges and their market capitalization had reached 310 billion dollars by the end of January 2018.
The price of copper, which is an essential mineral for Mongolia, has recovered to 7,000 dollars per tonne, which is a significant increase given that the price was 4,300 dollars two years ago. Experts have been noting that the demand for copper is increasing worldwide due to electric vehicles and renewable energy, but the biggest manufacturer, Chile, has been experiencing higher costs of mining and their reserves are on the decline. Copper mining in Chile takes place in locations that are very close to settlements, which is why they are reducing their use of arsenic to decrease negative environmental impacts. Also, their miners are demanding higher pay, which is increasing the total production costs at copper mines.
These factors make investors to look at porphyry deposits, where it is relatively easier to process copper, and Mongolia has these kind of deposits. Nelson Pizarro, CEO of CODELCO (the Chilean state-owned copper mining company), said last year when he was a guest on my ‘Defacto’ interview show, that he is interested in investing in Mongolia. Geologists have noted that ore bodies similar to Oyu Tolgoi’s are actually found in other areas. So, in short, investors consider that there are potentially many big deposits like Oyu Tolgoi in Mongolia. The Chief Executive of Wood Partners, who bought the exploration licence for Ikh Khishigtei (where there are discoveries of copper and gold) located in close proximity to Oyu Tolgoi, said that they would start a multimillion dollar drilling program this spring.
Next steps for Mongolia
The reason why investors are very cautious about Mongolia despite its potential for even more resources has been explained very clearly by Andrew Mackenzie, CEO of BHP (the largest global miner in the world besides Rio). Reuters reported that he said Mongolia has great potential in resources and mining, but it is a country that has certain geopolitical and security challenges.
We need to be smart and carefully analyze why the major investors are viewing Mongolia as a country where rules and regulations are unstable, and could pose a threat to the money that they would invest. Since we do not have many other opportunities other than mining to obtain foreign currency in the country today, Mongolia needs to attract foreign capital into this sector and have the companies bear the risk on their own. And, if they find resources, we should let them conduct mining activities themselves. Softer conditions should be imposed until their investment is recovered, and slightly tougher conditions should be imposed afterwards. What foreign investment also brings is technology and management know-how, which is something we should learn from because it will enable us to enter the global mining scene.
What it would take is the right decisions from the senior government officials. These would be decisions to control their greed, refuse to be in charge of industries in which they have their own businesses, stop receiving bribes, and think about the long-term vision that will benefit our country in the future.
In comparison to previous times, we now have a skilled and capable workforce and have had many people travel to different countries and see how things are done. Now we only need to do what Georgia did and stop corruption. We need to be compensated by those who stole from public funds, develop the mining sector in the right way, and use the mining revenue to develop other industries.
It is not that hard to make the local communities receive part of the royalties legally, have people involved in expenditure of the funds, ensure transparency in governing, and enable the oversight of people. What is actually blocking us from improving our public governance at every level? The only thing that is missing is courage, desire, and effort from us, the people.
2018.03.15
Trans. by B.Amar