Toronto recently hosted the annual PDAC (Prospectors and Developers Association of Canada) convention. The reputation of this association is growing every year as they have consistently enabled over 8,000 members and participants to exchange information and share best practice in responsible mining, sustainability, operations, environment, safety, and positive social impact.
The annual convention takes place every March and this year the event saw an attendance of 25,800 people and 3,500 investors from 130 countries. In addition, nearly 1,000 companies in mineral exploration, development, and logistics participated in the trade show organized as part of PDAC. Thanks to PDAC, 70 million dollars came into Toronto’s economy.
This year, the Mongolian delegation was led by D. Sumiyabazar, Minister of Mining and Heavy Industry, and included representatives from the government and mining companies. A Mongolia session was organized under the name ‘Mongolia@PDAC 2019’, where companies listed on the Toronto, Australian, and Mongolian stock exchanges exchanged experience and answered questions from an audience of 250 people. Minister D. Sumiyabazar’s key focus was around offering 30 per cent of Erdenes Tavan Tolgoi (ETT) on foreign stock exchanges. He had meetings with investors, Canadian Ministers of Mines, International Trade, and Natural Resources, and the Chilean mining minister.
Global outlook in mineral development
It was reported by the S&P Global Intelligence that the annual global exploration spends on non-ferrous metals, such as aluminum, gold, copper, and zinc, increased by four per cent to reach 10 billion USD in 2018. Half of this capital was spend on gold, and 22 per cent on copper. Gold prices, which weaken when USD appreciates, stood at 1,318 USD per ounce in the beginning of 2018 and reduced to 1,283 by the end of 2018. It is projected that the gold prices will not change significantly now. The price of copper stood at 6,173 USD a tonne at the end of 2017, and grew to 6,527 USD on the London Stock Exchange due to economic growth and supply reduction. The copper is projected to be priced at an average of 6,824 USD in 2019.
On the other hand, exploration budgets for battery metals, including copper, lithium, and cobalt, are seeing a significant growth triggered by the increasing production of electric vehicles. In 2018, a total of 247 million USD was spent on lithium exploration, which was a 58-per-cent increase compared to the previous year. If we look at cobalt, 95 companies spent a combined amount of 110 million USD, which was a threefold increase from the exploration spend in 2017.
Meanwhile, exploration activities became stagnant in Mongolia. After a long period of issuing exploration licenses in a highly disorganized manner, Mongolia suspended exploration licenses altogether in 2010. But it didn’t take long for the licenses to start being reissued – some transparently and some secretly. Today, there are 3,074 licenses issued, 1,393 of which are exploration licenses and 1,681 are mining licenses. A geological map with a scale of 1:50,000 (1 centimeter equaling 500 meters) is mandatory requirement to conduct mining operations in Mongolia. However, only one third of our territory has such geological maps that meet the criteria. Normally countries first obtain the knowledge of what deposits lie where on their land and then develop a plan to use the resources wisely. The 2017-2018 public budget included 13.3 billion tugrugs on exploration activities, but only 11.3 billion (5.3 million USD) was spent. International markets offer many opportunities to find investment on exploration projects that have strong prospects.
The Mineral Resources and Petroleum Authority reported that Mongolia produced
- 50 million tonnes of coal
- 1.3 million tonnes of copper concentrate
- 20.6 tonnes of gold
- 109,000 thousand tonnes of fluorspar
- 7.7 million tonnes of iron ore
- 9.6 million tonnes of iron ore concentrate
- 5,400 tonnes molybdenum concentrate
- 14,200 tonnes of cathodes copper
- 182,000 thousand tonnes of fluorspar concentrate
- 88,000 tonnes of zinc concentrate
Mining accounts for 23.6 per cent of Mongolia’s GDP, 72 per cent of industrial sector, 88.5 per cent (6.2 billion USD) of exports, and 74 per cent of foreign investment. Therefore, Mongolia’s development is directly dependent on its mining sector.
Erdenes Tavan Tolgoi’s pursuit of capital
Mongolia’s mining sector cannot be fathomed without coal. The low calorific value coal is used for producing electricity or heat, while the high calorific value coking coal is used in furnaces to make steel. In 2018, 88.5 per cent of Mongolia’s total exports was comprised by minerals, nearly half of which (around 45 per cent) were made up by coking coal.
The Ministry of Mining and Heavy industry reported that, as of the end of 2018, Mongolia’s total coal reserves reached 37.4 billion tonnes, and a total of 179 companies are conducting mining operations, holding 317 mining licenses. In 2018, Mongolia produced 50 million tonnes of coal, 36 million of which were exported. The Tavan Tolgoi deposit accounts for 7.4 billion tonnes of the total coal reserves. It is estimated that 5.1 billion tonnes of the coal in Tavan Tolgoi are coking coal, and 3 billion of which are located at Tsankhi and controlled by the state-owned Erdenes Tavan Tolgoi (ETT) company. In 2018, ETT mined 11.1 million tonnes of coal and their total sales stood at 800 million USD. On its own, ETT supplied 20 per cent of China’s coking coal exports last year.
Having started mining in 2010, ETT exported 40 million tonnes of coal within eight years. They plan to double its production capacity and produce 70 million tonnes over the next four years. It is estimated that 85 per cent of their production will be coking coal. In order to double their production, ETT is planning nearly 20 large projects, including building a new railway and a new road to the Gashuun Sukhait port, increasing its exporting capacity, developing coal-processing and chemical plants, building a power plant, establishing water supply, and building a railway to Sainshand and to Khangi. These projects require an investment of 1.8 billion USD. The government is planning to raise this capital by listing ETT’s 30 per cent on the international market.
ETT has a large reserve, high quality coking coal, and a great location right next to its biggest customer. Therefore, investors expect that, once the necessary infrastructure is built, ETT’s production will ramp up and their sales will increase. However, there are question marks around ETT’s executive management being replaced far too often (due to being state-owned), and the absence of an independent board member who can represent 15 per cent of the shares already distributed to people. Also, investors recognize that a 30-per-cent share doesn’t come with a lot of decision-making power.
Another area where international investors are interested in is ETT’s social and environment responsibility. Tavan Tolgoi’s coal is first transported on trucks to be dumped at Tsagaan Khad (located 20 kilometers from the border) before being reloaded. As a result, thousands of trucks get stuck in a huge traffic under the black dust, and it takes weeks before their turn comes to cross the border. Drivers essentially live in their cabins during that time.
The permit to transport coal is provided by the Ministry of Road and Transport Development. Tsagaan Khad has a long line of coal trucks stuck without moving because their number exceeds the capacity at the border. Due to the politics involved, the permit to transport coal was provided to 15,000 trucks when only 3,500 would have been enough. Accidents happen on this road almost every day, many of which regrettably end up in a fatality. It is obvious that, as long as accidents happen, lives are lost, and the traffic is stuck at Tsagaan Khad, no one from either domestic or international markets would buy ETT’s shares. There is a lot of work that needs to be done before we can sell ETT’s shares on the Toronto stock exchange.
2019.03.13
Trans. by B.Amar