Mongolia races to meet China’s needs

SouthGobi Resources owns the right asset in the right place at the right time. The Hong Kong-listed Mongolian mining company is controlled by Ivanhoe Mines of Canada, and operates the Ovoot Tolgoi mine just 40km from the border with China.

Since March, Oovot Tolgoi has produced about 200,000 tonnes of coal a month, most of it destined for Chinese steel mines and power plants.

That represents a dramatic turnaround from the same period last year, when production was halted because of a tangle at the Shivee Khuren-Ceke border crossing that illustrates the profound impact China’s rapid economic growth is having on its vast and resource-rich neighbour.

Like other designated points along the Sino-Mongolian frontier, Shivee Khuren-Ceke had been a sleepy, seasonal border crossing that facilitated reunions between Mongolians and their kinfolk in Inner Mongolia, a Chinese province, during festival periods.

The development of Oovot Tolgoi transformed the surrounding economy, previously focused on cashmere production, and put a strain on Shivee Khuren-Ceke, which SouthGobi’s prospectus notes experienced “erratic and unpredictable opening hours and sporadic closures” in early 2009.

Speaking to reporters at post-results briefing on Friday, Alexander Molyneux, SouthGobi chief executive, said his company’s subsequent production hiatus was implemented to clear the backlog that accumulated during the border disruption.

Now designated a “permanent border crossing” by the Mongolian and Chinese foreign ministries - and open 11 hours a day, six days a week - Shivee Khuren-Ceke is no longer a bottleneck.

But the Mongolian authorities are still racing to alleviate other infrastructure challenges arising from Chinese demand for the country’s resources. Mining companies routinely operate 100-tonne trucks over a national road network only designed for vehicles of up to 60 tonnes. Mongolia is scrambling to upgrade its road standards accordingly.