The value of Mongolia's mining sector will grow to US$15.4bn by 2015
Mongolia will exhibit one of the world´s fastest growing mining sectors with phenomenal growth of gold, copper and coal production. We expect that the country´s mining sector value will grow to US$15.4bn by 2015, marking a fivefold increase from 2010. The majority of this will increase occur in 2013 and 2014 as the gargantuan Oyu Tolgoi copper and gold mine comes online.
Rapid Growth Across All Metals
We expect a dramatic reversal of the trend of static or declining growth in mining output, with rapid rates of growth across the mining complex over the coming years, especially in 2013. From 2011 to 2015 we forecast an annual average growth rate of 31.2% in gold output to reach 791kozpa (thousand ounces per annum), and 40.1% growth in copper production to 720ktpa (thousand tonnes per annum). The phenomenal rates of growth in copper and gold output will be largely driven by the Oyu Tolgoi mine, a joint venture between Rio Tinto and Ivanhoe Mines, which is due to come online in 2013.
We forecast an annual average growth rate of 62.3% in coal output, reaching 16.2mtpa (million tonnes per annum) by 2015. This increase will be driven by South Gobi, a subsidiary of Ivanhoe, which is increasing production at Ovoot Tolgoi, the country´s largest coal mine, to 6.5mtpa by 2014. Again, this will reverse the decline experienced over the last three years. There are substantial upside risks to our coal outlook as the Tavan Tolgoi mine, currently owned by the Mongolian government, is due to commence output by 2015. The annual production figures have yet to be released, but the mine is believed to contain 6bnt (billion tonnes) of reserves, an enormous quantity. Aside from these developments, Mongolia has great potential for further growth in mining output across all metals as very little of the country has been mapped. Therefore, it is likely that significant deposits of minerals are yet to be discovered.
Regulatory Environment
Mongolia has made significant progress over the last decade to improve its business environment. Most importantly, the government recently rescinded the 68% windfall tax which was a great impediment to foreign investment into the country. The repeal of the tax led to a wave of investment including the completion of the Oyu Tolgoi agreement, which will bring billions of dollars of investment into the country. Recently, however, there has been a slight deterioration in the country´s business environment as the government suspended almost half of the country´s mining licenses on environmental grounds, having previously cancelled two exploration licenses for the Canadian miner Khan Resources.
Key Players
Mongolia´s mining sector is dominated by Rio Tinto and Ivanhoe, but other smaller companies are active including Centerra Gold and Erdene Gold, both of which have substantial exploration projects. We expect the mining sector to become more fragmented going forward with numerous companies tempted by the country´s mineral potential. Indeed, in addition to Rio Tinto, we expect other large-scale miners to enter the Mongolian mining sector, such as Vale, tempted by the country´s considerable undeveloped coal reserves.
Rapid Growth Across All Metals
We expect a dramatic reversal of the trend of static or declining growth in mining output, with rapid rates of growth across the mining complex over the coming years, especially in 2013. From 2011 to 2015 we forecast an annual average growth rate of 31.2% in gold output to reach 791kozpa (thousand ounces per annum), and 40.1% growth in copper production to 720ktpa (thousand tonnes per annum). The phenomenal rates of growth in copper and gold output will be largely driven by the Oyu Tolgoi mine, a joint venture between Rio Tinto and Ivanhoe Mines, which is due to come online in 2013.
We forecast an annual average growth rate of 62.3% in coal output, reaching 16.2mtpa (million tonnes per annum) by 2015. This increase will be driven by South Gobi, a subsidiary of Ivanhoe, which is increasing production at Ovoot Tolgoi, the country´s largest coal mine, to 6.5mtpa by 2014. Again, this will reverse the decline experienced over the last three years. There are substantial upside risks to our coal outlook as the Tavan Tolgoi mine, currently owned by the Mongolian government, is due to commence output by 2015. The annual production figures have yet to be released, but the mine is believed to contain 6bnt (billion tonnes) of reserves, an enormous quantity. Aside from these developments, Mongolia has great potential for further growth in mining output across all metals as very little of the country has been mapped. Therefore, it is likely that significant deposits of minerals are yet to be discovered.
Regulatory Environment
Mongolia has made significant progress over the last decade to improve its business environment. Most importantly, the government recently rescinded the 68% windfall tax which was a great impediment to foreign investment into the country. The repeal of the tax led to a wave of investment including the completion of the Oyu Tolgoi agreement, which will bring billions of dollars of investment into the country. Recently, however, there has been a slight deterioration in the country´s business environment as the government suspended almost half of the country´s mining licenses on environmental grounds, having previously cancelled two exploration licenses for the Canadian miner Khan Resources.
Key Players
Mongolia´s mining sector is dominated by Rio Tinto and Ivanhoe, but other smaller companies are active including Centerra Gold and Erdene Gold, both of which have substantial exploration projects. We expect the mining sector to become more fragmented going forward with numerous companies tempted by the country´s mineral potential. Indeed, in addition to Rio Tinto, we expect other large-scale miners to enter the Mongolian mining sector, such as Vale, tempted by the country´s considerable undeveloped coal reserves.
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