Mongolia seeks foreign investment
Mongolia has been listed as the world’s fast growing economy for the second year running, providing hope for industrial minerals companies working in the region.
Yet questions still remain around the complicated infrastructure, regulatory restrictions and logistics setbacks.
The Economist has today published its 2014 projections ranking Mongolia at the top thanks to its booming mining industry.
In November 2013 the country’s central bank head Naidansuren Zoljargal said gross domestic product could expand by as much as 17% this year from around 11% last year.
The mining sector accounts for 20% of the country’s GDP and is located next to the largest commodity consumer in the world, China.
The Asian nation contains vast fluorspar deposits, as well as graphite and rare earths.
Mongolia produced 430,000 tonnes of all grades of fluorspar in 2013 with 70 exporters responsible for selling the material to a global market.
Market situation
Accounting for over 30% of total annual sales of fluorspar in Mongolia is Mongolrostsvetmet LLC, the Russian-Mongolian joint venture.
The country’s other major suppliers are: MonCzechMetal (11%), Kevin Invest (8%), Bayalag Jonsh (4%), and Naimgan Ord (4%). Just under 50% of products come from small scale suppliers.
There still remains over 140 known deposits of fluorspar with ore grading between 30-35% CaF2, which are yet to have an owner.
Despite the minerals extractions possibilities available in the country, foreign investment has fallen year-on-year in the country because of regulatory volatility.
Foreign investment
Mongolia, which is dependent on the mining sector to fuel growth, is looking to turn around the slump in its economy and the fall in foreign investment.
Foreign direct investment in the country dropped by 47% during 2013, the value of the currency, the tugrik, is down 20% this year and the Mongolian central bank is burning through foreign reserves as foreign debts balloon to 55% of GDP.
Speaking to IM, James Rodríguez de Castro, managing director of Mongolian Minerals, said the government has not yet realised that foreign investment can be won by regulatory stability.
“The realisation that they [government] need to be more consistent has sunk in. They realise that they need foreign investment because they don’t have enough capital,” he said.
The government introduced legislation on minerals extraction in July 2013 but the policy is still under review with no clear date of the final draft release.
De Castro highlighted a series of corruption cases involving the suspension of 106 mining licenses.
The uncertainty associated with these cases has caused foreign mining companies to suspend investments in these areas for an indefinite period of time, he said.
Only 31 of the 106 impacted licenses, accounting for about $19m, has already been spent and a further $36m planned. The 106 licenses cover a landmass approximately six times larger in surface area than active mining licenses in Mongolia according to a new report by Independent Mongolian Metals & Mining Research.
While the new investment law has been universally hailed as a positive step issues around logistics, which need to be resolved before investor confidence can return to the country, remain.
Logistics
De Castro said Russian influence on Mongolia’s rail system is holding back logistical development.
Mongolia adopted the Russian rail standard but Chinese trains in contrast run on so-called standard gauge tracks used throughout most of the rest of the world.
This means exporting to China is more expensive than to Russia, because once goods reach the Chinese border either the train undercarriages will need to be changed or transferred to trucks, adding costs in delivering the cargo to Mongolia's biggest customer.
De Castro said: “They should have Russian gauge trains going north and Chinese gauge trains going south and get the best of both worlds.”
But he did concede that “the infrastructure challenge is slowly improving”.
“If it was easier to move ore then you would have more flexibility to have a central processing plant somewhere but because infrastructure isn’t as well developed,” said de Castro, “moving ore is a bit more expensive and complicated than it needs to be.”
Deposits
Another challenge for fluorspar extraction in Mongolia is that its deposits are distributed all over the country in small pockets instead of being concentrated in a few places, which makes it difficult to commercially mine, particularly with limited rail-road access.
De Castro said the small deposits of fluorspar could deter foreign investors.
“The challenge the industry has is that some of the small deposits are not large enough to justify a processing plant on their own but the total aggregate number of small deposits is definitely enough to justify a plant,” he said.
“The ownership at the moment is dispersed so none of the owners of these small deposits are individually capable of getting the funds and building a plant but with a bit of consolidation and grouping the smaller properties into larger holdings processing plants start to become economical,” he added.
Owners of small deposits of minerals also face problems from illegal miners.
“If you were only ever planning to mine the top 5m then sure they can do some damage but if you were going to be mining down one or 200m then they’re not going to anywhere past five or ten [metres],” de Castro told IM.
“Sure they’ll mess it up a little bit and leave a bit of an eyesore, but it isn’t a tremendous problem and because they don’t have the capacity to do serious damage they can only scratch at the surface,” he explained.
Overall de Castro was optimistic about the future of the mining industry in Mongolia.
“The government realises the only way they’re going to have a future is with mining. The direction is clear – no other direction is logical in Mongolia,” de Castro concluded.
Yet questions still remain around the complicated infrastructure, regulatory restrictions and logistics setbacks.
The Economist has today published its 2014 projections ranking Mongolia at the top thanks to its booming mining industry.
In November 2013 the country’s central bank head Naidansuren Zoljargal said gross domestic product could expand by as much as 17% this year from around 11% last year.
The mining sector accounts for 20% of the country’s GDP and is located next to the largest commodity consumer in the world, China.
The Asian nation contains vast fluorspar deposits, as well as graphite and rare earths.
Mongolia produced 430,000 tonnes of all grades of fluorspar in 2013 with 70 exporters responsible for selling the material to a global market.
Market situation
Accounting for over 30% of total annual sales of fluorspar in Mongolia is Mongolrostsvetmet LLC, the Russian-Mongolian joint venture.
The country’s other major suppliers are: MonCzechMetal (11%), Kevin Invest (8%), Bayalag Jonsh (4%), and Naimgan Ord (4%). Just under 50% of products come from small scale suppliers.
There still remains over 140 known deposits of fluorspar with ore grading between 30-35% CaF2, which are yet to have an owner.
Despite the minerals extractions possibilities available in the country, foreign investment has fallen year-on-year in the country because of regulatory volatility.
Foreign investment
Mongolia, which is dependent on the mining sector to fuel growth, is looking to turn around the slump in its economy and the fall in foreign investment.
Foreign direct investment in the country dropped by 47% during 2013, the value of the currency, the tugrik, is down 20% this year and the Mongolian central bank is burning through foreign reserves as foreign debts balloon to 55% of GDP.
Speaking to IM, James Rodríguez de Castro, managing director of Mongolian Minerals, said the government has not yet realised that foreign investment can be won by regulatory stability.
“The realisation that they [government] need to be more consistent has sunk in. They realise that they need foreign investment because they don’t have enough capital,” he said.
The government introduced legislation on minerals extraction in July 2013 but the policy is still under review with no clear date of the final draft release.
De Castro highlighted a series of corruption cases involving the suspension of 106 mining licenses.
The uncertainty associated with these cases has caused foreign mining companies to suspend investments in these areas for an indefinite period of time, he said.
Only 31 of the 106 impacted licenses, accounting for about $19m, has already been spent and a further $36m planned. The 106 licenses cover a landmass approximately six times larger in surface area than active mining licenses in Mongolia according to a new report by Independent Mongolian Metals & Mining Research.
While the new investment law has been universally hailed as a positive step issues around logistics, which need to be resolved before investor confidence can return to the country, remain.
Logistics
De Castro said Russian influence on Mongolia’s rail system is holding back logistical development.
Mongolia adopted the Russian rail standard but Chinese trains in contrast run on so-called standard gauge tracks used throughout most of the rest of the world.
This means exporting to China is more expensive than to Russia, because once goods reach the Chinese border either the train undercarriages will need to be changed or transferred to trucks, adding costs in delivering the cargo to Mongolia's biggest customer.
De Castro said: “They should have Russian gauge trains going north and Chinese gauge trains going south and get the best of both worlds.”
But he did concede that “the infrastructure challenge is slowly improving”.
“If it was easier to move ore then you would have more flexibility to have a central processing plant somewhere but because infrastructure isn’t as well developed,” said de Castro, “moving ore is a bit more expensive and complicated than it needs to be.”
Deposits
Another challenge for fluorspar extraction in Mongolia is that its deposits are distributed all over the country in small pockets instead of being concentrated in a few places, which makes it difficult to commercially mine, particularly with limited rail-road access.
De Castro said the small deposits of fluorspar could deter foreign investors.
“The challenge the industry has is that some of the small deposits are not large enough to justify a processing plant on their own but the total aggregate number of small deposits is definitely enough to justify a plant,” he said.
“The ownership at the moment is dispersed so none of the owners of these small deposits are individually capable of getting the funds and building a plant but with a bit of consolidation and grouping the smaller properties into larger holdings processing plants start to become economical,” he added.
Owners of small deposits of minerals also face problems from illegal miners.
“If you were only ever planning to mine the top 5m then sure they can do some damage but if you were going to be mining down one or 200m then they’re not going to anywhere past five or ten [metres],” de Castro told IM.
“Sure they’ll mess it up a little bit and leave a bit of an eyesore, but it isn’t a tremendous problem and because they don’t have the capacity to do serious damage they can only scratch at the surface,” he explained.
Overall de Castro was optimistic about the future of the mining industry in Mongolia.
“The government realises the only way they’re going to have a future is with mining. The direction is clear – no other direction is logical in Mongolia,” de Castro concluded.
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