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| Countries covered: Mongolia The mining sector is the key driver for the Mongolian economy. In 2001, mining earned just US$110mn and made up 9.5% of GDP. But in 2010, BMI expects mining revenue to total a comparatively massive US$2.4bn and to dwarf all other economic sectors, making up over half the total economy. The growth of Mongolian mining however has only just begun; the country has vast and untapped mineral resources which are yet to be fully explored. Leading the way will be two giant projects that should both come on stream in 2013. The biggest is the gold/copper mine at Oyu Tolgoi which is considered to have the potential to be one of the world’s richest producing mine with reserves that will last 60 years. The other is the 6.4bn tonnes of coking coal deposits at Tavan Tolgoi, which while smaller in financial potential is still attracting the attention of the biggest corporate players in the mining world. Mongolia’s riches are, however, not confined to these two projects and there is much more to be discovered and developed in the future. The difficulty is not resource scarcity, but a lack of finance and expertise as well as the logistical problem of extracting the resources and getting them to buyers. That the nearest road to Oyu Tolgoi is 500 miles away gives an idea of the scale of infrastructural investment required. Indeed, the investment required in Oyu Tolgoi before production can start is estimated at US$4.6bn and already there are reportedly cracks appearing in the financing agreements between Ivanhoe, Rio Tinto and the Mongolian government. While Rio and Ivanhoe are rowing over who will own what, the government, through a Treasury Bill issue and the use of ‘tax prepayments’, is planning to raise US$250mn before has even production begun. This was not the only incident where the spotlight has shone on government interference in the sector. Canadian company Khan Resources suspects that the revocation of its uranium prospecting licences in April was as a result of pressure from the Russian state-owned uranium miner ARMZ and has successfully argued its case in the Mongolian courts winning two recent judgements. However with the Nuclear Energy Agency (NEA) giving notice that it will appeal the rulings the issue is still unresolved. The Mongolian government is in a potentially difficult spot. Located between Russia and China, there are fears that these geopolitical giants will pressure Mongolia in an attempt to gain access to its valuable resources. Fear of this occurring, as well as the government’s recent actions could damage investor perceptions of Mongolia as a business friendly environment. Given the huge capital investment required to get Mongolian mining projects up and running, many global players will be watching developments closely. Despite a forecasting a contraction of 9.64% this year which has seen an end to a decade of highly volatile growth, BMI sees the sector showing extremely strong growth in the medium term. The Mongolian economy as a whole will be will be driven by the investment in mining projects and once production begins at Oyu Tolgai and Tavan Tolgoi, we expect a y-o-y increase of 13.7% in 2013 and 15.49% in 2014 reaching a total value of US$6.27bn. |
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