Mongolia Mining Report Q2 2016
BMI View: Mongolia's mining sector growth will accelerate on the back of foreign mining investment, arobust infrastructure framework and the country's strategic close proximity to major export markets such asChina. Projects such as Rio Tinto's Oyu Tolgoi mine will significantly increase the country's mining outputover the coming years.
Latest Developments & Trends
On May 18, 2015, an agreement was reached between Turquoise Hill (a Rio Tinto subsidiary) andMongolia's government to go ahead with a USD5.4bn underground expansion. Accordingly, in December2015 Rio Tinto announced that the company has lined up a combined USD4.4 billion from 20 lenders tofund the expansion of Oyu Tolgoi. The end of the deadlock between the Mongolian government andTurquoise Hill Resources over the Oyu Tolgoi mine in Mongolia's South Gobi region further supportsour view of rapid long-term growth in Mongolia's gold and copper output. An increasingly favourableinvestment climate will allow overseas miners to take advantage of the country's considerable gold andcopper reserves. The Oyu Tolgoi mine will be the sector's key growth driver and account for around onethirdof Mongolia's economy once the mine reaches full production capacity in 2021.
Despite calls for greater resource nationalism over the past quarters, we believe the Mongoliangovernment will tone down its anti-foreign investment stance against miners. The government's policypriorities will shift away from the populist tones outlined during the 2013 election campaign, back to amore market-friendly platform. However, anti-foreign investor sentiment amongst the public remains amajor issue, and is the key reason why the government took a more pronounced hard-line stance towardskey foreign investors in the country, notably global mining major Rio Tinto. The split in the supercoalition is a signal that political will power to push through deals is waning. We are not optimistic on theprospects for progress on the Tavan Tolgoi projects as the government is unlikely to want to tackle theissue with an election around the corner.
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