Mining Mongolia

Two weeks shy of  June 28th parliamentary elections, Sant Maral Foundation published its latest survey results. The results were collected from 1000 participants from four aimags (Sukhbaatar, Arkhangai, Selenge & Hovd) and Ulaanbaatar between the dates of June 6-June 14.

Aside survey questions regarding the important parliamentary seats (the results have the Democratic Party [Ардчилсан нам] gaining a plurality but not a majority), the report features responses regarding how much importance Mongolians place in democratic values, who their favorite politicians are, and how they rate what the socio-political issues in the country are (hints: most democratic values are important, former President Enkhbayar is more popular June than he was in April, and unemployment is atop Mongolians' list too).

Without lending any takeaways, miningMongolia.info maintains the results are still compelling. Anyone interested in how next week's election might play out are encouraged to check out the PDF linked in the heading. 

After last month's failed attempt by China's Chalco to buy SouthGobi Resources, Mongolia's parliament has been weighing its options for future investments. Yesterday parliament approved a draft law that would require government review for any foreign investments over 100 bn turgriks (76 million USD) and limit share value to 49%. 

The draft law is a set to be voted on next month and will not apply retroactively to past deals. These measures effectively protect the Oyu Tolgoi project owned by Australia's Rio Tinto, and honor another Chalco deal with Winsway Coking Coal Holding Ltd that was reached a week before its troubles with SouthGobi. 

The government approval comes at tumultuous time as parliamentary elections are still slated for June and Former President Enkhbayar just received bail from his April arrest on corruption charges. The arrest of the former president was released from police custody after going on a hunger strike protesting what he calls a politically motivated arrest. 

The repercussions from the draft law have yet to be seen but at the same time seem stabilizing. Operations at SouthGobi Resources have resumed and investors now have clear guidelines off which to operate. The law defines investments deals made in minerals, banking & finance, or media & telecommunications, as applicable and possible given that parliament approves of deal provisions. The law comes at a time as a compromise on the large, Tavan Tolgoi coal project deal has been stalled since March. 

Given the considerable lack of follow-up on the arrest of Former President Enkhbayar, this Economist piece serves as a mass media update on Mongolia. 

Previous plans about Tavan Tolgoi's consortium development appear to be put on hold as reports of a stalemate surfaced. 

According to a Reuters article this week, Erdenes-Tavan Tolgoi COO Graeme Hancock is quoted as saying that the current arrangement " is a very difficult group to put together in a consortium." 

As earlier reported, the consortium that was original slated to develop the estimated 7.5 billion ton coal mine included China's Shenhua Group, United States' Peabody Energy, and a Russian-Mongolian group. Amid cries from other prominent neighbors Korea and Japan, the plan was shelved to possible include new partners.  

Hancock was also quoted as saying "We've got a pretty good chance that [the deal] will never happen." 

Amidst fears that China's economy is bottoming out and recent growth projections of approximately 8%, the lowest in years, the Chinese government is beginning to consider loosening fiscal policy. This easing of the Chinese Yuan is a welcome shift in policy for foreign investors and governments around the world. The Shanghai Stock Exchange has seen stock prices rise in anticipation and some are predicting an interest rate cut later this month. So how will the expected Chinese slowdown impact mining across the border in Mongolia? 

Given that China's economic policy greatly affects Mongolia's industry, the consequences of policy change is yet to be seen. However, what has played out in the Mongolian mining industry has been a US$926 million deal for Ivanhoe Resources to sell off its majority share in SouthGobi Resources, a Toronto-traded Mongolia-operated coal company, to Chinese aluminum giant Chalco.  The largest Chinese investment in Mongolia to date, the deal will give Chalco (subsidiary of the state owned metals and mining group Chinalco) inroads to the neighboring coal market. 

Even as it has started decelerating coal consumption, China has been a net importer of coal for years, relying on its Central Asian neighbors for readily transported resources. SouthGobi Resources mines in Ovoot Tolgoi are the closest to China and already has hundreds of trucks driving from the site to the border daily. Chalco's renewed focus on coal and rare metals have helped its stock price rise to above $12 a share last week as traded by American Depository Receipts. 

While coal is not regularly regarded as the capstone of Mongolian mining, Ivanhoe unloading its coal investments is significant in regards to Oyu Tolgoi project, the main driver of the Mongolian economy right now. Famed Robert Friedland's Ivanhoe Resources head has seen the company give way to majority stakeholder Rio Tinto, and this most recent deal is reported to raise capital for the construction of the Oyu Tolgoi project. Originally expected to be completed by 2013, Oyu Tologi could be producing as soon as Winter 2012 provided that more capital is made available. Also of note to the deal is that Chinalco is also the largest shareholder in Rio Tinto, a well diversified mining house, owning a 12.9% stake. 

Chalco has listed BNP Paribus as its advisor and the deal is expected to be completed by July 5th. 

Update: 

Buying SouthGobi Resources is proving to be more difficult than initially expected. After the announcement of  Chinese aluminum giant Chalco's bid to buy SouthGobi from Ivanhoe Mines, mining licenses for the mines were revoked by the Mongolian government late Monday, April 16th. SouthGobi shares dropped to C$6.25 a share the same day and, at the time of this writing, have yet to return to $7 stock prices. 

In a Eurasianet piece, UB-based journalist Pearly Jacobs reflects on how tourism is being overshadowed by the recent fervor for mining in Mongolia. Presenting recent figures on how mining has eclipsed tourism in its contribution to Mongolia's economy, the author dwells on the irony that most foreign businessmen, Chinese entrepreneurs, and miners enter the country with tourist visas. 

While there is more than enough land for both mining and tourism to coexist, what is in short demand are skilled workers, airline capacity and an economic balance to fend off inflation. A director in the Ministry of Foreign Affairs, Stephan Kreppel posits that the area affected by mining is miniscule compared to the total landmass while at the same time mining-driven inflation will make Mongolia an increasingly expensive destination, and the “Minegolia” image could hurt the country's brand among potential tourists.

Jacobs also focuses on tour operators that are complacent with mining in the country and is hesitant to place blame on any one industry. While focusing on the importance of land in Mongolian society, the author quotes Gantemur Damba from Sustainable Tourism Development Center and reframes the challenge: 

"Mongolia is big enough [for both mining and tourism] at the moment, but with land-protection laws still weak, this can be easily reversed. What Mongolia requires is clear zoning policies where mining can develop and where locals have the right to retain land-use rights to preserve their [nomadic] heritage—the real tourism product of Mongolia."

During a diplomatic trip to Japan, Mongolian Prime Minister Sukhbaatar Batbold talked to reporters about the economy at large. Addressing clamor that Mongolia's rising inflation and out of control government spending will cause the economy to overheat, Batbold maintained tight monetary policy and budget discipline will sustain the country's wealth. 

Mongolia's GDP growth is only expected to rise more after a 17.3% surge last year. Putting these statistics side-by-side those that the Mongolian tugrik depreciated by 11% last year, Mongolia's natural resource fortune sets the stage for a possible bust. Given that there is a sizable mixture of domestic mining revenue and foreign direct investment, the government has a large pool of funds to draw from, along with the responsibility to provide improved services, mainly infrastructure.  World Bank figures report that government spending rose 56% last year and will rise again 32% this coming year.

Batbold also suggested that the upcoming deal on Tavan Tolgoi will not be worked out ahead of the June parliamentary election. A week after the announcement that portions of the Tavan Tolgoi IPO will be delayed, the drawn out process of picking consortiums to develop the Western block of TT is sharing a similar fate. 

Erdenes, the Mongolian state-run mining company, is pushing back the foreign listing portion of Tavan Tolgoi's Initial Public Offering. Original plans had the IPO slated to happen before June 2012. The upcoming parliamentary elections in June and candidate promises related to the use of IPO profits were the incentive for the speedy processing of the stock exchange listings. The IPO aims to be ready by September of this year. 

Mongolian government still aims to have the Ulaanbaatar Stock Exchange portion of the offering complete by Summer. However, London Stock Exchange and Hong Kong Stock Exchange listings are proving to be troublesome. HKEX does not include Mongolia among countries for which jurisdiction of listed companies exists. Mongolian parliament soon votes on a securities law measure that would allow Mongolian entities to enter the Hong Kong Market. London Stock Exchange will only handle the global depository receipts.

Featured above is a preview from a new documentary titled "Mongolia: Mining Challenges a Civilization". The project was directed by Ed Nef and put together by Santis Productions. 

The documentary is featured on this site for its different views on the impacts of mining. In addition to examining the lives of countryside herders, the documentary shows how life in the capital city of Ulaanbaatar has come to represent the future of Mongolia. Interviews gather insight from environmental advocates, mining directors (both Mongolian and foreign), as well as the current American ambassador, the Honorable Jonathan Addleton.

While not a news story proper, the linked story is a blog post from The New York Times. The story sets the stage for a cost-benefit analysis of mining Mongolia and takes a cue from a well circulated mass media article by The Economist earlier this month. Green, The New York Times' blog about energy and the environment, tries to explain the phenomenon of Mongolia and its 20%+ GDP growth rate projections.

Unique to this story is the incorporation of visual media. Two videos are featured and display conflicting views of mining life. 

The first video is from C.E.E Bankwatch Network and tells the story from the herdsmen's point of view. The conclusion of the research for the video prompts the viewer to take actions to stop such projects in Mongolia. 

The second video is from Mongolia Metal Holding LLC and is a corporate promotional tool. While there is a lot of technical information about iron ore, it is also makes the point to show how workers live in modern accommodations with healthcare and activities. The conclusion of the video points out how the global demand for minerals is working towards the benefit of Mongolia's economic growth. 

The story continues to balance sobering facts with uplifting ones. After citing an article that focuses on the dust that herders are incorporating into their diet and lifestyles as a result of mining, the author then cites from the same article figures that have the Oyu Tolgoi mine producing 200$ billion USD during its lifetime. 

Goldman Sachs Group Inc. will buy a 4.8% stake in Trade & Development Bank of Mongolia LLC.

While also sharing its expertise and reputation, Goldman Sachs is investing in the infrastructure of Mongolia. The Trade & Development Bank of Mongolia predicts that Mongolia must invest as much as $68 billion USD for roads, mines and housing within the next four years. With a growth rate of 20.3% in the 3rd quarter of 2011, Mongolia has the been the subject of high growth projections and prodded for better infrastructure with which foreign investors can trust. T&D Bank, the oldest privately-owned bank in Mongolia, is positioned to fund much of the country's investments. 

Xanadu Mines ltd intends to unload two of its Mongolian thermal coal assets. The board of directors posted a corporate update regarding the future of its coal projects and is looking for potential buyers in the Galshar and Khar Tarvaga projects. 

Photo credit: Xanadumines.com

The announcement emphasizes Xanadu's focus on prospective coking coal projects alongside copper and gold opportunities. As previously reported, Xanadu Mines has teamed up with Noble Group, a Hong Kong-based commodities trading company, for projects and is currently working on three coking coal joint ventures.  

Undur Tolgoi Minerals Inc. is going ahead with its Winter Work Program which will collect soil samples from the company's South Gobi property. The board of directors approved the exploration program and the project is scheduled to start mid-late February. The company will have 1500+ soil samples evaluated in Ulaanbaatar.

The wholly owned license for the property covers approximately 9260 hectaces (more than 22,800 acres) and is located east of Oyu Tolgoi. The aim of the project is to identify base metals and/or gold anomalies, the same minerals found in neighboring plots. 

Recently reintroduced to the world for its abundant mineral riches, Mongolia is proving to have just as much treasure aboveground. New data from U.S. National Renewable Energy Laboratory and the Mongolian National Renewable Energy Center finds that Mongolia has no lack of alternative power resources. Earlier this year, their report found that the sparsely populated country has the potential to produce 2.6 million megawatts of energy by means of wind, solar, geothermal and hydropower.

The Gobi desert has been noted for its prime wind farm realty with speeds of 25 feet per second, and is already dotted with wind turbines on the Inner Mongolian side.  As previously reported, wind parks are becoming big business in Mongolia. The desert also ranks third in the world for solar power potential.

Travis Hamilton, managing director from Khan Investment Management LTD, speaks to Bloomberg about why his firm is investing in Mongolia.

In addition to speaking about the economic growth rates that are regularly cited, Hamilton highlights industries in Mongolia that are not often mentioned: telecommunications, finance, and building materials. He also answers Bloomberg's question about how China's demand of resources plays into Mongolia's growth.