Mine-golia

NESTLED between two of the world’s superpowers is a landlocked country three times the size of France that is fast becoming one of Asia’s – if not the world’s – hottest new investment destinations.
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Mining in Mongolia, image courtesy of Austrade.

Kristie Batten

Mongolia borders China and Russia and while the country is vast, it has a population of just under 3 million – though its livestock population is around 20 times higher.
 
The country has become a haven for foreign investment over the past few years after the Oyu Tolgoi copper-gold deposit and Tavan Tolgoi coal project became two of the world’s most lucrative and sought-after development opportunities.
 
Oyu Tolgoi is owned by Ivanhoe Mines (66%) and the Mongolian government (34%) though mining giant Rio Tinto is managing the project after upping its stake in Ivanhoe to 49.5%.
 
The project will begin initial open-pit production in the third quarter of next year and is set to produce 1.2 billion pounds of copper and 650,000 ounces of gold in the first 10 years along with 3-5 million ounces of silver and molybdenum credits but by year seven, volumes are expected to lift to 1.7Blb of copper and 1Moz of gold, with the high-grade Hugo Dummett porphyry orebody to come onstream in 2015.
 
The Mongolian government recently agreed to keep its stake at 34%, despite formally requesting a 50% chunk of the project, but the Export Finance and Insurance Corporation noted yesterday that the move spurred investor concerns over resource nationalisation.
 
Meanwhile, at Tavan Tolgoi, state-owned Erdenes Tavan Tolgoi is developing the eastern part of the deposit, while Peabody Energy, Chinese coal giant Shenhua and a Russian-Mongolian consortium will develop the western portion after beating out a number of international bidders including Fortescue Metals Group.
 
While copper and coal account for around half of the country’s exports, Mongolia is also considered prospective for a host of other minerals, as well as oil.
 
According to the World Bank, foreign direct investment has grown from $US43 million ($A42.2 million) in 2001 to more than $1.4 billion last year.
 
Foreign entities are falling over themselves to be part of Mongolia’s “mining boom” and the International Monetary Fund last month withdrew its representative in Mongolia due to its rapid economic development.
 
“With coal output rapidly increasing and two massive mining projects in the pipeline, Mongolia has a bright economic future and an opportunity to spread prosperity to all of its citizens,” IMF Office for Asia and the Pacific assistant director Steven Barnett said last month.
 
“We believe that Mongolia has a bright economic future as it continues to develop its vast mineral resources.”
 
The IMF reported that Mongolia’s gross domestic product growth had exceeded 17% in the June quarter.
 
However, Barnett warned of challenges that come with rapid growth, including inflation, which is at 18%, according to the World Bank.
 
“Inflation is already high and likely to rise further, which is exacting an especially heavy burden on the poor and eroding the ability of Mongolia’s private sector to operate effectively,” he said.
 
“Should international commodity prices fall sharply Mongolia’s exports and budget revenues would both be hit hard.
 
“The policies to address both high and rising inflation and to lessen vulnerabilities are clear: restrain fiscal spending and tighten monetary policy.”
 
The IMF is tipping Mongolia’s gross domestic product, which has doubled to around $8.7 billion in the past two years, will reach $24.9 billion by 2016.
 
Last week German Chancellor Angela Merkel visited Mongolia to sign a long-term partnership between the two countries, which could see them cooperating over the minerals sector.
 
"I am convinced that we have laid the foundations for a long-term partnership in the energy and extractive sectors that will benefit both countries,” she said.
 
Her visit coincided with the award to Germany’s BBM Operta and Australia’s Macmahon Holdings of the mining contract for the eastern portion of the Tavan Tolgoi deposit, which could be worth more than $500 million over five years.
 
Macmahon isn’t the only Australian contractor in Mongolia; Runge and Leighton Asia have also opened offices there and Sedgman recently won a $24 million contract for the third stage of the UHG coal mine after completing the first two stages.
 
While there are a huge number of Canadian companies exploring and producing in Mongolia, Australian miners are also well represented.
 
Australian companies in Mongolia also seem to be in demand if the current $A477 million takeover of Hunnu Coal by Thai energy group Banpu is anything to go by.
 
Hunnu listed on the ASX in February last year after issuing 100 million 20c shares and closed its first day 77% above its issue price at 35.5c. Its takeover price was $1.80 per share.
 
Mongolia was a hot focus for initial public offerings last year, with Xanadu Mines joining Hunnu and its sister companies Voyager Resources and Haranga Resources as some of the most successful floats of the year.
 
Last week Aspire Mining, which is advancing its Ovoot coal project in Mongolia, raised $32.8 million in volatile market conditions.
 
Aspire’s largest shareholder is Toronto and Hong Kong-listed Mongolian coal producer SouthGobi Resources, which is controlled by Ivanhoe.
 
Other Australian companies looking for coal in Mongolia include Xanadu, Guildford Coal – through its 70%-owned subsidiary Terra Energy – TVN Corporation and more recent entrants C@, General Mining and Robe Australia.
 
Copper and copper-gold is also popular among Australian companies, with Voyager leading the way after some stunning copper hits recently.
 
Results released from the Cughur discovery included a hit of 84 metres at 3.2% copper and 9.7 grams per tonne of silver from 30m.
 
Mining giant BHP Billiton is also active in Mongolia and was the original owner of Oyu Tolgoi before exploration spending cuts led it to be eventually sold to Ivanhoe in 2000.
 
The company now has a joint venture with Ivanhoe around 10km to the north of Oyu Tolgoi. In March, a new zone of shallow copper-molybdenum-gold mineralisation – dubbed Ulaan Khud North – extended the known strike length of Oyu Tolgoi by 3km to the north to more than 23km.
 
Meanwhile, results from Blina Minerals’ 1400m drilling program on its Bayanburd copper-gold license are expected before the end of the month.
 
All-rounder Mongolian Resource Corporation has advanced gold projects, as well as an iron ore and a coal project.
 
Haranga is focused on iron ore with five projects across the country and the company is tipping an iron ore boom in Mongolia due to its close proximity to steel mills in the north of China.