Mining
From The Report: Mongolia 2013
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The mining sector was a key growth driver of GDP in 2011, when the economy expanded 17.3%. Since 2012 there has been a moratorium on new licences, which is officially set to expire at the end of 2012. Although the major projects are not producing as yet, mining is already the country’s most important economic activity, contributing 20.2% of GDP in 2011, according to preliminary estimates. Coal production and exploration have risen annually since 2003, but new laws are allowing the government more influence over foreign investment. The tax burden on mining companies is also likely to rise. Over the long term the logic of establishing Mongolian mining operations is compelling: only about a quarter of the country is thoroughly explored, and most of what is known comes from outdated knowledge from the Soviet period. That means decades of work for mining service companies – just not in 2013 or perhaps in the short-term future, given the ongoing legal uncertainties in the sector.

This chapter contains an interview with Cameron McRae, President and CEO, Oyu Tolgoi.

Articles from this Chapter

Overview

Buried treasure: Vast untapped resources to be exploited, but legal challenges exist
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With the economy growing 17.3% in 2011, the numbers show a broad-based expansion, but ultimately the mining sector was and will continue to be Mongolia’s main GDP driver. The country is on the verge of breaking through as the next major resources economy, and is perfectly situated just to the north of perhaps the world’s most resource-hungry economy, China. By late 2012, Mongolia’s landmark mine project was ready for commercial-scale production, but hampered by ongoing debate about government…

Interview

OBG talks to Cameron McRae, President and CEO, Oyu Tolgoi
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Interview: Cameron McRae With Oyu Tolgoi’s production start date approaching, what have been the main challenges in terms of staying on schedule and on budget? CAMERON MC RAE: Oyu Tolgoi will have two different operations: open pit and underground. We anticipate our commercial production will start within the first half of 2013 and our first underground production will begin by 2016 – to be ramped up to full production by 2020. The overall construction of the project is nearly completed; three…

Analysis

Ground rules: New law grants the government more influence over foreign investment
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Mongolia’s reputation as a suitable destination for foreign investment suffered in 2012, as mining companies along with those in other sectors came under a new and restrictive legal regime: the Strategic Entities Foreign Investment Law of Mongolia, which passed in May. This legislation, combined with a high-profile merger, the government’s cancellation of some double-taxation agreements in order to win more revenue from existing deals, and multiple attempts at reopening the investment agreement…

Analysis

The other project: Choosing partners to develop Tavan Tolgoi and related infrastructure
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Much of the attention in the mining sector in late 2012 had been on Oyu Tolgoi, where production of copper and gold was imminent but the focus was instead on the controversy over how the government and its partners would split the revenue. Meanwhile, developments at Tavan Tolgoi (TT), the other flagship mining project in Mongolia, were ongoing at a slower pace. TT is important for several reasons. In addition to being a huge coal deposit with the potential to have a profound impact on the…

Analysis

Positive outlook: Improving the competitiveness of coal exports should see long-term payoffs
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Though Mongolia’s mining industry is still relatively young and new factors may change the calculus, for now its fortunes are expected to rise and fall with China, which is the primary buyer for the country’s mining output and highly likely to continue in that role. Given that relationship, Mongolian-economy watchers have been paying close attention to trends there in hopes of forecasting demand for coal exports. For the foreseeable future, Mongolia’s fortune is to be found in coal more…

Analysis

High stakes: Working out revenue shares at Oyu Tolgoi causes disagreement
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autumn session that year, a group of legislators called on the government to seek a renegotiation of the OT deal. At issue was the point at which the government has the right to increase its stake in the mine from 34% to 51%. According to the initial agreement, Mongolia can boost its stake to 51% once Rio Tinto has recovered the costs of developing it, or after 30 years. Mongolia wants to do so sooner. Though the government’s official position that it would respect the contract was restated a…

Analysis

A precious commodity: Water is a key concern for the mining sector
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Looming on the long-term horizon is a major constraint for the mining sector: water. Though Mongolia’s mineral resources are scattered throughout the country, most of the ones now in development are in the Gobi Desert, the driest part of the country. That includes Oyu Tolgoi (OT) and Tavan Tolgoi (TT), the megaprojects that will in the near future be the biggest users of water at mine sites. The industry as a whole is likely to require large amounts of water in the future, and at a time when…