Unprofitable strategic mining deposits

Mongolia has 15 strategic mining deposits and the focus of “strategic” is connected to state involvement. The state will own a maximum 34 percent of the deposit if private funding has been used for prospecting and extraction, while if state funds are used for the prospecting, the state will own up to 50 percent of the deposit. With the exception of Oyu Tolgoi, all other strategic deposits opened after being prospected by state funds during the socialist period in Mongolia. The following is information regarding the profit of the nation’s strategic deposits.

Oyu Tolgoi: Copper and molybdenum deposit

Oyu Tolgoi’s prospecting was done with private funding and began operations in 2000. An investment contract for the deposit was concluded during the government headed by former Prime Minister S.Bayar and a concentration plant has already been built. As it is a strategic deposit, the Mongolian state owns 34 percent of it. Currently it has been dealing with problems with its investor company Rio Tinto and the Mongolian government being in debate about second stage investment. Over 80 percent of the deposit’s fortune is deep in the ground and Rio Tinto and the government haven’t yet agreed on construction investment for underground mining. The government provided its investment for 34 percent of the deposit by taking out loans. Experts believe the Oyu Tolgoi project will be beneficial only if the two parties unanimously agree on an investment strategy and the underground mining construction starts.

Erdenet: This copper and molybdenum deposit has been in use since the socialist period. It is a Mongolia-Russia joint plant. The Mongolian state owns 51 percent. Erdenet, Baganuur and Shivee Ovoo deposits are exceptions to the Law on Strategic Mining, as a clause states that state ownership in strategic deposits will be no more than 50 percent.

Baganuur, Shivee Ovoo: These deposits were also in use since the socialist period. The Mongolia state owns 51 percent. As they are state-owned, they have always supplied coal at cheap prices for heating and power plants. They operate at a loss of billions instead of making a profit. They topped the list of companies operating at a loss, issued by the Mongolian State Property Committee.

Boroo: Canadian based gold company, Centerra Gold concluded a sustainable contract as part of the Mongolian Law on Mineral Resources in 1997 and started running the deposit. Its resources have almost been depleted. This company used other strategic deposits, such as Tumurtein Ovoo and Nariin Sukhait, in this way. In other words, deposits used by private sector companies before the law introduced strategic deposit classification have now become strategic deposits.

Tumurtein Ovoo: Zinc and lead deposit. This deposit is used with investment from Mongolia and China. Each country owns 50 percent of the deposit. The deposit produces 150,000 tons of zinc concentrate per year.

Burenkhaan Deposit: This phosphorite deposit has been out of use for years due to environmental issues. Private sector companies own its permits.

Tsagaan Suvarga: Mongolyn Alt Group (MAK) owns the second-largest copper and molybdenum deposit in Mongolia. The deposit is set to be prospected again, after its reserve will be determined by JORK standards, and is planned to be operational again after taking out loans. As it is a strategic deposit, the issue of state ownership will rise before going it becomes operational.

Asgat Silver Deposit: A Russian company proposed using the deposit in 2005 and 2006. Though the deposit was under discussion for operation by the Russian company, it was halted as more than 50 percent of the deposit was likely to be owned by Russia. The deposit is located along the border next to Bayan-Ulgii Province and is known as a “polymetal” deposit instead of silver. As it is a polymetal deposit, exactly what concentrates will be produced is uncertain now. The deposit faces various issues as its reserve is located in a very complicated area for extraction and entering Russian territory is inevitable if extraction starts. No other company has proposed to use the deposit ever since.

Mardai, Dornod, Gurvanbulag: Uranium deposits. None of them are currently operating. The Mongolia-Russia-Canada joint company, Khan Resources owned the Mardai Deposit, but it became problematic as the uranium sector adopted its own legal environment. After the Law on Nuclear Energy was issued, the operation permit of Mardai was found to be in violation of the law and the state didn’t register its permit. This led to owners of the deposit complaining to law enforcement and courts. As for other deposits, Western Prospectors sold its operation permit to a Chinese nuclear energy state-owned company when the related law was under discussion. Mining sector officials say they sold their permit due delays in the law. Originally, the company was preparing to start operation in 2008 when the price of uranium was at its peak.

Nariin Sukhait: Coal deposit. A Mongolia-China funded company is using the deposit. It is operating without profit as the price of coal has fallen.

Tavan Tolgoi: Coal deposit. It was under ownership by Mongolian private sector companies prior to the adoption of the Mongolian Law on Mineral Resources, enacted in 2006. The first company to have an operation permit for Tavan Tolgoi (TT) was BHP, a leading company in the worldwide coking coal market. Mining sector officials believe it was BHP that was a real strategic investor for TT. BHP conducted technical and economic assessment on the deposit before the mining boom gained international attention. At the time, Oyu Tolgoi was not in the news, coking coal prices varied between 40 and 60 USD, and Umnugovi Province had almost no infrastructure development. BHP refused to invest in the deposit as it considered TT as unprofitable. Main Info, who conducted geological research for foreign-invested companies planning to organize projects in Mongolia, took the operation permit for TT. In total, 14 companies have owned permits for TT, but later, 94 percent of the deposit went to state ownership as it was prospected by state funds. The remaining six percent of TT is Ukhaa Khudag mine and is owned by Petrovis, Shunkhlai, and MCS. As the price of coal has dropped, it has started operating without profit. The state owned fields of TT are the west and east tsanhi. They are operating at a loss as well.

Tumurtei: Iron ore deposit. Darkhan Iron Plant owns the deposit.

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