The Business Council of Mongolia’s (BCM) Monthly Meeting was held on 17 October 2019 at the Mongolian National Chamber of Commerce and Industry (MNCCI), with BCM Chairman B.Byambasaikhan hosting for an audience of around 120.
The guest of honor at this meeting was the Minister of Mining and Heavy Industry, D.Sumiyabazar. The BCM conducted this October meeting as a continuation of the recently organized 2019 Discover Mongolia Mining and Minerals Business Summit, and aimed to provide members with information on the sector’s challenges and required reforms, asking the question of if Mongolia’s most important sector is already in crisis.
New member introduced:
This is the first time we held a Monthly Meeting at the MNCCI, and the BCM has been collaborating with the MNCCI and will continue to foster the cooperation on important issues.
The BCM co-organized the 17th Discover Mongolia conference with the Ministry of Mining and Heavy Industry and Mongolian National Mining Association (MNMA). This year’s event achieved its core objectives of connecting mining and exploration companies with policy-makers and wider stakeholders in Mongolia as well as providing a first-hand experience for many international investors who visited Mongolia.
Through the dialogue that took place during the 17th annual Discover Mongolia, our members and participants were able to gain insightful knowledge on industry trends and outlook, voice their concerns to policy-makers, and recommend solutions during three days of intensive discussions and activities.
The BCM also was the main organizer from the Mongolian side for the Boao forum for Asia, which was well attended.
On the 23rd of October, the BCM is organizing a Business Tour of the Data and Call Center of Mobicom Corporation.
In November, under the scope of the Memorandum of Understanding (MoU) between the Business Council of Mongolia (BCM) and the China International Council for the Promotion of Multinational Corporations (CICPMC) signed on 20 August 2019, the two organizations agreed to strengthen cooperation and promotion of business opportunities between their respective members in Mongolia and China. Therefore, the BCM is hereby inviting members to attend “The 12th International Roundtable of Multinational Corporations Leaders” (IRMCL), which is being held from November 21st to 22nd, 2019 in Beijing, China.
This conference is an international, large-scale and high-level conference co-sponsored by the China International Council for the Promotion of Multinational Corporations (CICPMC), and several United Nations organizations, including the United Nations Development Programme (UNDP), and United Nations Conference on Trade and Development (UNCATD), among others.
SPEECH BY MINISTER OF MINING AND HEAVY INDUSTRY D.SUMIYABAZAR
(Note: The following is an unofficial BCM translation of the text of the minister's speech)
Dear guests and representatives,
Ladies and gentlemen, good afternoon to you all.
I am pleased to be here today at the BCM’s monthly meeting to share the policies of the resource sector as well as development trends and projections for the sector, connecting them to issues surrounding governance, competitiveness, and investment, and I am eager to discuss and exchange ideas on these topics with you.
Dear entrepreneurs,
The Government of Mongolia is working to create a system that is open to investors, with a transparent legal environment, one that fosters economic stability, and protects the interests of business people.
As for our ministry, we are implementing policies and conducting certain works to develop the legal environment for the sectors of geology, mining, crude oil, and heavy industry, as well as to develop responsible mining.
Mongolia received USD 23.9 billion in foreign direct investment between 1990-2018, USD 17.5 billion, or 73%, of which was made in the mining sector. This shows clearly the role this sector plays in the economy.
Despite that, due to instability in the commodities market, investment in the sector swung from 262% to -70% in four years, which was a bitter experience we must be sure to remember. Although this can be explained due to the cyclical nature of the sector on one hand, on the other hand we must also realize that our domestic situation had a direct impact.
I have established in partnership with the BCM the International Advisory Panel (IAP) comprising representatives of major companies engaged in exploration and extraction. The purpose of this is to work closely with strategic investors and address issues they face in a more organized and practical way.
In addition, companies joining the “Voluntary Responsible Mining Codex” – purposed for introducing standards in responsible mining and fostering the sustainable development of the sector – means that when companies conduct operations in the countryside, they receive not only the official permissions from government agencies, but also gain the invaluable social license from the local citizens.
The capital market is growing in Mongolia, and major projects have begun listing on the stock exchange. In 2018, an exploration company listed on the Toronto Stock Exchange dual-listed on the Mongolian Stock Exchange. This is going to intensify going forward, and companies have expressed their interest in newly dual-listing.
Although it seems that competition between state-owned and private companies is going to increase, the truth of the matter is that state-owned enterprises (SOEs) cannot keep up with the pace of business compared to private companies. Due to the fact that the issues faced by SOEs, such as infrastructure and lag in technology and methods, are costly and time-consuming to address, it is vital that we make these companies public shareholding companies and improve their governance and efficiency.
As you may know, the government and parliament have agreed to offer up to 30% of the company which owns the special permit for one the largest coking coal deposits, Tavan Tolgoi, on an international and the domestic stock exchanges. Currently the government is providing the official permissions necessary to make preparations to list the company. “Erdenes Tavan Tolgoi Mining” – the company to be listed – has been established and operations have commenced.
The capital raised through the IPO will be used to finance projects and programs on roads, railways, power, and a coal washing plant, amounting to USD 5.2 billion in costs. First, this will improve the quantity and quality of Mongolian coal exports. Second, we are aiming to supply coking coal to countries in Northeast Asia by improving regional transport and logistics integration with Russia and China.
In the mid and long-term future, a major part of our goals is to develop a coal-chemical plant, as well as get started on exploration and extraction of coal bed methane.
Since the commencement of the Oyu Tolgoi underground mine’s development as planned up to today, USD 9.1 billion has been spent in Mongolia, which has had the positive influence of accelerating economic growth and business activity. Following the OT project, there are benefits which cannot be quantified by money, such as world class mining management, new technology, and work force. When the next OT is implemented, this will enable us to approach the project with experience, with a work force, in a knowledgeable manner.
In order to develop the exploration sector, increase resource reserves, and reduce risks for investors engaged in mineral exploration, several works have been planned and are being implemented, including:
Ladies and gentlemen,
Although we recognize the need to develop non-mining sectors and diversify the economy, seeing from market conditions and global development trends, the mining sector will continue to be a pillar sector and the main driver of development for the next 20-30 years.
Thus, I believe the prudent thing to do is to bolster our competitiveness, take full advantage of our geographical and other comparative advantages, and adhere to sector policies that will foster this.
Under this scope, we are aiming to diversify commodities and their types exported. The fact that mineral exports amount to USD 6 billion, with copper and coal accounting for 75% of that, shows that we are not taking complete advantage of the opportunities we have. Therefore, the MMHI is going to implement policies to develop other mineral sectors, namely gold, iron ore, spar, and uranium, into a billion-dollar sector.
We are engaged in talks with neighboring countries concerning transportation of mining products, construction of trade infrastructure, developing transit transportation, and creating competitive tariff conditions.
To expand rail and road networks, current projects under implementation include the Tavan Tolgoi-Gashuun Sukhait; Tavan Tolgoi-Zuunbayan; and Tavan Tolgoi-Oyu Tolgoi-Khangi rail and road projects. Furthermore, we have reached an understanding with Oyu Tolgoi on the issue of constructing the Tavan Tolgoi power plant. To resume construction of the 240-km Tavan Tolgoi-Gashuun Sukhait route, we have established the “Tavan Tolgoi Railway” company.
Alongside with Tavan Tolgoi infrastructure, the government has decided to construct the Nariin Sukhait-Shivee Khuren railway. By implementing these projects, the value of deposits and exports will rise significantly.
Esteemed guests,
The mid-term outlook for the Mongolian economy is positive. The mining commodities market is relatively stable. Relations and cooperation with neighboring countries has reached new levels. At this time, as parliament and the government make decisions to intensify implementation of major projects, we are creating favorable conditions and opportunities to invest in Mongolia.
To increase mineral exploration and extraction; to raise the level of processing and enriching; to introduce high-efficiency technology; to comprehensively implement infrastructure projects, your involvement as entrepreneurs is important.
There are 13 major projects of tremendous significance to development in the mining and heavy industry sector approved by the government, and they need MNT 22.4 trillion, or USD 8.4 billion, in financing. On top of that, if you consider other sub-projects and programs to follow these major projects, you have the full opportunity to work with us on a long-term, mutually beneficial basis.
Mongolia’s mining sector has the full potential to compete globally. I believe that on top of geological reserves and high prospectivity, a favorable legal and regulatory environment has been created. As of 2018, Mongolia has agreements with 43 countries on mutual protection and support for investment and double-taxation treaties with 26 countries.
In conclusion, I call on you, entrepreneurs, investors, and wealth creators, to take full advantage of Mongolia’s resource reserves and opportunities, so that we may develop together.
VIDEO OF POST-DISCOVER MONGOLIA INTERVIEW WITH RICHARD SCHODDE, MINEX CONSULTING; A. BILGUUN, CHAIRMAN OF THE MNMA; AND SAM SPRING, BCM RESOURCE & ENVIRONMENT WORKING GROUP NON-BOARD VICE CHAIR AND CEO AND PRESIDENT OF KINCORA COPPER LTD.
The audience was shown a video of an interview conducted by Mr. Bilguun with Richard Schodde and Sam Spring after the Discover Mongolia forum.
Click here to watch the video.
Click here to view the presentation.
PANEL DISCUSSION: DEVELOPMENT SOLUTIONS FOR THE RESOURCE SECTOR
Board Director Mr. Tumentsogt, CEO of Erdenes Oyu Tolgoi, moderated a panel discussion, with some esteemed panelists:
The guest of honor at this meeting was the Minister of Mining and Heavy Industry, D.Sumiyabazar. The BCM conducted this October meeting as a continuation of the recently organized 2019 Discover Mongolia Mining and Minerals Business Summit, and aimed to provide members with information on the sector’s challenges and required reforms, asking the question of if Mongolia’s most important sector is already in crisis.
New member introduced:
- ADT Law Firm Mongolia (website)
This is the first time we held a Monthly Meeting at the MNCCI, and the BCM has been collaborating with the MNCCI and will continue to foster the cooperation on important issues.
The BCM co-organized the 17th Discover Mongolia conference with the Ministry of Mining and Heavy Industry and Mongolian National Mining Association (MNMA). This year’s event achieved its core objectives of connecting mining and exploration companies with policy-makers and wider stakeholders in Mongolia as well as providing a first-hand experience for many international investors who visited Mongolia.
Through the dialogue that took place during the 17th annual Discover Mongolia, our members and participants were able to gain insightful knowledge on industry trends and outlook, voice their concerns to policy-makers, and recommend solutions during three days of intensive discussions and activities.
The BCM also was the main organizer from the Mongolian side for the Boao forum for Asia, which was well attended.
On the 23rd of October, the BCM is organizing a Business Tour of the Data and Call Center of Mobicom Corporation.
In November, under the scope of the Memorandum of Understanding (MoU) between the Business Council of Mongolia (BCM) and the China International Council for the Promotion of Multinational Corporations (CICPMC) signed on 20 August 2019, the two organizations agreed to strengthen cooperation and promotion of business opportunities between their respective members in Mongolia and China. Therefore, the BCM is hereby inviting members to attend “The 12th International Roundtable of Multinational Corporations Leaders” (IRMCL), which is being held from November 21st to 22nd, 2019 in Beijing, China.
This conference is an international, large-scale and high-level conference co-sponsored by the China International Council for the Promotion of Multinational Corporations (CICPMC), and several United Nations organizations, including the United Nations Development Programme (UNDP), and United Nations Conference on Trade and Development (UNCATD), among others.
SPEECH BY MINISTER OF MINING AND HEAVY INDUSTRY D.SUMIYABAZAR
Dear guests and representatives,
Ladies and gentlemen, good afternoon to you all.
I am pleased to be here today at the BCM’s monthly meeting to share the policies of the resource sector as well as development trends and projections for the sector, connecting them to issues surrounding governance, competitiveness, and investment, and I am eager to discuss and exchange ideas on these topics with you.
Dear entrepreneurs,
The Government of Mongolia is working to create a system that is open to investors, with a transparent legal environment, one that fosters economic stability, and protects the interests of business people.
As for our ministry, we are implementing policies and conducting certain works to develop the legal environment for the sectors of geology, mining, crude oil, and heavy industry, as well as to develop responsible mining.
Mongolia received USD 23.9 billion in foreign direct investment between 1990-2018, USD 17.5 billion, or 73%, of which was made in the mining sector. This shows clearly the role this sector plays in the economy.
Despite that, due to instability in the commodities market, investment in the sector swung from 262% to -70% in four years, which was a bitter experience we must be sure to remember. Although this can be explained due to the cyclical nature of the sector on one hand, on the other hand we must also realize that our domestic situation had a direct impact.
I have established in partnership with the BCM the International Advisory Panel (IAP) comprising representatives of major companies engaged in exploration and extraction. The purpose of this is to work closely with strategic investors and address issues they face in a more organized and practical way.
In addition, companies joining the “Voluntary Responsible Mining Codex” – purposed for introducing standards in responsible mining and fostering the sustainable development of the sector – means that when companies conduct operations in the countryside, they receive not only the official permissions from government agencies, but also gain the invaluable social license from the local citizens.
The capital market is growing in Mongolia, and major projects have begun listing on the stock exchange. In 2018, an exploration company listed on the Toronto Stock Exchange dual-listed on the Mongolian Stock Exchange. This is going to intensify going forward, and companies have expressed their interest in newly dual-listing.
Although it seems that competition between state-owned and private companies is going to increase, the truth of the matter is that state-owned enterprises (SOEs) cannot keep up with the pace of business compared to private companies. Due to the fact that the issues faced by SOEs, such as infrastructure and lag in technology and methods, are costly and time-consuming to address, it is vital that we make these companies public shareholding companies and improve their governance and efficiency.
As you may know, the government and parliament have agreed to offer up to 30% of the company which owns the special permit for one the largest coking coal deposits, Tavan Tolgoi, on an international and the domestic stock exchanges. Currently the government is providing the official permissions necessary to make preparations to list the company. “Erdenes Tavan Tolgoi Mining” – the company to be listed – has been established and operations have commenced.
The capital raised through the IPO will be used to finance projects and programs on roads, railways, power, and a coal washing plant, amounting to USD 5.2 billion in costs. First, this will improve the quantity and quality of Mongolian coal exports. Second, we are aiming to supply coking coal to countries in Northeast Asia by improving regional transport and logistics integration with Russia and China.
In the mid and long-term future, a major part of our goals is to develop a coal-chemical plant, as well as get started on exploration and extraction of coal bed methane.
Since the commencement of the Oyu Tolgoi underground mine’s development as planned up to today, USD 9.1 billion has been spent in Mongolia, which has had the positive influence of accelerating economic growth and business activity. Following the OT project, there are benefits which cannot be quantified by money, such as world class mining management, new technology, and work force. When the next OT is implemented, this will enable us to approach the project with experience, with a work force, in a knowledgeable manner.
In order to develop the exploration sector, increase resource reserves, and reduce risks for investors engaged in mineral exploration, several works have been planned and are being implemented, including:
- We are formulating individual policies and strategies for gold, copper, rare-earth elements, raw materials for batteries, coal, and uranium. In the past we had a general policy for minerals as a whole, but now we are creating policies and strategies for each type of mineral.
- The “National geological database” program has been approved, and we are now working on creating a geology and exploration database in line with international standards.
- We have had great success in cooperation with the Australian government in detailed research studies on each of the staple minerals, making them open and accessible electronically.
Ladies and gentlemen,
Although we recognize the need to develop non-mining sectors and diversify the economy, seeing from market conditions and global development trends, the mining sector will continue to be a pillar sector and the main driver of development for the next 20-30 years.
Thus, I believe the prudent thing to do is to bolster our competitiveness, take full advantage of our geographical and other comparative advantages, and adhere to sector policies that will foster this.
Under this scope, we are aiming to diversify commodities and their types exported. The fact that mineral exports amount to USD 6 billion, with copper and coal accounting for 75% of that, shows that we are not taking complete advantage of the opportunities we have. Therefore, the MMHI is going to implement policies to develop other mineral sectors, namely gold, iron ore, spar, and uranium, into a billion-dollar sector.
We are engaged in talks with neighboring countries concerning transportation of mining products, construction of trade infrastructure, developing transit transportation, and creating competitive tariff conditions.
To expand rail and road networks, current projects under implementation include the Tavan Tolgoi-Gashuun Sukhait; Tavan Tolgoi-Zuunbayan; and Tavan Tolgoi-Oyu Tolgoi-Khangi rail and road projects. Furthermore, we have reached an understanding with Oyu Tolgoi on the issue of constructing the Tavan Tolgoi power plant. To resume construction of the 240-km Tavan Tolgoi-Gashuun Sukhait route, we have established the “Tavan Tolgoi Railway” company.
Alongside with Tavan Tolgoi infrastructure, the government has decided to construct the Nariin Sukhait-Shivee Khuren railway. By implementing these projects, the value of deposits and exports will rise significantly.
Esteemed guests,
The mid-term outlook for the Mongolian economy is positive. The mining commodities market is relatively stable. Relations and cooperation with neighboring countries has reached new levels. At this time, as parliament and the government make decisions to intensify implementation of major projects, we are creating favorable conditions and opportunities to invest in Mongolia.
To increase mineral exploration and extraction; to raise the level of processing and enriching; to introduce high-efficiency technology; to comprehensively implement infrastructure projects, your involvement as entrepreneurs is important.
There are 13 major projects of tremendous significance to development in the mining and heavy industry sector approved by the government, and they need MNT 22.4 trillion, or USD 8.4 billion, in financing. On top of that, if you consider other sub-projects and programs to follow these major projects, you have the full opportunity to work with us on a long-term, mutually beneficial basis.
Mongolia’s mining sector has the full potential to compete globally. I believe that on top of geological reserves and high prospectivity, a favorable legal and regulatory environment has been created. As of 2018, Mongolia has agreements with 43 countries on mutual protection and support for investment and double-taxation treaties with 26 countries.
In conclusion, I call on you, entrepreneurs, investors, and wealth creators, to take full advantage of Mongolia’s resource reserves and opportunities, so that we may develop together.
VIDEO OF POST-DISCOVER MONGOLIA INTERVIEW WITH RICHARD SCHODDE, MINEX CONSULTING; A. BILGUUN, CHAIRMAN OF THE MNMA; AND SAM SPRING, BCM RESOURCE & ENVIRONMENT WORKING GROUP NON-BOARD VICE CHAIR AND CEO AND PRESIDENT OF KINCORA COPPER LTD.
The audience was shown a video of an interview conducted by Mr. Bilguun with Richard Schodde and Sam Spring after the Discover Mongolia forum.
Click here to watch the video.
Click here to view the presentation.
PANEL DISCUSSION: DEVELOPMENT SOLUTIONS FOR THE RESOURCE SECTOR
Board Director Mr. Tumentsogt, CEO of Erdenes Oyu Tolgoi, moderated a panel discussion, with some esteemed panelists:
- Mr. Ankhbayar, Director of the Heavy Industry and Oil Policy Implementation Regulation Department of the Ministry of Mining and Heavy Industry
- Mr. Bilguun, Chairman of the Mongolian National Mining Association
- Mr. Jean Pascal Nganou, World Bank Senior Economist
- Mrs. Kirsten Livermore, Team Leader of the Australia-Mongolia Extractives Program-2
- Mr. Achit-Erdene, CEO of the MICC
- Mr. Manduul, Executive Vice President of ETT Mining LLC
- Mr. Otgonchuluu, Economist
Question for Ankhbayar: This year has seen many important agreements signed with other countries. We have signed strategic partnership agreements with Russia, China, and the United States. During the recent visit by the Mongolian president to India, he signed a loan agreement for the additional funding of 236 million USD necessary for the oil refinery project. Would you please give some information on the development and implementation of this project?
Ankhbayar: I glad to be here today to provide some information on the oil refinery. The refinery is a major project reflected in the government’s 2016-2020 action plan. It is being financed through a 1 billion USD credit line from the government of India, and was signed during Modi’s visit to Mongolia. During President Battulga’s recent visit to India, another agreement for additional funding was signed. We tried five or six times to get started on an oil refinery in the past, but for various reasons they fell through. The refinery will give Mongolia two or three key benefits. First, Mongolia is currently almost entirely dependent on Russia for petroleum. It will reduce that dependency. Second, a comparable project in the oil sector has not been implemented in the oil sector for 30 years. Thus, it will bring in modern know-how and our engineers and experts will benefit. We have already sent a cohort of students to India to study in this regard. Third, it will advance the Ministry’s objective of producing more value-added products.
What is the supporting infrastructure going to be like for the refinery, such as transport, supply of crude oil, and other such things?
Ankhbayar: The oil refinery itself is located about 600 km away from the source crude oil. Of the crude oil areas in Mongolia, we supply 1 million tons of raw crude oil to China. Whether that will be transported to the refinery by rail or road is still being discussed. Speaking of infrastructure in general, the Zuunbayan railroad is going to be the first horizontal (latitudinal) railroad in Mongolia. There is also the possibility to export to Russia. We have established a working group. I think we are leaning more towards the railroad solution.
Question for Bilguun: The BCM and MNMA recently successfully co-organized the Discover Mongolia forum. As a co-organizer, how do you see the outcomes of the forum? You are one of the people who pay great attention to improving the reputation of the sector. What are some of the outcomes of the forum? How was investors’ sentiment?
Bilguun: Let me be frank, it was not great. We have to realize that in Mongolia, as a jurisdiction, we are competing with other countries. On top of competing with other mining jurisdictions, we are competing with other sectors. There are new economic sectors in North America and South America, such as the tech sector and marijuana sector. The pipeline of projects is really non-existent in Mongolia. There is not land to explore. Why is that? First issue is environmental, and the second is economic. In my opinion, the environmental issue is not related to mining. We believe it’s actually more to do with overgrazing by animals. The other issue we can address is the way mining revenue is divided. According to the mining law, 30% of royalties from mining are supposed to go to the aimags and soums where the mining is happening. Those revenues aren’t flowing back to the communities anymore. We have to restore that, so that people can actually benefit. We believe that is the most practical route.
Question for Nganou: The World Bank recently released its East Asia and Pacific Economic Update, “Weathering Growing Risks.” Can you comment on how the Mongolian economy is doing? How is the trade war affecting us? What is the outlook for this year and the coming years?
Nganou: Today, October 17th, marks the International End of Poverty day. We all know that around 800,000 people in Mongolia live below the poverty line. About 30% of the people in rural areas live in poverty, and about 17% in urban areas. Also, about 50% of people live just above the poverty level. So they are very vulnerable to shocks. There must be multi-part effort by the government to address this. We have seen how in recent history China has lifted many out of poverty. It is no coincidence that this year’s Nobel Prize in economics was awarded to three economists for their work on poverty studies. It is important to foster the linkages related to the mining sector to alleviate poverty, to ensure inclusive, sustainable growth in Mongolia. To answer your question, our region is facing an increasing uncertainty, fostered by a slowdown and a possible global recession, exacerbated by the trade war. We believe that for Mongolia, the momentum over the past 3 years, growth has averaged above 6%. It has been supported by mineral exports, private investment, and FDI. FDI is indeed critical. Private consumption and meat exports have also played an important role. We believe growth will remain positive, although it will be more challenging. We think growth in 2020-2022 will average above 5%. There is uncertainty, however, and investors do not like uncertainty. Weakening in global demand will see a decline in commodity prices, which will affect Mongolia. The government must commit to fiscal responsibility and competitiveness. Mongolia must resolve insolvency, and trade issues at the border. The rights of minority of investors must be protected. We must encourage investment in innovation so that productivity grows.
What is your comment or suggestion regarding sectors other than mining which can create employment, where the government can provide incentives?
Nganou: As a World Bank expert, I am not in support of picking the winners. My broad answer is to enable the environment, in terms of human capital, infrastructure, and institutions. That is critical for any sector to emerge. We don’t believe picking this or that sector is the way to go. You must diversify assets. Human capital is key for any sector to grow.
Question for Livermore: What is the AMEP and what are the future plans for Mongolia’s extractives?
Livermore: The Minister gave a good description in his speech, highlighting the need for an open and transparent environment. He supports and collaborative approach and giving a positive message about mining to the public. He also talked about the positive gains of international standards. That is what we do at AMEP, which is a partnership between the Mognolian and Australian governments, two countries where mining is very important. AMEP is a four-year program. The program for this year was made in a consultative manner. We talked to businesses, ministries, and civil societies, to get a sense of common priorities. One project we are working on is to create a Mongolian valuation code for mineral resources in line with international standards, like ones used in Australia and South Africa. It will be important for companies to be able to list on the stock exchange and other business transaction, by having an independent and robust valuation. We are also working with the Ministry of Finance on remeditation on closures.
There is also MonGeoCat, the Mongolian Geological Catalog, which provides an online catalog of metadata of each piece of geological information that the Mongolian government has. Users can go online anywhere in the world, and search using the map or documents to see what Mongolia has in terms of geoscience and data. It is proving to be extremely successful.
We also participate with the Ministry on the review of feasibility studies, bringing in international standards to make the process more efficient.
We are also working on Coal Bed Methane in Mongolia, and we believe there is potential for development in Mongolia. I have seen with my own eyes how CBM can go from nothing to a major industry in Australia.
The point of AMEP is to be more than the sum of our parts. These projects should individually and collectively improve the investment environment of Mongolia. Each will serve as an opportunity or leverage for greater contributions.
Working in evaluation or listing on stock exchanges, or feasibility studies, what will be your focus among these projects?
Livermore: I suppose each one will have a different set up partners. As an example, for the project on feasibility studies, the ministry is anticipating a review of that regulation. We're still working on the scope of the activities in the industry, but we are already talking to some companies, such as Aspire Mining. We are looking for opportunities to involve the private sector and other stakeholders.
As a first step on work on feasibility studies, we are working to do a roundtable, to understand what the problems are before we start giving technical advice.
Questions for Achit-Erdene: Congratulations on being appointed CEO of Aspire Mining. What is the company working on regarding future development? How do you see the equities market? What are your business objectives for your company?
Achit-Erdene: Aspire Mining is an ASX-listed company with a market cap of around 100 million AUD. It has Mongolian and Australian shareholders, so it is a true partnership between the two. We have a great project in northern Mongolia, featuring about 200 million tons of coking coal. We will invest about 400 million USD over the next two years, mostly in roads. We will build a 560km road, as well as a rail terminal in Erdenet. There will also be a coal washing plant and small power plant to support activities. We plan to do this with Mongolian and international investors. Aspire is seeking to going into production and are trying to obtain permits. The new minerals law says we need to get community approval, which is a good thing. Bilguun mentioned how taxes aren’t going back to the communities. Although the minerals sector has grown tremendously, the poverty level has not fallen as much. So the mineral wealth is not being shared. Politicians have taken this very simple image of trucking coal and minerals abroad, so they just say, look at how all the wealth is being shipped to other countries. Mongolia has potential to develop agriculture and livestock. For the Mongolian economy to be sustainable, we have to diversify the economy. We must invest wisely in reduction of poverty and infrastructure. Mining sector alone cannot resolve poverty. Tax revenues have grown as well, yet poverty is still at around 30%. I think we have one of the most inefficient allocation of tax money.
Question for Manduul: What are the challenges you are facing concerning the IPO of ETT? Every Mongolian citizen owns 1,072 shares. When will they realize its value?
Manduul: In June of 2018, parliament passed a resolution ordering ETT to conduct an IPO. Of course there were many questions, such as the Law on Tenders. There are some things that are vague, especially to foreigners. At the political level, we waited on political consensus on some things, such as what should be the structure of ETT. Should we conduct an IPO for ETT as a whole or on a deposit, or a subsidiary? This past summer it was decided that a subsidiary based on the East Tsankhi mine, and that is to be the focus of the IPO. I see three major risks. First, the global macro situation. There is the increased uncertainty in the region, the trade war, and commodity prices. These are things out of our control, so we have to be wise with our timing. The second issue is investors’ perceptions. This is a national issue. You heard yesterday that Mongolia has been greylisted by the FATF. This will cause increases in transactional costs and borrowing costs, which could affect our IPO. Third, here in Mongolia, at the stakeholder level, there is a wide gap in knowledge, information, and understanding. There is a need to explain and help people understand in order to form a consensus. I believe this will require the most time. The IPO brings benefits other than just financial ones. For example, it will foster governance of international standards at our SOE. This will increase pressures on other SOEs to improve their governance and bring it up to international standards. This in turn will benefit the economy as a whole. Furthermore, this IPO may be for ETT and East Tsankhi, but it will have reverberations into the future. It will open the door for others. Surely there will be other deals in the future. Regarding the 1,072 shares, the IPO is for a subsidiary. However, it will make the shares more valuable and bring us closer to realizing that value.
Question for Otgonchuluu: You are one of the top experts in the issue of competitiveness. Where is the Mongolian mining sector heading? What are the prospects? What should we do more?
Otgonchuluu: If you compare today’s situation to 30 or 40 years ago, we are doing much better. Almost everyone was poor by today’s standards. There was no private property. The most important contribution has come from mining. I have compared the statistics of the effect of mining on GDP, and it’s really a great achievement, in terms of increase in exports and GDP. But people still do not realize this, so we have to work on public education and awareness.
I happy about the policy the Minister is pursuing. The national geological database announced yesterday will also be a very good thing. Lots of things are still in progress. According to the SDGs, the per capita GDP must be around 17,500 USD. Right now it is at around 4,500 USD. How can we triple this number in under 10 years? The only way is mining. The government must be braver, more anti-populist, and must start issuing exploration licenses. Up to 40% of the territory can be explored, whereas now it’s only about 5%. The government must be more brave. Perhaps through a first come first serve basis, as the current tendering process is very complicated. Speaking to people, the majority people are not anti-mining. So the government must be braver.
One more thing, I saw the balance of payment figures. We are currently running an export surplus, which is good, but we have a deficit in services exports, meaning we import more services than export. So I think there is room for development of consulting, especially in mining. If we can develop more auxiliary businesses surrounding mining, there is high potential there. It would also be good for the exchange rate.
After the meeting, a networking reception was held in the Ballroom of the MNCCI.
Ankhbayar: I glad to be here today to provide some information on the oil refinery. The refinery is a major project reflected in the government’s 2016-2020 action plan. It is being financed through a 1 billion USD credit line from the government of India, and was signed during Modi’s visit to Mongolia. During President Battulga’s recent visit to India, another agreement for additional funding was signed. We tried five or six times to get started on an oil refinery in the past, but for various reasons they fell through. The refinery will give Mongolia two or three key benefits. First, Mongolia is currently almost entirely dependent on Russia for petroleum. It will reduce that dependency. Second, a comparable project in the oil sector has not been implemented in the oil sector for 30 years. Thus, it will bring in modern know-how and our engineers and experts will benefit. We have already sent a cohort of students to India to study in this regard. Third, it will advance the Ministry’s objective of producing more value-added products.
What is the supporting infrastructure going to be like for the refinery, such as transport, supply of crude oil, and other such things?
Ankhbayar: The oil refinery itself is located about 600 km away from the source crude oil. Of the crude oil areas in Mongolia, we supply 1 million tons of raw crude oil to China. Whether that will be transported to the refinery by rail or road is still being discussed. Speaking of infrastructure in general, the Zuunbayan railroad is going to be the first horizontal (latitudinal) railroad in Mongolia. There is also the possibility to export to Russia. We have established a working group. I think we are leaning more towards the railroad solution.
Question for Bilguun: The BCM and MNMA recently successfully co-organized the Discover Mongolia forum. As a co-organizer, how do you see the outcomes of the forum? You are one of the people who pay great attention to improving the reputation of the sector. What are some of the outcomes of the forum? How was investors’ sentiment?
Bilguun: Let me be frank, it was not great. We have to realize that in Mongolia, as a jurisdiction, we are competing with other countries. On top of competing with other mining jurisdictions, we are competing with other sectors. There are new economic sectors in North America and South America, such as the tech sector and marijuana sector. The pipeline of projects is really non-existent in Mongolia. There is not land to explore. Why is that? First issue is environmental, and the second is economic. In my opinion, the environmental issue is not related to mining. We believe it’s actually more to do with overgrazing by animals. The other issue we can address is the way mining revenue is divided. According to the mining law, 30% of royalties from mining are supposed to go to the aimags and soums where the mining is happening. Those revenues aren’t flowing back to the communities anymore. We have to restore that, so that people can actually benefit. We believe that is the most practical route.
Question for Nganou: The World Bank recently released its East Asia and Pacific Economic Update, “Weathering Growing Risks.” Can you comment on how the Mongolian economy is doing? How is the trade war affecting us? What is the outlook for this year and the coming years?
Nganou: Today, October 17th, marks the International End of Poverty day. We all know that around 800,000 people in Mongolia live below the poverty line. About 30% of the people in rural areas live in poverty, and about 17% in urban areas. Also, about 50% of people live just above the poverty level. So they are very vulnerable to shocks. There must be multi-part effort by the government to address this. We have seen how in recent history China has lifted many out of poverty. It is no coincidence that this year’s Nobel Prize in economics was awarded to three economists for their work on poverty studies. It is important to foster the linkages related to the mining sector to alleviate poverty, to ensure inclusive, sustainable growth in Mongolia. To answer your question, our region is facing an increasing uncertainty, fostered by a slowdown and a possible global recession, exacerbated by the trade war. We believe that for Mongolia, the momentum over the past 3 years, growth has averaged above 6%. It has been supported by mineral exports, private investment, and FDI. FDI is indeed critical. Private consumption and meat exports have also played an important role. We believe growth will remain positive, although it will be more challenging. We think growth in 2020-2022 will average above 5%. There is uncertainty, however, and investors do not like uncertainty. Weakening in global demand will see a decline in commodity prices, which will affect Mongolia. The government must commit to fiscal responsibility and competitiveness. Mongolia must resolve insolvency, and trade issues at the border. The rights of minority of investors must be protected. We must encourage investment in innovation so that productivity grows.
What is your comment or suggestion regarding sectors other than mining which can create employment, where the government can provide incentives?
Nganou: As a World Bank expert, I am not in support of picking the winners. My broad answer is to enable the environment, in terms of human capital, infrastructure, and institutions. That is critical for any sector to emerge. We don’t believe picking this or that sector is the way to go. You must diversify assets. Human capital is key for any sector to grow.
Question for Livermore: What is the AMEP and what are the future plans for Mongolia’s extractives?
Livermore: The Minister gave a good description in his speech, highlighting the need for an open and transparent environment. He supports and collaborative approach and giving a positive message about mining to the public. He also talked about the positive gains of international standards. That is what we do at AMEP, which is a partnership between the Mognolian and Australian governments, two countries where mining is very important. AMEP is a four-year program. The program for this year was made in a consultative manner. We talked to businesses, ministries, and civil societies, to get a sense of common priorities. One project we are working on is to create a Mongolian valuation code for mineral resources in line with international standards, like ones used in Australia and South Africa. It will be important for companies to be able to list on the stock exchange and other business transaction, by having an independent and robust valuation. We are also working with the Ministry of Finance on remeditation on closures.
There is also MonGeoCat, the Mongolian Geological Catalog, which provides an online catalog of metadata of each piece of geological information that the Mongolian government has. Users can go online anywhere in the world, and search using the map or documents to see what Mongolia has in terms of geoscience and data. It is proving to be extremely successful.
We also participate with the Ministry on the review of feasibility studies, bringing in international standards to make the process more efficient.
We are also working on Coal Bed Methane in Mongolia, and we believe there is potential for development in Mongolia. I have seen with my own eyes how CBM can go from nothing to a major industry in Australia.
The point of AMEP is to be more than the sum of our parts. These projects should individually and collectively improve the investment environment of Mongolia. Each will serve as an opportunity or leverage for greater contributions.
Working in evaluation or listing on stock exchanges, or feasibility studies, what will be your focus among these projects?
Livermore: I suppose each one will have a different set up partners. As an example, for the project on feasibility studies, the ministry is anticipating a review of that regulation. We're still working on the scope of the activities in the industry, but we are already talking to some companies, such as Aspire Mining. We are looking for opportunities to involve the private sector and other stakeholders.
As a first step on work on feasibility studies, we are working to do a roundtable, to understand what the problems are before we start giving technical advice.
Questions for Achit-Erdene: Congratulations on being appointed CEO of Aspire Mining. What is the company working on regarding future development? How do you see the equities market? What are your business objectives for your company?
Achit-Erdene: Aspire Mining is an ASX-listed company with a market cap of around 100 million AUD. It has Mongolian and Australian shareholders, so it is a true partnership between the two. We have a great project in northern Mongolia, featuring about 200 million tons of coking coal. We will invest about 400 million USD over the next two years, mostly in roads. We will build a 560km road, as well as a rail terminal in Erdenet. There will also be a coal washing plant and small power plant to support activities. We plan to do this with Mongolian and international investors. Aspire is seeking to going into production and are trying to obtain permits. The new minerals law says we need to get community approval, which is a good thing. Bilguun mentioned how taxes aren’t going back to the communities. Although the minerals sector has grown tremendously, the poverty level has not fallen as much. So the mineral wealth is not being shared. Politicians have taken this very simple image of trucking coal and minerals abroad, so they just say, look at how all the wealth is being shipped to other countries. Mongolia has potential to develop agriculture and livestock. For the Mongolian economy to be sustainable, we have to diversify the economy. We must invest wisely in reduction of poverty and infrastructure. Mining sector alone cannot resolve poverty. Tax revenues have grown as well, yet poverty is still at around 30%. I think we have one of the most inefficient allocation of tax money.
Question for Manduul: What are the challenges you are facing concerning the IPO of ETT? Every Mongolian citizen owns 1,072 shares. When will they realize its value?
Manduul: In June of 2018, parliament passed a resolution ordering ETT to conduct an IPO. Of course there were many questions, such as the Law on Tenders. There are some things that are vague, especially to foreigners. At the political level, we waited on political consensus on some things, such as what should be the structure of ETT. Should we conduct an IPO for ETT as a whole or on a deposit, or a subsidiary? This past summer it was decided that a subsidiary based on the East Tsankhi mine, and that is to be the focus of the IPO. I see three major risks. First, the global macro situation. There is the increased uncertainty in the region, the trade war, and commodity prices. These are things out of our control, so we have to be wise with our timing. The second issue is investors’ perceptions. This is a national issue. You heard yesterday that Mongolia has been greylisted by the FATF. This will cause increases in transactional costs and borrowing costs, which could affect our IPO. Third, here in Mongolia, at the stakeholder level, there is a wide gap in knowledge, information, and understanding. There is a need to explain and help people understand in order to form a consensus. I believe this will require the most time. The IPO brings benefits other than just financial ones. For example, it will foster governance of international standards at our SOE. This will increase pressures on other SOEs to improve their governance and bring it up to international standards. This in turn will benefit the economy as a whole. Furthermore, this IPO may be for ETT and East Tsankhi, but it will have reverberations into the future. It will open the door for others. Surely there will be other deals in the future. Regarding the 1,072 shares, the IPO is for a subsidiary. However, it will make the shares more valuable and bring us closer to realizing that value.
Question for Otgonchuluu: You are one of the top experts in the issue of competitiveness. Where is the Mongolian mining sector heading? What are the prospects? What should we do more?
Otgonchuluu: If you compare today’s situation to 30 or 40 years ago, we are doing much better. Almost everyone was poor by today’s standards. There was no private property. The most important contribution has come from mining. I have compared the statistics of the effect of mining on GDP, and it’s really a great achievement, in terms of increase in exports and GDP. But people still do not realize this, so we have to work on public education and awareness.
I happy about the policy the Minister is pursuing. The national geological database announced yesterday will also be a very good thing. Lots of things are still in progress. According to the SDGs, the per capita GDP must be around 17,500 USD. Right now it is at around 4,500 USD. How can we triple this number in under 10 years? The only way is mining. The government must be braver, more anti-populist, and must start issuing exploration licenses. Up to 40% of the territory can be explored, whereas now it’s only about 5%. The government must be more brave. Perhaps through a first come first serve basis, as the current tendering process is very complicated. Speaking to people, the majority people are not anti-mining. So the government must be braver.
One more thing, I saw the balance of payment figures. We are currently running an export surplus, which is good, but we have a deficit in services exports, meaning we import more services than export. So I think there is room for development of consulting, especially in mining. If we can develop more auxiliary businesses surrounding mining, there is high potential there. It would also be good for the exchange rate.
After the meeting, a networking reception was held in the Ballroom of the MNCCI.
