Marcus Booth in London -

Mongolia will be digging up coal for thousands more years if production doesn’t pick up, investors were told in London, as a leading multinational mining company bemoaned the country for not yet fulfilling its potential as a major global supplier.

With an estimated 172bn tonnes, Mongolia’s coal reserves rank second in the world only to those of the US, a representative of diversified miner Anglo-American told attendees at the “Doing Business with Mongolia” seminar on November 26. Yet according to the multinational, which has invested in the country since 2013, Mongolia’s coal production is shackled by corruption and poor infrastructure.

“If Mongolia continues to mine at the current rate, it will still be producing coal in 5,000 years’ time,” said Graeme Hancock, Anglo-American’s chief of operations for the Central-Eastern Asian nation, who previously worked for 15 months as chief operating officer to the state-owned mining firm that controls the giant Tavan Tolgoi deposit – one of the world's largest untapped coking and thermal coal deposits.

Hancock explained that although Mongolia has resources in abundance, there is still much to do before the country’s potential is realized. “The legal and regulatory environment can be challenging due to the immaturity of the system… There is a need for the government to demonstrate its commitments to the sanctity of contracts and the rule of law and property rights,” he said.

While Mongolia has identified “85 [available] mineral commodities,” the landlocked state is considered by many in the Western world to be underexploited. However, “the young and dynamic democracy is still making the transformation from a central planned to a free market economy and there are some aspects of a hangover from the socialist era,” Hancock added.

Power and permits

Referencing an International Finance Corporation report, Hancock said there are still two or three areas that are particularly challenging in Mongolia from a business perspective, despite its 9.2% average economic growth rate over the previous decade.

“Trading across borders is poor, due to an extreme insufficiency of infrastructure, especially at ports,” he noted, while electricity generation also poses severe problems, “as [Mongolia] has not built a new power station for more than 30 years.” Additionally, Hancock stressed that reforms to the permitting process are desperately needed. “[It] does lead to corruption with so many signatures required in order to achieve things… Some people along the way see this as an opportunity to extract personal gain.”

Commentating on recent political advances, Dale Choi, an independent analyst on Mongolia, underlined the positive steps taken by the country: “Mongolia has raised bonds in the range of [USD]1bn-2bn and started fixing roads.” Corruption has also been improved, with the so-called 'Godfather of corruption', former president and prime minister Nambar Enkhbayar, jailed for crimes during his time in office.

Amid the positives, an overriding theme was that the county needs to stabilize politically before it becomes more appealing for investment – a statement exemplified by the sudden replacement of Norovyn Altankhuyag as prime minister, after losing a no-confidence vote in November. On November 3, the new PM, Chimed Saikhanbileg, submitted to parliament a new government structure that will serve as the foundation for his proposed 'super coalition'.

As Choi points out, “There have been quite a few initiatives by the authorities that have instilled confidence, [but] it is the mining sector that can turn things around for Mongolia.”