Marcus Booth in London -
Mongolia’s mining industry continues to struggle shifting through the gears, as the country’s largest financial undertaking, the Oyu Tolgoi mine, will need up to $6bn more of investment to become fully operational. Despite this obstacle, the mine's huge copper and gold deposits still have the potential to raise Mongolia’s economic output by over a third, investors in London heard from Robert Court, Rio Tinto’s head of Global External Affairs, on February 25.
Focusing on the underground development of Oyu Tolgoi, which holds 80% of the value of the mine but whose development been stalled for over a year by a disagreement beween Rio Tinto and the Mongolian government (which owns 34% of the mine) over the cost of the project and a $30mn tax bill., Court outlined that: “The underground needs a whole extra round of investment. So far investors have put in about $7bn… [but] the full development of the underground will need $4bn to $6bn more, and will involve a project financing package.”
“In full production, the estimate is that the benefits of Oyu Tolgoi will add something like 30-35% on top of the pre-existing economy… there is an attempt to go from, in the Oyu Tolgoi area, nothing at all to an absolutely mammoth undertaking,” said Court, confirming previous reports.
Oyu Tolgoi, located 50 miles north of Mongolia’s border with China, has recently announced that the one millionth tonne of copper concentrate extract had crossed into China. “In terms of actual copper that is around 150,000 tonnes last year and 600,000 ounces of gold concentrate,” said Court. “If that’s what we were planning to have at this stage and that’s what everybody expected and was focused on, that would be an awful lot to celebrate.”
Given the Central Asian country's potential, Mongolia still presents a less-than-ideal climate for investors. Unresolved disputes with global investors such as Rio Tinto over failed mining and investment deals have taken the shine off the country's image; in 2014 foreign direct investment dropped 74% from the year before.
Peter Markey, familiar with the region as Ernst & Young’s head of Mining & Metals in China and Mongolia, commented that, “the government is committed to trying to improve the investment environment and there is a much heightened awareness that they need to do so.”
Court also alluded that there have been a number of concerns for investors, although more through a lack of diversification since, “at the moment all the major power for mining operations is imported from China, so [there are many discussions on] what the right long-term power supply solution is.”
Diversification problems also exist for companies like Rio Tinto and, as Court puts it: “It is of no interest to an investor like us and the shareholders behind us, if we are the only business in town. It’s much, much better if the development of the resource endowment should lead to a much more diversified economy… There is no point at all in pulling all the people into our particular operation because that’s not going to help other parts of the economy.”
Even so, Helen Eccles of Cambridge International Examinations pointed out the lack of state transparency that many investors still perceive on a massive scale: “We are used to changes in administration where key people disappear and their documents disappear with them, and there is just no way in which they can be found… you have to be prepared for it.”
Court accepted that investment may be hard to come by. However, where he harbours no doubts is that, “there will be an absolute tremendous world class mine in Mongolia – it’s sure to happen.”
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