Tuesday, May 19, 2009

Tavan Tolgoi coal deposit and the Oyu Tolgoi gold and copper field.

**Mongolia: The Promise of 'Minegolia'....

MOSCOW. - The Russian rail monopoly and its Mongolian partners agreed to set up a joint venture during Prime Minister Vladimir Putin's visit to Mongolia on May 13.

Russian Railways (RZD) has pledged to modernize and build railways in return for development licenses for Mongolia's largest deposits, the Tavan Tolgoi coal deposit and the Oyu Tolgoi gold and copper field.

It has signed an accord with Erdenes MGL, the Mongolian state mining company, and MTZ, the country's national railway company, to set up a joint venture to build railways to the mineral deposits and develop the fields. The Russian company will hold a 50% stake in the $7-billion venture, while the Mongolian partners will each hold 25%.

At the initial stage, they are to contribute $1.8 million for a feasibility study, which is due to be ready by September. The JV will receive development licenses for the deposits in 2010.

Erdenes MGL owns all strategic deposits in Mongolia, including the Oyu Tolgoi (Turquoise Hill) gold and copper project, the Tavan Tolgoi coal deposit, and the Dornod uranium deposit.

MTZ owns railroad assets, including a fiber-optic-based railway communication system, while Mongolia's railroads proper are controlled by Ulaanbaatar Railway, parity owned by the governments of Mongolia and Russia.

Tavan Tolgoi, located 342 miles from the Mongolian capital, is one of the world's 10 biggest coal deposits (6.5 billion tons).

Oyu Tolgoi (32 million tons of copper and 32 million oz of gold) is located in the south Gobi region 342 miles south of Ulan Bator and 50 miles north of the Chinese-Mongolian border.

The joint venture will not develop the deposits, but will hold tenders to choose co-investors. It will form project operators with the winners, holding 25% plus one share in them and leaving 75% minus one share to the selected co-investors.

In the past, RZD planned to recruit the assistance of Oleg Deripaska's En+ Group, Viktor Vekselberg's Renova, and Alexei Mordashov's Severstal Resurs for these projects.

En+ and Renova are ready for cooperation, but the new agreement stipulates that the Russian-Mongolian joint venture is to hold tenders. This means that the Russian miners will not receive any privileges and will have to participate in the tenders on a par with Japanese, Chinese, American and other contenders.

Mongolia also hopes that Russia's contribution ($250 million) could be used to increase the charter capital of Ulaanbaatar Railway, half of whose railroads need to be overhauled. It also expects Russia to provide an easy loan ($300 million) for the purchase of Russian grain, agricultural machinery and mineral fertilizer, and a $1.5 billion loan facility for other purposes.

The partners also agreed to set up a joint venture to process uranium produced at the Dornod deposit (49,000 tons, located in northeast Mongolia) and the East Gobi fields. The Russian partner will be Rosatom, with Japan's Mitsui considering participation.

The stakes to be held by the partners and possible investment have so far not been determined.

Currently, Russia's largest projects in Mongolia are Erdenet and Mongoltsvetmet, joint non-ferrous producers established during the Soviet era. Mongolia holds controlling stakes in them (51%) while Russia's stakes (49%) have been recently turned over to the Russian Technology state corporation.

The corporation is considering adjusting the Erdenet project to the Udokan copper project in Russia. Russian Technology's partner, Alisher Usmanov's Metalloinvest, has been recently granted the development license for the Udokan project....

**Mongolia: The Promise of 'Minegolia'....

Prashanth Parameswaran 21 Oct 2010

With nations scouring the globe in pursuit of dwindling mineral supplies, the world's attention has shifted to Mongolia, a country some are heralding as the next resource success story. Among the last places on earth with rich, untapped mineral deposits, this landlocked, underdeveloped country is expected to become one of the world's fastest-growing economies over the next decade -- if, that is, it can address a set of daunting challenges and bring these resources to the market.

According to some estimates, there is about $1.3 trillion worth of untapped coal, gold, silver, copper, uranium and zinc deposits in what is being called "Minegolia." The country's GDP is expected to rise as much as 10 percent per year, from the current $5 billion to $30 billion by 2020, as a result of revenue from these minerals alone. Meanwhile, per capita income is expected to quadruple, from $3,000 in 2008 to $12,000 by 2015 -- or about what the average person in Shanghai currently earns (.pdf).

This transformation is already under way. The government is currently in a joint venture with Ivanhoe Mines Ltd. and Rio Tinto PLC to exploit the Oyu Tolgoi mine in the south Gobi Desert. The mine is one of the world's largest underdeveloped copper-gold projects, and could yield up to $50 billion in revenue when production begins in 2013. Tavan Tolgoi, the world's largest untapped coking coal site, is expected to generate up to 50 million tons of coal per year for 200 years once production is ramped up. And with a relatively open society and a fairly accommodating business environment, Mongolia is also fast becoming a popular investment destination for brands such as Louis Vuitton and Burberry. Companies listed on the Hong Kong stock exchange have also acquired almost $1 billion in Mongolian resource assets through mergers and acquisitions.

Yet the country will have to overcome a set of formidable challenges if it is to realize its full resource potential. First, having been historically subjected to Chinese control until the early 20th century, and then under Soviet influence until the end of the Cold War, Mongolia will have to manage relations with its two neighbors deftly while preserving its sovereignty. Relations with Beijing will be an especially tough balancing act. China is the country's top export market, accounting for 64 percent of Mongolia's exports, and increasingly relies on Mongolia for energy. But there are lingering suspicions among Mongolians that the country is becoming overdependent on China.

When the government signed more than 66 percent of the rights to Oyu Tolgoi's deposits over to foreign companies last year, the decision was denounced as a sellout. Some domestic critics remain convinced that these companies are bringing in experienced Chinese miners rather than hiring Mongolians. Similar concerns may also have motivated the government's decision to cancel an equity-stake sale in Tavan Tolgoi to a foreign company in favor of full state ownership. (Chinese coal company Shenhua had been seen as one of the front runners in the bidding.) Ulan Bator has also tried to diversify its portfolio by strengthening its relations with other countries as well. Within the last few months alone, it has agreed to supply energy-hungry Japan with rare earths, reached out to Vietnam to exchange development experience, concluded an agreement with Canada to invest more than $600 million and set up direct charter flights with Taiwan to promote tourism and trade.

The leadership must also ensure that the economic benefits derived from these resources are felt by the population at large, even as it confronts the country's myriad development problems. Mongolia ranks 147th in the world in terms of nominal GDP, with a fifth of the population living on less than $1.25 a day (measured in 2005 purchasing power parity terms). About 30 percent of the population is still nomadic or semi-nomadic. The country's reliance on resources and agriculture makes it vulnerable to price fluctuations and natural disasters, and the combination of a harsh winter in 2009 and the global financial crisis reduced GDP growth last year from 8 percent to 2.7 percent. The government has issued cash handouts but cut child-benefit payments and subsidies for young couples, which has only caused inflation to spike, hitting the poor even harder. Mongolia also faces a massive urbanization crisis, with 40 percent of its population living in the capital alone and that number expected to swell even more in the future.

There are also concerns that the government is not adequately balancing economic and environmental imperatives. Decades of poorly regulated urbanization and industrialization have resulted in severe air pollution, overgrazing, deforestation and soil erosion. As a result, according to the United Nations Environment Program, more than 70 percent of Mongolian territory suffers from desertification, while wheat yields are about half those of the 1980s, and several rivers and lakes have begun to dry up. Yet the government has proven unwilling or unable to enforce regulations governing foreign mining companies, and reports of arsenic traces at sites and polluted rivers have begun to surface.

Frustrated environmental activists and farmers are increasingly taking the law into their own hands, and there have been six reported mining-related confrontations -- including one death -- so far this year. In the latest incident last month, four activists from the United Movement of Mongolian Rivers and Lakes opened fire on gold-mining equipment belonging to Chinese and Canadian firms, claiming that the companies had violated a law prohibiting exploration or mining at the headwaters of rivers.

The promise of Minegolia is clear, and the pressure for this resource-rich nation of steppes and deserts to develop is mounting. But the government's ability to navigate a dizzying array of geopolitical, development and environmental obstacles to drive the country into a bright economic future is still unproven....

Prashanth Parameswaran is a master's candidate at the Fletcher School of Law and Diplomacy.

Iran boosts Mongolia ties

Meat and uranium are the bread and butter of Mongolian-Iranian relations as trade between the two countries helps to deepen ties. The United States would do well to place business with Ulaanbataar higher up on its own menu of priorities. - Alicia Campi

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