www.unuudur.com » A piece of Mongolia’s mine

A piece of Mongolia’s mine

[Нийтэлсэн: 11:17 27.05.2011 ]

www.irishtimes.com

The underdeveloped resource-rich country is about to undergo a massive transformation – even if that does mean working with its distrusted neighbour, China. THERE AREN’T TOO many capital cities in the world where you can still see a nomadic herdsman pull up on horseback, in full traditional costume, at the traffic lights not far from the country’s parliament and within sight of a Louis Vuitton boutique. Mongol horsemen conquered large swathes of the known world wearing clothes like this traditional garb and riding similar steeds, but even in Ulan Bator the beloved steed is giving way to the 4×4 sports utility vehicle.Balanced between China and Russia, Mongolia is a mostly undeveloped resource-rich country about to undergo a transformation. It’s called the Saudi Arabia of the coal industry, and it may be about to go from being one of the poorest countries in the world to joining the ranks of the richest.

“Mongolia is awakening. The industry is about to take off. We are just starting out to help the Mongolians find what they’ve got,” says Irishman Robert Wrixon, managing director of Haranga Resources. The company is based in the heart of the city that people tend to refer to as UB, above the Louis Vuitton and Zegna stores.

All over the city there are references to Temujin, the warrior who united the country’s fractious tribes in 1206 and became known as Genghis Khan. He and his successors conquered most of Asia, including the Middle East and Russia. The biggest of Ulan Bator’s handful of Irish pubs is called the Grand Khaan and a huge statue of the man dominates the main square downtown.

However, the power of the tribes ebbed and by 1691, the Manchus, founders of China’s Qing Dynasty, had conquered Mongolia. The Chinese still refer to the country as Outer Mongolia. Mongolia was a province of China between 1691 and 1911, and again from 1919 to 1921, and there is a strong antipathy for the Chinese there. But the Mongols have been forced to get over this dislike because China is set to be the country’s prime customer for selling resources and it is Mongolia’s largest trading partner.

The Russians came next. After the collapse of the Soviet Union, Mongolia had a democratic revolution in early 1990. It has remained one of the region’s more solid democracies since.

The mining sector accounts for 81 per cent of exports, 32 per cent of government revenue and 30 per cent of gross domestic product, a share that is likely to increase dramatically.

So far, only about 27 per cent of Mongolia has been mapped to a scale of 1:50,000, which shows that the country’s resources remain largely untapped, according to data from the investment bank ResCap.

“The population is small so it relies on resources and there is a lot of exploration still to be done. The resources have to go to China, despite historical antipathies, as there is nothing to the north in Siberia. Mongolia is happy to sell China commodities, but is less comfortable about China having majority stakes in resource projects,” says Wrixon, who comes from Cork.

He says that resistance to allowing the Chinese to get involved in building infrastructure could cause delays.

“Finding a rail network is a real issue, and the Chinese have an aptitude when it comes to rail networks,” says Wrixon.

Mongolia is the size of western Europe but has a small population of about three million, giving it the world’s lowest population density at 1.7 people per square kilometre. UB has the dubious distinction of being the world’s coldest capital city.

For a long time, the star in the Mongolian resources firmament was Oyu Tolgoi, which looks set to become one of the world’s top three copper mines, just across the border from the world’s biggest copper consumer in China. But then came the news about a neighbouring project, coal this time, at Tavan Tolgoi, which is the world’s second-largest coal deposit, after China’s Shengli.

The Mongolian government will announce the winning bids to develop Tavan Tolgoi shortly. The western and central part of Tavan Tolgoi holds more than one billion metric tons of coal, 68 per cent of which can be used for steelmaking and the rest as fuel in power plants.

Last year coal production doubled to 25 million tons to become Mongolia’s top export, encouraging the government to speed up Tavan Tolgoi’s development.

“We expect the Mongolian economy to grow up to 10 per cent this year, or 33 per cent in US dollar terms, due to the further estimated appreciation of the MNT [tugrug] against the dollar, and may continue ranking among the three fastest-growing economies,” wrote Eurasia Capital in a research note. The problem is finding enough qualified locals to staff the mines.

The new finds keep on coming. In March, Ivanhoe Mines said it had discovered a new shallow copper, molybdenum and gold zone about 10km north of Oyu Tolgoi.

The new discovery, known as Ulaan Khud North, is within an exploration area that is a part of Robert Friedland and Ivanhoe Mine’s joint-venture with giant Anglo-Australian mining company BHP Billiton.

Ivanhoe says the near-surface discovery at Ulaan Khud North may be part of a much larger deposit. Edward Rochette, who was for many years Ivanhoe’s Mongolia representative, says he negotiated for BHP Billiton to sell its rights in Oyu Tolgoi to Ivanhoe for $5 million (€3.5 million).

Now it’s valued as the third-biggest copper mine in the world.

“Ivanhoe’s Robert Friedland called me his ‘gluemeister’ for 16 years. I still talk to him every week. And Rio Tinto’s chief executive, Tom Albanese, claims I have acquired more properties of value than anyone in the last 32 years,” says Rochette, a larger-than-life figure who has worked in 56 countries.

Rochette has his finger in many pies in Ulan Bator, and has married into one of Mongolia’s premier horse-breeding families.

“This is a frontier town. The positives are that the government is good – the prime minister, Sükhbaataryn Batbold, is a professional businessman – and commodity prices don’t look like they will crater.

“This frontier town is very positive and it’s the place to be. The other day I read a headline asking if Africa was ‘the New Mongolia’,” says Rochette, who is from Oregon in the US.

“The Mongolian government is trying very hard to make things work. The overseas Mongolians are coming back. They make one tenth of what they were making in Chicago or wherever they were before, but they come back anyway,” says Rochette.

Mongolia also has the highest literacy rate in Asia. “These are educable, trainable people,” says Rochette. “And as for the next stage, the outlook is very positive, and there will be more focus on mining services and infrastructure.”

He points out how the number of cars on the streets has increased dramatically from 10,000 just 10 years ago to about 150,000 now.

“This is a tough country. Genghis Khan reigned for 36 years. It took him 18 years just to conquer the Mongolians, then another 18 years to conquer the rest of the known world. Don’t forget that,” says Rochette.

“It’s a small country. Everyone knows everyone else – a bit like Ireland. Who you know is important. Compared to places like Vietnam, Mongolia is a lot easier, it’s more transparent and there is less corruption,” says Wrixon.

“We have acquired some good-looking iron ore projects. Now it’s the summer, so the next six months will be drilling and exploring to find a nice source.

“Then we delineate a mine plan and then we try to get it to the market. We also have our ear to the ground about other projects, particularly ones near our existing ones.”

Haranga raised $25 million when it listed on the Australian Stock Exchange ASX in December, which gives it a war chest to spend money on acquisitions.

“The price of iron ore has gone up six- or seven-fold in the past few years,” explains Wrixon.

“Chinese steel mills are predominantly built on domestic iron ore. Mongolian iron ore needs to be exported. Coal is more or less the same story.”

Seamus Brennan, who is from Laois, is chief adviser to a government committee examining duty-free zones.

“I’m very optimistic about the prospects for Mongolia. This is a young country, it’s only 20 years old. There is a great future here,” says Brennan.

MONGOLIA: THE FACTS

“On the other hand it is a very poor country, with a lot of development funding, and yet when you walk on the streets you can be hit by a 4×4 Lexus. The potential is still enormous,” he says.

* The estimated value of total reserves in Mongolia is $1.3 trillion (€900 billion)

* The mining sector accounts for 81 per cent of exports, 32 per cent of government revenue and 30 per cent of GDP

* About 1,170 mineral deposits and 7,654 occurrences have been identified to date, including more than 60 types of minerals, including copper, gold, coal, molybdenum, iron ore, uranium, tin, tungsten, silver, zinc, and fluorspar

* Only about 27 per cent of Mongolian land has been mapped to a scale of 1:50,000, so the country’s resources remain largely untapped

* The government of Mongolia plans to attract up to $25 billion in foreign investment for mining projects in 2011-2015

* Coal is Mongolia’s number one export commodity, with total coal resources estimated at 152 billion tons. Coal exports reached $877 million in value (16.6 million tons) this year. By 2015, coal exports to China is predicted to reach 25-40 million tons per year

* Tavan Tolgoi coal deposit contains 6.4 billion tons of coking (25 per cent) and thermal (75 per cent) coal

* Copper used to be the country’s main export commodity; this year, exports reached $771 million in value (586,000 tons), or 26.4 per cent of total exports

* The Oyu Tolgoi deposit contains 81 billion pounds of copper (37 million tons) and 46 million ounces of gold (1,431 tons). Initial production at Oyu Tolgoi mine is expected in the third quarter of next year and commercial production in 2013

* Mongolia started to produce iron ore in 2007 and in 2010 iron ore exports reached $251 million in value (3.5 million tons)

* Iron ore exports now account for 8.7 per cent of total exports

* Mongolia was officially recognised as an oil-producing country in 2008, and the oil sector remains significantly underexplored

CLIFFORD COONAN in ULAN BATOR



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