18.03.2013 mongolia and mining: the policy evolution what's the next? dr. ch. khashchuluun

Mongolia and MINING

The policy evolution: what is next?

Ch. KhashchuluunUBRM Consulting

Monday, March 18, 13

Guess a country• Total GDP 0.9 billion dollars, GDP growth rate 5.5%

• Annual GDP per capita 385 US dollars

• Largest sectors of economy

• Trade 28.8% of GDP

• Agriculture 20% of GDP

• Hotels and restaurants 15.1% of GDP

• Total export 615 million dollars

• Total import 800 million dollars

• Total investment: 244 million dollars, total public investment 30 million dollars


Guess again a country• GDP 10 billion dollars, expected 2013

growth rate 18%

• GDP per capita 4000 US dollars

• Investment/GDP ratio 60.6% one of top 5 in the world

• 2013 public investment expected to reach 4 billion dollars

• Export 4.3 billion dollars


Guess again another country

• Population 3 million

• GDP 37 billion US dollars

• GDP per capita 12,600 US dollars

• Exports 15 billion dollars

• Large services sector: transport, banking, hotels, retail

• Good infrastructure


Did you recognize those countries?

• Its just one - Mongolia

• First slide 2003

• Second slide 2013

• Third is a forecast for 2018


Astonishing transformation From agricultural economy


..To a booming commodity economy and its just a beginning..


•  Economic growth 17.3% in 2011, one of highest in world

•  First quarter of 2012: 12.3%, one of highest in world again

•  Forecast for 2013: 18%

•  Forecast: average growth rate of 14% for next decade

•  GDP per capita reached 3000 USD from up from 1700 in less than 3 years

•  Poverty rate is down from 39% to 29% in 2 years

•  Unemployment is down to 8% from 11% in 2 years

•  Doubling of exports in 2 years


• Managing the transformation:• Benefit the population, reduce

poverty• Use the commodity boom to develop and

diversify the economy, create more jobs

• Accumulate mining revenue for future generations

• Prepare for cyclical boom and bust crises

• Invest in human development as much as humanly possible


Governance• Anti-cyclical budget policy: budget increase limit is implemented

• National audit checks elections platforms of parties for financial feasibility

• New budget law to strengthen development planning system and its financing

• Public investment legislation is approved, all large public projects require pre-FS and FS

• Creation of SWF

• Ceasing cash transfers from July 2012, moving to target groups

• Anti-corruption law and efforts. Law on conflict of interests is enacted.

• Strong emphasis on environmental protection


Impact of mining on Mongolian economy

• Exports boost

• Investment destination

• Engine of growth

• Employment boost

• Poverty alleviation

• Technology transfer, vocational education development

• Financial resources

• Access to world financial and commodity markets

• Boost for local and international infrastructureMonday, March 18, 13

Thats’ Mongolia’s strategy• 1990s first attempt to bring in foreign investment after

Soviet aid dried up

• 1997 new Mining Law

• 2005 a top Exploration investment destination

• 2006 Catching commodities price rise windfall: creating Strategic deposits and government share ownership system

• 2007 National Development strategy: use large strategic deposits as a leverage for economic growth (before 2015)

• 2009: First Strategic deposit is contracted to Rio Tinto and TH

• Stronger push for environmental protection: River basin law, freezing of new licenses

First stageof bringing in

FDI

Second stageof mining as

growth engine


Strategy cont’d• 2011 Starting search for contractor

for Tavantolgoi deposit,

• 2012 Fine tuning the investment process

• 2013 Starting negotiations for rest of strategic deposits (coal, phosphor, iron ore, gold, etc) for FS and environmental impact assessment

• Consolidate government mining holdings in various mines (Baganuur, Erdenet, Sharin Gol, etc)

•

Third stageof mining as

growth engine -

addressing issues of

environmental degradation

and high concentration

of growth


Strategy forecasted• National Development strategy:

after 2015 more to attention to value added industries

• Iron ore smelting - Darkhan

• Copper ore smelting Dornogobi

• Oil processing - Darkhan

• Coal processing - Dornogobi

• 2013 improvement of Strategic investment law

Fourth stageof mining as a value creator


What about mining?• More local coordination for mining - Obtain local residents‟ opinion in the

processes of issuance of mineral licenses;

• Stricter control - Introduce a practice of issuing exploitation licenses on the basis of the Government‟s resolutions;

• - Put certain limitation on the number of mineral licenses to be issued to economic and legal entities;

• - Mining exploration license shall be issued only for those areas which are authorized by the state / Green zones

• - Pursue the principle not issue permits to mines which are identified economically non-viable by feasibility studies, and entail greater environmental damages;

• - Grant the right to exploit a deposit to economic entities that have provided a financial guarantee certifying the concerned entity is able to do the restoration works in line with the applicable standards.

• - To further elaborate the definition of “strategically important deposits” stipulated in the Minerals Law on the basis of a survey, and implement a special policy in regard to energy and coking coal, copper, iron ore and rare earth elements


Mining strategy cont’d• Create a legal environment to enable the national economic entities to have

preferential supplier or sub-contractor right in the projects implemented in the mining sector;

• Renew the list of strategically important deposits and intensify the processes to put the large deposits into economic circulation. Consolidate the state ownership of strategically important deposits in line with a corporate structure, and in accordance with provisions of the Law on Human Development Fund, provide citizens with preferred shares;

• Ensure that the extraction, storage and trading of gold is transparent;

• Further elaborate the regulations to extract minerals through micro mining processes and improve the control on enforcements ;

• Facilitate application of principles and standards of “The Extractive Industries Transparency Initiative” and “The Responsible Mining Initiative”.

• Ensure compliance with the Law to Prohibit Mineral Exploration and Mining Operations at River Headwaters, Protected Zones of Water Reservoirs and Forested Areas, and develop environmentally friendly mining;

•


Mining policy cont’d• Renew the economic statistical data of natural resources,

and a system for assessment methodology to assess the impacts of the minerals industry on the country‟s economic and financial sectors;

• Reduce export of minerals as raw materials in order to ensure the economic growth stability, gradually upgrade the processing level of export products in line with international standards, and increase the export volume of value added mining products;

• Establish a complex metallurgical plant with modern techniques and technology relied on iron ore deposits located in the Darkhan and Selenge region;

•Monday, March 18, 13

• The Tavantolgoi coal deposit shall remain under the state ownership. In order to exploit the deposit, attract domestic and foreign investment to economic entities and companies to carry out extractive operations.

• Subsequently, take measures to sell the Tavantolgoi shares at the domestic and foreign stock exchanges

• Ensure transparency of license trading;

• Provide support to efforts to introduce environment friendly, and leading techniques and technology in mining operations, count the number of degraded areas due to mining, involve the responsible subjects in rehabilitation processes, and allot the rehabilitation expenses in the state budget account;


Anticipating the changes• More local control

• More overview of environmental aspects

• Less new licenses to be issued

• The new Mining Law - thats what it says

• The key is stay business friendly and foreign investment friendly while implementing those changes


18.03.2013 mongolia and mining: the policy evolution what's the next? dr. ch. khashchuluun

Business