Mining specialist talks about Mongolia’s mining sector challenges


Udriin Sonin spoke with executive director of the Mongolian National Mining Association D.Enkhbold regarding a broad scope of issues concerning the nation’s mining sector.

Is investment in mining still poor?

The external situation is the same; we haven’t observed any changes in the internal environment.

A new cabinet has been formed. What are the most important decisions needed in the mining sector in your opinion?

The Mongolian People’s Party is creating its cabinet, and appointing chairs of standing committees. In the mining sector, there are some issues that are wholly dependent on the government. We don’t have any possibility to directly influence external conditions. Of course, the external condition will improve someday. But before that, we need to take measures to advance the internal conditions. Firstly, we need to regulate taxes that are being charged under the guise of fees. The situation within mining companies is challenging.

Even though the mining sector is in critical condition, people still don’t accept that the mining sector is carrying Mongolia on its back. The truth is that the mining sector will drag the nation’s economy in the near future. People need to understand this.

If Mongolia wants to develop its mining sector, it shouldn’t be charging taxes and fees at all stages. Ministries and government organizations initiate and charge fees from mining companies at will. Even the Mongolian Customs charge 1,500 MNT per ton of export. Although it is named “fee”, they bring more costs to companies than taxes. We tried to resolve this issue through three stage courts.

The government has the ability to resolve this issue that is bringing mining companies to failure. The Finance Ministry is an organization with more power than Parliament and the government. They don’t have any interest in going easy on taxation. Of course we do understand that there should be taxes, but the government needs to ensure connection between its agencies and regulate the fee issues.

Do you meant to say that ministries are charging more from mining companies through fees than taxes. Is this what you meant?

For instance, they charge 170 million MNT for issuing water evaluation, which is inappropriate. This is a separate issue from water consumption.

The Finance Ministry might explain that it is needed for generating the nation’s state budget. But we just want tax and fee issues to be more regulated and to pay equal amounts in good and bad conditions. This is what investors are looking at. A fee is charged also for coal export, as it pollutes the air when burnt. It is hard to understand why they charge this fee as the coal is going to be burnt in China.

Is mineral exploration license issuance still suspended?

Yes. There is one big mistake in license issuance. The government announced exploration areas without negotiating it with local governors. When local governors don’t agree, license issuance does not progress.

As the government has already decided, is there a possibility to lower the power of local governors?

We could choose such an option, as Mongolia is not a federation. But this issue has two sides. Because mining activities have many features, investors want friendly cooperation with local governing bodies. That’s why there is only one solution. The law should state “Exploration area will be announced after negotiations with local authorities”. That would resolve everything.

What are the projects that the new cabinet should move forward with immediately to improve the nation’s economy? 

Projects that have already started, such as Oyu Tolgoi shouldn’t be slowed down. As for the Tavan Tolgoi project, its mine is working. We don’t have any detailed information about whether the feasibility study for Tavan Tolgoi’s water reserve was completed. Quite a time has passed since it was said that Tavan Tolgoi will be developed further. Without resolving its infrastructure, talking about Tavan Tolgoi is useless.

Are you talking about the railroad?

Yes, there is no one interested in building Tavan Tolgoi’s railroad, except China. When the prices for coal were high, over 10 companies were competing for the Tavan Tolgoi tender, but now it became history.

What are other projects that need to be advanced apart from Tavan Tolgoi?

The Gatsuurt issue is being resolved by court. The issues around Gatsuurt are badly influencing Mongolia on the international level. Because Centerra Gold is a company with public shares, it needs to introduce its environment and social responsibility studies in accordance with requirements from international stock exchanges and its investors. One of its introductions was made ahead of the National Naadam Festival.

MPs are saying that signing of the agreement for Oyu Tolgoi’s underground mine held in Dubai was incorrect. Mainly members of the Mongolian People’s Party are touching upon this issue. What is your position?

It is impossible to conclude if it was correct to sign the agreement. This agreement was signed because of necessity. If this agreement wasn’t signed, we would have faced more difficulty today. Thanks to Oyu Tolgoi, other mining companies are moving forward. Domestic companies such as Khasu Megawatt and Khishig Arvin signed a major contract for the underground mine development. Mining has a great influence on the economy. Especially, it is definite that moving Oyu Tolgoi will bring notable changes to the economy.

People are voicing their suggestions and objections to the 49 percent ownership of the Erdenet Mining Corporation. Some of them believe that the government should have bought the company and then decided what to do with it. What is your opinion?

It is not as if the government is selling its ownership to others. This issue isn’t dependent on us; this was Russia’s Rostech’s decision. They decide whether to sell their shares or not. Russia has the right to say that “you don’t have the right to get involve in this issue, we are selling our own ownership”. But Russia reported that it will make negotiations with Mongolia.

Gold is one of the major export products of Mongolia. There are expectations that prices of gold will increase by the end of this year.

Recently, prices of gold have slightly dropped, but it’s not dropping below 1,320 USD [per ounce]. There are high expectations that gold prices will rise by the end of this year. Especially the U.S. presidential election will have a great influence in this issue. It is good that prices of copper are not dropping below 4,900 USD. We have included some positive projections in the state budget. But coal prices are still poor.

When will the Discover Mongolia investors’ conference take place this year?

We plan to organize the forum from September 8 to 9. This year, Discover Mongolia will be held under the slogan “For Sustainable Condition”. Of course, the forum will touch upon issues concerning the mining sector and difficulties. We hope that the new cabinet will cooperate in organizing the forum. This year, Discover Mongolia will be held after the elections, that’s why investors will be interested about policies of the new cabinet.