MONGOLIAN MINING PROJECTS REPORT 2015 AUSTRADE DISCLAIMER This report has been prepared as a general overview. It is not intended to provide an exhaustive coverage of the topic. The information is made available on the understanding that the Australian Trade Commission (Austrade) is not providing professional advice. Therefore, while all care has been taken in the preparation of this report, Austrade does not accept responsibility for any losses suffered by persons relying on the information contained in this report or arising from any error or omission in the report. Any person relying on this information does so entirely at his or her own discretion and Austrade strongly recommends that the reader obtain independent professional advice prior to acting on this information. Commonwealth Copyright ©Commonwealth of Australia 2015 Published: November 2015 MONGOLIAN MINING PROJECTS REPORT 2015 This report is a guide for Australian mining equipment, technology and services (METS) exporters considering doing business in Mongolia. Mongolia has world-class deposits of copper, gold, coal and iron ore, and presents many present and future opportunities for Australian METS organisations involved in the mining value chain. To assist Australian companies in accessing these opportunities the Australian Trade Commission (Austrade) has prepared this report. It examines market challenges, the mining landscape, mining infrastructure issues, mining business and investment opportunities, and profiles some operating mines planned mines, and exploration projects. We hope this publication will help you in undertaking your research into the Mongolian market. Should you need further information, please contact Austrade on +976 70 133 001 or at [email protected]. Brendan Coyne Consul General and Trade Commissioner Australian Consulate-General, Mongolia CONTENTS SECTION 1: ABOUT MONGOLIA 1.1. COUNTRY PROFILE 7 Map of Mongolia 7 Economic Overview 7 Political System 8 Legal Framework 8 Investment Law 9 Taxation 9 Market Challenges 10 Business Culture 11 Setting up in Mongolia 12 SECTION 2: MINING EXPLORATION AND PRODUCTION 2.1. MINING LANDSCAPE 13 Introduction 13 Minerals Law 13 Exploration and Mining Licences 14 2.2. GEOLOGICAL EXPLORATION WORK 15 Geology 15 Geological Map and General Exploration Work 15 Mineral Resources Reserves 16 Gold 16 Copper 17 Iron Ore 18 Coal 18 2.3. MINING PRODUCTION 19 Production 19 Exports 20 Processing and Concentration 21 Coal Mining and Processing 21 2.4. MINING INFRASTRUCTURE ISSUES 22 2.5. MINING BUSINESS AND INVESTMENT OPPORTUNITIES 23 2.6. KEY MINING AND INWARDS INVESTMENT AUTHORITIES 24 The Ministry of Mining 24 The Mineral Resources Authority of Mongolia 25 Invest Mongolia Agency 26 Copyright © 2015, Oyu Tolgoi SECTION 3: MINES AND EXPLORATION PROJECTS 3.1. OPERATING MINES 27 1. Erdenet Mine Copper and Molybdenum 28 2. Oyu Tolgoi Mine Copper and Gold 29 3. Baganuur Mine Thermal Coal 30 4. Baruun Noyon Uul Mine Coking Coal 31 5. Khushuut Mine Coking and Thermal Coal 32 6. Naryn Sukhait Mine Coking Coal 33 7. Ovoot Tolgoi Mine Coking Coal 34 8. Shivee Ovoo Mine Thermal Coal 35 9. Tavan Tolgoi Mine Coking Coal 36 10. Ukhaa Khudag Mine Coking Coal 37 11. Ulaan Ovoo Mine Thermal Coal 38 12. Bargilt Mine Iron Ore 39 13. Bayangol Mine Iron Ore 40 14. Tumurtein Gol Mine Iron Ore 41 15. Tumurtei Mine Iron Ore 42 16. Bayan Airag Mine Gold and Silver 43 17. Bor-Undur Mine Fluorspar 44 3.2. PLANNED MINES 46 1. Gatsuurt Mine Gold 47 2. Ovoot Mine Coking Coal 48 3. Oyu Tolgoi Underground Mine Copper and Gold 49 4. Tsagaan Suvarga Mine Copper and Molybdenum 50 3.3 EXPLORATION PROJECTS 51 1. Cogegobi (Areva) Uranium 52 2. Haranga Resources Iron Ore 53 3. Kincora Copper Copper-Gold 54 4. Xanadu Mines Copper-Gold 55 SECTION 4: LINKS AND RESOURCES 56 Government Ministries 56 Relevant Government Agencies and Authorities 56 Industry Associations 56 News and Media 56 REFERENCES 57 ABOUT THE AUSTRALIAN TRADE COMMISSION 58 MAP OF MONGOLIA Map 1: Mongolia Source: Mongolian Mining Projects Report 2011 6 > Mongolian Mining Projects Report 2015 ABOUT MONGOLIA > 7 SECTION 1 1.1. COUNTRY PROFILE Mongolia is a landlocked country bordered by Russia to the north and China to the east, south and west. With an area of more than 1.5 million square kilometres (the world’s 19th largest country) and a population of approximately three million people, Mongolia has one of the lowest population densities in the world. The landscape has several distinct geographical features, including forest mountain ranges to the north, desert and low mountain areas to the south, high mountain ranges to the west and vast plains to the east. The climate is continental with hot summers and very cold winters. Mongolia’s population is relatively homogenous in terms of ethnicity, language and religion. Its population is also relatively young with more than 60 per cent below the age of 30. Approximately 60 per cent of Mongolia’s population lives in Ulaanbaatar (the capital city), Darkhan (an industrial centre in the north, near the Russian border) and Erdenet (a city around a large copper mine). The remainder of the population comprises mainly nomadic livestock herders. Mongolia has had a significant impact on world history. The Hun, Turk and Mongol empires originated from this region, with the latter controlling most of Asia and parts of Europe in the 12th and 13th centuries. Economic overview Mongolia’s GDP in 2014 was just over US$12 billion.1 The mining sector is integral to the Mongolian economy, which accounts for 18 per cent of GDP, 68 per cent of industrial output and 81 per cent of export earnings.2 Agriculture is a big contributor to the economy and accounts for 30 per cent of GDP, 35 per cent of the labour force and 7 per cent of export income.3 From 2011 to 2013, Mongolia’s economy weathered many shocks to become one of the fastest growing economies in the world. Mongolia achieved GDP growth of 17.5 per cent in 2011, 12.3 per cent in 2012 and 11.6 per cent in 2013.4 This success was largely based on the investment in and development of the US$6 billion Oyu Tolgoi copper-gold project and increased earnings from mineral exports. ABOUT MONGOLIA > 7 Economic growth decelerated in 2014, with GDP growth confirmed by the Parliament and appointed by the President. slowing to 7.8 per cent and foreign direct investment (FDI) The Supreme Court is constitutionally empowered to examine dropping by 80.7 per cent. Growth is forecast to be sharply all lower court decisions (excluding specialised court rulings on lower in 2015 and 2016. Statistics released in August 2015 appeal) and provide official interpretations on all laws except the show economic growth increased by 3 per cent for the first six Constitution. months of 2015 relative to the same period in 2014. A major Specialised civil, criminal, and administrative courts exist at all policy challenge is to implement prudent macroeconomic levels and are not subject to Supreme Court supervision. Local management that retains sufficient scope for productive authorities and district and city governors, ensure that these investment and social protection.5 courts abide by presidential decrees and Parliament decisions. At the apex of the judicial system is the Constitutional Court Political system of Mongolia, which consists of nine members, including a In 1990, with the collapse of the USSR, Mongolia transitioned to chairman, appointed for six-year terms, whose jurisdiction a democracy and a free market economy. extends solely over the interpretation of the Constitution. The Mongolian Constitution was formed in 1992 and enshrines Economic and business activities in Mongolia are regulated by the concepts of democracy, freedom of speech, judicial a variety of laws, including the Civil Code (2002), Company Law independence and importantly, a market economy founded on (2007) and Law on Investment (2013). a system of civil law. The politics of Mongolia takes place in a framework of a semi- presidential representative democratic republic, and of a multi- Copyright © 2015, Oyu Tolgoi party system. Executive power is exercised by the Government. Legislative power is vested in both the Government and Parliament. The Judiciary is independent of the executive and the legislature. Members of the State Great Hural (parliament) and the President are both elected for fixed four-year terms (on different electoral cycles). The Prime Minister is nominated by, and serves on behalf of, the majority party in the Parliament. The Cabinet is appointed by the Prime Minister, subject to State Great Hural’s approval. The President is the Commander-in- Chief and holds the power to veto legislation, although this can be overridden by a two-thirds majority in Parliament. There are two major political parties: the Mongolian People’s Party (MPP), which evolved from the communist single-party government, and the Democratic Party (DP), which grew out of Mongolia’s 1990 democracy movement. The next election is expected to be held in June 2016. Legal framework The Mongolian legal system is based on the Roman-German (continental) legal system. The principal legal act is the Constitution. The provisions of the Constitution, the laws corresponding to it, other regulatory acts, international treaties and other commitments of Mongolia, as well as regulatory resolutions of Constitutional Court and the Supreme Court, comprise the functioning law in Mongolia. The Constitution empowered a Judicial General Council (JGC) to select all judges and protect their rights. The Supreme Court is the highest judicial body and judges are nominated by the JGC, 8 > Mongolian Mining Projects Report 2015 ABOUT MONGOLIA > 9 Investment Law Market challenges Mongolia’s parliament passed a new Investment Law, which There are some important market challenges in Mongolia that came into effect on 1 November 2013, replacing the Law of need to be considered in any market entry strategy.