|Frontier's "Invest Mongolia Tokyo 2018"||Frontier Securities||Tokyo Japan|
|"Open to Export" ICC WTO International business award||ICC WTO||London|
Ulaanbaatar /MONTSAME/ On November 14, Deputy Prime Minister U. Enkhtuvshin met Suresh Babu, Ambassador of the Republic of India.
During the meeting, they shared views on establishing oil refinery and IT outsourcing center with soft loan from the Government of India, on launching a direct flight as well as preparations for Asian Ministerial Conference on Disaster Risk Reduction to be organized next year in Ulaanbaatar.
The sides had the same opinion that Indian PM Narendra Modi’s visit has elevated bilateral relations and cooperation into a new level and they expressed their satisfactions with successful implementation of matters negotiated during the visit.
A feasibility study on oil refinery and pipelines will be conducted by an Indian company and the feasibility study is scheduled to be complete and transfered next year. “Mongolian government pays a special attention on the implementation of this project which is strategically important for Mongolia,” pointed out Deputy PM.
U. Enkhtuvshin said that relevant ministers will be assigned to intensify the project on establishing IT outsourcing center and developing it into Data Center. He also thanked for the decision of Indian side to train emergency staff of Mongolia in the framework of organizing the Asian Ministerial Conference on Disaster Risk Reduction.
The parties also believe that opening of a direct flight between two counties will boost tourism and business development and attract Indian investors. To this extent, the bilateral trade turnover which is currently about USD27 million, is likely to rise. Furthermore, big construction projects will be intensified.
In addition, they discussed about establishing a cyber-safety training center and developing relations and cooperation in border protection, defense, education and cultural sectors.
A year after coming to the brink of default, Mongolia is seeing the benefit of a good housekeeping seal of approval from the International Monetary Fund.
The resource-rich country wedged between Russia and China has the best performing stock market benchmark in the world for 2017, and it’s able to borrow on the open market again. Last month, the country attracted more than $5.5 billion for an $800 million sale of bonds in dollars. Investors are looking past Mongolia’s gaping budget deficit, weak credit profile and political uncertainty, taking comfort in an IMF lending program approved in May.
“We are happy to hold Mongolia bonds as the IMF anchor and higher commodities prices will continue to support the economic recovery,” said Mark Baker, a Hong Kong-based portfolio manager at Aberdeen Standard Investments, who bought the sovereign’s new 2023 bond. “With short-term sovereign external debt maturities rolled over and the next maturity not due until 2021, refinancing pressure is off.”
That’s helped its stocks, as well. The Mongolia Stock Exchange Top 20 Index is up about 74 percent so far this year, the biggest gain among all the benchmarks tracked by Bloomberg. Venezuela’s advance incorporates a realistic exchange rate for the country that’s been declared in default. Leading the Mongolian gains have been resource companies including coal miner Tavantolgoi JSC.
Much of the gains in the country’s equities came in the wake of the IMF program signed in May that provided about $5.5 billion in assistance.
It’s all quite a turnaround for Mongolia, which last year garnered only $750 million of bids for a $500 million bond sale, despite a coupon more than 5 percentage points higher than the notes sold last month. In November 2016, Moody’s Investors Service cut its debt rating deeper into junk due to “heightened uncertainty” over the government’s ability to meet its debt service obligations. Fitch Ratings followed suit with a downgrade because of deteriorating fiscal conditions and increased external liquidity risks.
With backing from the IMF, Mongolia is now able to benefit from the continued abundance of liquidity in the global financial system, and the attendant hunt for securities that offer extra yield over safe-haven benchmarks. Premiums on speculative-grade dollar bonds as a class have continued to drop relative to Treasuries, and reached a record low earlier this year.
That hunt for yield troubles Guillermo Felices, a London-based senior portfolio manager at the asset management arm of BNP Paribas SA, who says demand has become out of whack with credit and economic fundamentals.
“People are comfortable extending the search for yield,” he said in an interview in Hong Kong on Nov. 10. “Investors need to put the money somewhere and in order to meet the yield target they extend risks, going to riskier countries that then compress those yields. This is without fundamental justification.”
Still, conditions in and out of the country look favorable, at least for now. The country welcomed its fifth president since 1992, when Battulga Khaltmaa took office in July with an anti-corruption agenda. The upturn in coal prices will help its borrowing requirements for 2018 decline to 14 percent of GDP versus previously expected 20 percent, Moody’s said in its Oct. 30 note. Some measures of coal prices have climbed 18 percent since the end of June.
The bottom line for Baker at Aberdeen when it comes to the country’s bonds: “I wouldn’t expect significant spread gains given current valuations, but carry remains attractive.”...
ULAANBAATAR (GoGo Mongolia) Today, Mongolian Parliament approved the State Budget of 2018, Social Insurance Fund Budget of 2018 and Health Insurance Fund Budget of 2018.
Regarding the budget approvals, Minister of Finance Ch.Khurelbaatar answered journalists' questions and introduced the key changes to the State budget at the Government House.
Some indicators of the State budget of 2018:
4.2 percent GDP growth
8 percent budget deficit share in GDP in 2018, decreased from 9.5 percent of 2017
Cabinet plans to bring this indication down to 4.5 percent in 2020.
Minister of Finance emphasizes the importance of decreasing the state budget deficit share in GDP as a good sign. In 2018, the Cabinet plans to:
Improve economy and reduce debt induced pressures
Supplementary revenue will be transferred to the previous debt payments
Increase investors' involvement in stock exchange
Reduce interest rates of commercial banks
Reduce Government bond trade and improve debt management
Continue fiscal stability
Revive foreign investors' faith and accelerate big project implementations
Support private sector by flexible tax policy
Reform the tax system to become more transparent, simple and fair.
Russian scientists have developed a new generation of innovative fertilizers that, they say, are capable of increasing crop productivity by 25 per cent. The fertilizers are based on nanopowders of transition metals such as iron, copper, and cobalt.
According to the researchers, who are based at the National University of Science and Technology MISiS, Ryazan State Agrotechnological University and Derzhavin Tambov State University, as a key element of enzymes, such microelements directly affect a plant’s immunity and viability, which leads to its level of resistance to pests and diseases.
“We have developed a fertilizer of a new generation based on nanopowders of metals, which allows us to significantly optimize the technology of a number of agrochemical actions, and to be exact — to reduce them to a one seed treatment by a product containing the essential microelements in nanoform. These particles of transition metals have a powerful stimulating effect on plant growth in the initial growth phase. Thus, the future plant is provided with a supply of necessary microelements at the stage of seeding, which allows us to improve field germination, increase resistance to adversity, and, ultimately, to get a [better] harvest—as the experiments have shown these figures increase by 20-25 per cent," said in a press release Alexander Gusev, the head of the project and a senior research associate at the NUST MISIS Department of Functional Nanosystems.
Gusev added that the main difficulty these kinds of projects face is that highly mobile nanoparticles tend to quickly stick together and form large aggregates. However, the researcher's team was able to solve the problem by using organic stabilizers and the ultrasonic processing of colloidal solutions.
"Now, after receiving encouraging field research results, it is necessary to find out how a new fertilizer will act in different soils, in relation to different plant cultures, and it is also necessary to comprehensively assess its environmental safety before recommending it for widespread use," the scientist said.
Nevertheless, Gusev is optimistic about the low environmental footprint of his fertilizers. In this study, he says that microelements would be able to enter into a plant’s structure without damaging the soil. Normally, microelements are introduced into the soil in the form of soluble salts, which are absorbed by plants in part and the rest is washed out by rains and watering; such discarded portion tends to leak into groundwater systems and disrupt their balance.
Besides the ecological benefits of the new fertilizers, the scientists predict they will also produce positive economic outcomes. They say its consumption is about one gram of dry substance per tonne of processed seed. At the same time, the number of procedures involved is reduced, which would decrease the costs of labour and agricultural equipment....
The Mongolian People’s Party (MPP) is to appoint a new leader. The selection will be made at a party congress to be held on 21-22 November. According to a source, D.Khayankharvaa from the ‘32’ group in parliament is expected to be a nominee for the top post, along with Prime Minister U.Khurelsukh and N.Demberel. A total of 1100 delegates will participate in the congress.
The MPP won 65 seats out of 76 seats in parliament in the June 2016 general election.
The US is being pushed out of the grain market as Russia's bumper wheat harvest has dragged down prices to record lows. Russian agricultural exports are booming thanks to a weaker national currency and massive investment.
“We are pushing America aside in some markets, and we are satisfied with this,” said Russia’s Agriculture Minister Aleksandr Tkachev.
This year Russian farmers are expected to harvest the biggest crop in over a century. Russia will produce at least 83 million tons of wheat in the current growing season, according to estimates by The Wall Street Journal.Lower prices and close proximity to large markets gives Russia an advantage, according to the General Director of the Institute for Agricultural Market Studies Dmitry Rylko.
“A relatively weak ruble is good for the Russian wheat market. We see either gradual or rapid growth for our exports,” the expert told RT.
However, the figure announced by the Russian government earlier this year is much more impressive. The Moscow-based grain consultant ProZerno estimates a harvest of over 130 million tons. It is 2.6 percent more than the previous record set in 1978 before the Soviet-Afghan War.
“Today our task is to set reasonable prices across the country. The grain crop of 130 million tons, there is more to come. It may reach up to 200 million tons. The main thing is to find new sales markets,” said Tkachev.
The US agricultural sector has faced lousy weather this season, meaning fewer acres of wheat were sowed in 2017 than ever before. US wheat output is expected to decline by a quarter compared to the previous season.
Unfavorable conditions along with Russia’s resurgence pushed wheat prices at the Chicago Board of Trade down almost 25 percent to $4.19 a bushel (about 27 kilograms) compared to July, when Russia began a record wheat harvest. The US Wheat Associates trade group announced the shutdown of its office in Egypt, the world’s biggest wheat importer.
“We literally can’t compete on the price of wheat in those markets compared to Russia,” said the trade group’s spokesman Steve Mercer, as quoted by the WSJ.
According to the US Agriculture Department, American wheat will make up just 15 percent of global exports in 2017, down from half four decades ago. The plunge was also caused by more grain grown in Europe and India. The US will produce half as much as Russia, according to the department.
Last year, Russia managed to become the world’s leading producer and exporter of grain, after shipping 34 million tons from its 119 million ton harvest. Exports of Russian wheat are expected to increase to 40 million tons this year, according to the agriculture ministry.
“No one is leaving the market. The Americans are rather better at corn and soybean farming, and they are successfully doing that while losing position in wheat,” Rylko told RT.
Reverses of Mongolia’s 500- and 1,000-togrog coins showing the fossil skeleton of an Ichthyosaur. (Images courtesy Coin Invest Trust)
Mongolia’s latest contribution to its “Evolution of Life” series features one of the better known fossil skeletons: a 250 million year-old Ichthyosaur.
The head of one of these creatures features on the reverse of a 38.61 mm, 1 oz .999 fine silver 500 togrog and a 11 mm 0.5 g .9999 fine gold 1,000 togrog proof.
Mintages are 999 and 15,000 respectively. The coins have been struck by B. H. Mayer’s Kunstprägeanstalt, Munich, for Liechtenstein’s Coin Invest Trust.
Ichthyosaurs were large marine “fish-lizards” similar in many respects to the modern dolphins, although quite unrelated to them.
They will always be associated with 12 year-old Mary Anning, who is credited with recovering the first complete Ichthyosaur skeleton on the coast of England’s Dorset in 1811.
Ulaanbaatar /MONTSAME/ Minister of Mining and Heavy Industry D.Sumiyabazar pledged to take urgent measures in response to the logjam of coal trucks, stretching over 100 km at the Gashuunsukhait border crossing in southern Mongolia.
The Minister looked over the situation at the Gashuunsukhait border crossing in the course of his three-day working visit to Umnugobi aimag over the weekends. J.Bat-Erdene, Minister of Road and Transport Development and L.Enkhbold, Member of Parliament also visited the site. The officials met local authorities, representatives of the mining companies and coal transporters to seek solutions.
The situation at the Gashuunsukhait border crossing arose after national Naadam festival when the People’s Republic of China significantly reduced its daily coal truck passage, causing a 90-km-long line of trucks at the border crossing as of November 12.
According to B.Davaasuren, Head of the Customs Division of Gashuunsukhait border crossing, the Chinese side explained that the decision was made due to - smuggling of goods such as meat and guns from Mongolia and major events such as the 19th National Congress of the Communist Party.
Before the situation emerged, about 1,200-1,500 coal trucks passed the Gashuunsukhait border crossing on daily basis. In accordance with the Chinese decision, about 500-600 trucks now pass the border crossing in a day.
G.Battsengel, CEO of Energy Resources LLC, explained the logjam cause linking with increase in number of coal transport trucks. As of today, over 100 entities have acquired coal transport permits for about 7000 trucks.
The authorities of the mining companies and the drivers requested the Ministers to solve the issue in the near future. As the situation has not been improved over the last four months, the drivers are spending at least two weeks in the logjam.
The Ministers also familiarized with the operations of Energy Resources LLC, Erdenes Tavan Tolgoi JSC, Tavan Tolgoi Incorporate Company and Oyu Tolgoi LLC.
The Japan Sumo Association says it will look into allegations that Yokozuna grand champion Harumafuji assaulted a junior wrestler.
Rank-and-file wrestler Takanoiwa is sitting out of the current 15-day Grand Sumo Tournament that began last Sunday in Fukuoka, western Japan.
He submitted a doctor's report on Monday recommending 2 weeks of treatment for a fractured skull, concussion and other injuries.
Several sumo association sources are saying that Harumafuji struck Takanoiwa's head with a beer bottle during a regional tour. The incident reportedly took place on October 26th during a gathering of wrestlers from Mongolia.
Association officials plan to interview the stable masters of the wrestlers involved, to verify what happened.
Yokozuna Harumafuji has offered his apologies.
Harumafuji told reporters on Tuesday morning that he is deeply sorry for causing trouble to Takanoiwa's stable master, members of his support group and the sumo association.
But he said he will not respond to questions about the alleged assault until after he consults his stable master.
N.Ariuntuya finds out from the Executive Director of Erdenes Tavan Tolgoi, D.Ariunbold, about the present state of affairs in the company, and the likely challenges ahead. Some bold decisions are long overdue to fulfil the company’s potential but these can be taken only at the political level.
How are things going?
Our 2017 target is to mine 13 million tonnes of coal and to export 11.5 million tonnes. So far, we have exported 7.5 million tonnes, thus already exceeding last year’s total exports of 7.3 million tonnes. We have exported 2.7 million tonnes from West Tsankhi and 4.8 million tonnes from East Tsankhi. We hope we shall meet this year’s export volume target, the only uncertainty lying not in any operational failure, but rather in problems with infrastructure, and with hitches at the border and with customs.
However, there should be no doubts about our reaching our revenue targets or about paying to the budget the projected amount in taxes and fees. Third quarter figures are not yet published, but our total profit in the first three quarters is expected to be MNT343 billion. Our total sales so far have earned us MNT997 billion, and we have until now paid around MNT220 billion in taxes and fees. Our total contribution to the state budget would be around MNT250 billion by the end of the year.
Quotas have been set for exporting companies so that fewer trucks queue up at the Gashuunsukhait-Gantsmod border, and Erdenes Tavan Tolgoi will be allowed 45 percent of the total 500 trucks to cross to China. Will this not affect your export volume?
Some sort of regulation was necessary and is welcome but we would have preferred the percentage of trucks allotted to each company to be based on its share of exports volume. However, we hope the present decision will be temporary and things will become normal before long.
It is a difficult situation now. At any given time, there are 500 loaded trucks and 500 more waiting to be loaded at our mine head, with a 13-km-long queue of trucks on the road outside the mine. This total of 2,000 trucks, inside the mine area and outside, does not allow trucks of Energy Resources and the local Tavantolgoi to enter their respective mines. Since all this stems from the bottleneck at the port, what is required is urgent and strong government pressure on the Chinese to increase their handling capacity at border crossings.
What are your mining and sales targets in 2018? How do you expect the coking coal market to behave?
We are at present working on next year’s plans and budget, and hope not to reduce either extraction or export volume. Earlier hopes of exporting even more than this year now look dim because of the bottleneck at the border. We should go beyond the importing parties and negotiate at the government level for easier and faster border crossing. Otherwise we might end up exporting even less than in 2016. The infrastructure issue also needs to be addressed urgently.
As for the market, we are broadly optimistic. The first quarter could be difficult but things should stabilize thereafter. All depends on the policy of the biggest coking coal importer, which is China, and the entire world is waiting to see what decisions are taken at Chinese Communist Party’s 19th Congress.
China is restricting transportation of coal by truck. How is this going to affect its coal import from Mongolia?
That restriction is logical as truck-based transportation means higher unit costs anywhere, and I would expect it to be more widely and strictly enforced inside China. The Chinese railway network has not reached every coal washing plant there, so some coal has to move 200-300 km by truck. I believe the Chinese government is trying to restrict this, but it may not be viable for them to build railway links to consumers not so far from the border. Besides, since all Mongolian coal goes to the border in trucks, it will not make sense to unload it at the border, and reload it on the railway if its final destination is just a short distance away.
It is good that you now fix coal prices by open bidding. What is the current price and who are your buyers?
Yes, coal from both Tsankhis is now sold to the highest bidder. According to an existing agreement, 80% of East Tsankhi coal is sold to CHALCO. The remaining 20% is sold by open tender. Unfortunately, CHALCO has not been supplied its full quota of coal because of the slowdown at the border.
As for who our buyers are, they are all Chinese companies with permission to import coal to China, but we cannot identify which among them are state-owned and which not. We sell at the mine mouth to whoever offers the highest price and meets our conditions. Today, the price was $68.1/t.
What have been the plus points in selling by open tender?
The former practice of selling to companies that met certain requirements, without any open bidding, was seen as not being transparent, and the new management made a thorough study of how to make a change. One option was to sell through the agricultural exchange, but the exchange was found to lack the proper resources and facilities. Another was an auction where buyers raise their hand and quote a price. The problem in this was that the buyers could reach an agreement among themselves, and thus keep the price low, making us helpless.
The method that seemed the best to us and which we now follow is to receive sealed offers and then select the best offer after assessing their advance payment capacity, financial soundness, ability to quickly move the coal, and transport it. This is an open way of doing business. It also allows us to get closer to the market, to directly negotiate with big companies and to export in bulk.
How well is it working?
Quite well, with so many companies participating in the first auction. If prices drop, the competition will be less, and any rise in price will see companies competing more with one another. Currently, the competition is not really aggressive, with just about 10 major buyers in the bidding.
How frequently do you make a fresh selection?
It depends on how prices move. If they increase, we look for a new buyer who will pay at the new rates, but if prices fall, we try to continue as long as possible with the old rates.
TTJVCO of China and a consortium of Mongolian companies have been working as contracted operators in East and West Tsankhi respectively. How do their operational costs compare?
TTJVCO charges $4.2/cubic metre (MNT10,500), excluding value added tax, while Mongolian Miners works for MNT6,800/cubic metre. TTJVCO signed a long-term agreement 4-5 years ago. Efforts to lower their rates have not been successful except in some minor ways, even after a working group appointed by the government talked to the company, mainly because these are protected by the terms of the initial contract. One good thing, however, is that TTJVCO mainly uses Mongolian companies for the work at East Tsankhi.
In August, the government decided to close down the Tsagaankhad customs inspection area. How does this impact your operations?
Earlier, we used to unload our coal in Tsagaankhad, 20 km inside the border, and sell it from there. The costs of this unloading and storing, followed by re-loading before continuing on the journey to the border, were working out to be too high. Only for unloading, we had to pay $2/t. Plus, there was a fee for using the area. So, we decided to load at the mine mouth and, without unloading in Tsagaankhad, to carry on directly to the border. Energy Resource has also recently started transporting directly to the border without unloading in Tsagaankhad. Whatever coal is currently in Tsagaankhad is from the local Tavantolgoi.
I think the government decision was reasonable as we were no longer using Tsagaankhad, and also because it is good for the environment and people’s quality of life as so much dust used to be generated by the unloading and reloading of coal. However, the decision has not been fully enforced because it hurts the interests of some people who have factories and provide services around there.
With the present congestion at the border, some feel it would ultimately save time if the customs clearance work is done at Tsagaankhad. For coal exporters, however, the additional costs will be a major concern. Also the reloaded trucks doing the short trip to the border would tend to disrupt the orderly chain of trucks doing the uninterrupted longer trip. Altogether, and going beyond the companies’ interests, I would think it is for the bigger national good to close down Tsagaankhad.
When did your company start stopping at Tsagaankhad?
Two or three years ago. The customs inspection is done when coal is loaded at the mine, and the truck marked as such can then go to the border without any stop on the way for a check.
Erdenes Tavan Tolgoi has paid off CHALCO’s big debt, but what about the $200 million it owes the Development Bank, and maybe other business loans not so well-known?
The last $100 million of the 5-year-old CHALCO debt was repaid on March 30. We still have to sell them a contracted amount of coal from the East Tsankhi, but we now have a say on the price and other terms. Free of the debt, our revenue stream has got a boost.
That we could repay the debt before time was mainly possible because of increased coal prices. The government also played an assertive role by deciding to start mining in West Tsankhi, and by allowing us to sell by open tender.
The only debt Erdenes Tavan Tolgoi now has is the one from Development Bank. We have started repaying and we can clear the $200-million debt before next March depending on how it would be decided to settle it, perhaps partly through allotment of shares and the rest in cash.
The popular perception is that state-owned companies are wasteful and have bloated administrative structures. What have you done in the last one year to reduce costs?
We have been tackling the problem from a number of sides. In any case, it is wrong to think that Erdenes Tavan Tolgoi has a big organizational structure which costs much. In fact, our structure is tight. There might be a few instances of job responsibility overlap, but our administrative costs are really very small, taking up just 2% of our total budget.
We are always trying to cut extraction costs. One way of doing this is to choose operating companies through open tender. This is what we have done in West Tsankhi. Another way is to introduce the conveyor system to shorten the haulage distance, and we are now working on this, and should be able to put it in place with money from next year’s budget. Once this is done, operational costs will go down 30%, which means a lot given the large volume of extraction. By and large, we Mongolians are fully able to extract the deposit ourselves. The more we can do things without outside help, the better it is. It is not right to import everything and to entrust all work to foreign companies. We decided to do the shipment work ourselves, and announced a tender for coal handling equipment and have made our selection.
All coal loading work will be done by ourselves from the start of next year, and this will bring down loading costs by 50%. We have reduced the cost of mining one cubic metre by 15% by upgrading equipment. The effect of all our work this year will be evident by next year.
There is more. Replacing diesel machines by those with an electrical motor leads to large saving. TTJVCO has brought in an electrical excavator and built a power line in East Tsankhi. The excavator cannot be put to use before some administrative formalities are completed and relevant details in the feasibility study amended, but these will not take too long.
There are thus a variety of ways that we are working on to reduce operational expense. The main need is that of power. Construction of a power plant for Tavan Tolgoi has been under discussion for five years, and requires a political decision.
Installing a conveyor system is likely to need a high capital outlay. Can you do this from your own resources?
It is possible. Anyway, construction of a five-kilometer conveyor won’t require a very large amount of money, and there are many financing options. We could certainly arrange for a part of the outlay from our own resources. This initiative is feasible unless policymakers insist that “big interests require big decisions”.
How many jobs has Erdenes Tavan Tolgoi created? How many drivers from how many companies are employed to transport the coal?
Our rolls list 640 employees, but 240 of them are hired and paid by TTJVCO. Our estimate is that 6,600 people make a living in some way related to our company’s work.
As for coal transportation, we first make a contract with a buyer who then makes a contract with the transportation company. However, the vehicles are registered under our company. Presently, there are 2,600 trucks so registered.
There has been criticism that Erdenes Tavan Tolgoi extracts only the highest quality coal, and this will quickly deplete the most profitable part of the deposit. How many coal seams are being extracted currently? Also, are there any moves to sell value added coal?
There is no question that we must export washed and processed coal. We know that our present practice of exporting expensive coking coal in its raw form can be seen as selectively mining the best quality of coal. The company started mining 6-7 years ago and in the initial years, extraction was consistently less than projected in the feasibility study. It is only in the last 4.5 years that we have been operating according to the study. Currently, we are mining 3 seams -- the 4th, the 3rd and the thermal seam – and are yet to reach the lower level, the 0 seam, which we would do next year. Thereafter, we shall encounter the urgent problem of washing the coal.
We can get this done at Energy Resource’s highly productive washing plant, which is nearby. We have met with them a number of times to discuss the issue, but nothing has been decided, with several issues unresolved. Maybe government regulations on public-private cooperation would take the work forward.
Is the main problem about the washing charges or recovery?
There should be a minimum 80% concentrate recovery for it to be economically profitable. The more important immediate concern is that the processed coal must generate more economic value.
Raw coal is being sold at $60-$70/t, so the price for washed coal has to be substantially higher to make commercial sense, but that is not what is seen.
What happened to a proposal your company once made to build its own plant with an initial annual capacity to wash 1 million tonnes of coal, which could be gradually increased to 5 million tonnes?
We completed a feasibility study and also obtained a water usage permit. A foreign company showed interest in collaborating in building the plant. But it would not be right to build a small plant when there is already a big one which cannot work to full capacity; in other words, it would not be reasonable to set up competition between a state-owned and a private company. We also have to remember that water is very precious in the Gobi. The danger of desertification will be much more if every company washes its own coal and depletes the already small water resource. So a final decision to build our own washing plant requires much careful thought.
It is not just an issue of exporting value added products. Until and unless we have an overall master plan on the TavanTolgoi deposit, we cannot make any progress on the washing plant, the power station, and the railway.
That is true. The uncertainty is difficult for the company, too. Adequate infrastructure is the key to sell Erdenes Tavan Tolgoi’s washed, liquefied coal at the world market price and then to transport it to sea ports. We are overusing the roads and doing a lot of damage. Lack of infrastructure is also not allowing us to fulfil the potential of the deposit. A railway and a parallel roadway have to be built to increase our export volume. The railway must first be connected to the Chinese network, and then we can seek alternative routes to other sea ports. Power supply is essential to develop the mine and to upgrade equipment. Indeed, the power plant issue should be resolved before construction of the railway and the washing plant.
Only a comprehensive and multi-level approach will work, not piecemeal solutions, if coal from Tavan Tolgoi is to become a global brand. Big political decisions should be made bravely. There should be a national unity of purpose, so that our sole policy is to further the interests of Mongolia.
You seem to suggest that Chinese buyers prefer buying raw coal. What exactly is the situation with washed coal?
Our processed coal, carried by truck, can reach only factories close to the border, maybe as far as Bugat, since we don’t have a railway to link with the Chinese railway. Until such time that we have the means to send the washed coal to any global market by sea, our value-added coal will suffer in comparison with raw coal.
There is another consideration. A washing plant has to be capable of adequate recovery. Since washing requires mixing coking coal with thermal coal, an important benefit of a washing plant would be that it will enable us to use our thermal coal, which we now sell to Chinese customers for just $15/t.
Since Erdenes Tavan Tolgoi is almost free of debt and sees bright days ahead, can it also pay for construction of the railway from Tavan Tolgoi to Gashuunsukhait?
It is an option we have considered. We can also have an agreement with foreign investors who will construct the railway, run it for a while and then we buy it from them with our coal sale earnings. There are actually lots of options, but the decision is to be made not by us but by the Ministry of Roads and Transport Development. What we can only say is that the railway is a must to ensure the long-term competitiveness of the company.
What progress has been made in regard to Erdenet Tavan Tolgoi as part of implementing the government decision to develop the entire Tavan Tolgoi deposit as a complex?
Work has started. The proven reserves must be re-evaluated. The current feasibility study was made 5-6 years ago. We started spending great sums of money on exploration work in 2017. We began a detailed exploration campaign on Tsankhi deposit. Exploration work has started in Bor Teeg. The tonnage of coal on West Tsankhi and East Tsankhi will be re-evaluated. We believe that Erdenes Tavan Tolgoi’s reserves will be found to be more than at present and this increase in the proven reserves will allow us to raise funds in foreign markets. It might also encourage investors to offer flexible alternatives.
Has there been any progress in the matter of selling shares on an international stock market?
Our financial position and potential, plus the huge reserves of coal, will certainly ensure a successful IPO. The London Stock Exchange has shown interest and has been offering us suggestion on how to prepare for an IPO.
A lot of preparatory work is needed for this. Global investors must be satisfied that our company’s governance practices are of international standards. For this, a quality management system and organisational structure has to be in place. Work on this will start next year. Secondly, the company’s assets must be clear, following this year’s exploration work and reassessment of reserves. Thirdly, we need to publicly reveal how many shareholders there are in Mongolia and put them in the records. All of this work has started simultaneously.