Ambassador of China to Mongolia Chai Wenrui www.montsame.mn

The Mongolian National Chamber of Commerce and Industry (MNCCI) launched a donation campaign, calling for its members to render assistance to the People’s Republic of China to combat with the novel coronavirus infection. The Mongolian delegates yesterday handed over MNT 140 million, which has been collected so far within the campaign, to the Embassy of China in Mongolia.

Ulaanbaatar testing new electric buses www.news.mn

The Mongolian capital is currently testing eight electric buses, which look set to become the first of many on Ulaanbaatar’s streets. The vehicles, have been produced by China’s Yinlong Energy Company for public transportation. The buses began operation on 20 January on a trial period set to push them through the worst of a Mongolian winter. According to public transport specialists, the buses can handle -50 and -60 Celsius temperatures and can be recharged quickly within 15-20 minutes. The buses have 36 seats and run 200 km when fully charged.

Face recognition technology to be introduced in general entrance exam www.montsame.mn

Ulaanbaatar /MONTSAME/ In connection with the start of online registration for general entrance exam, the Education Evaluation Center held press briefing on February 10. According to the report, face recognition technology will be introduced in the general entrance exam from this year.

The time is nearing to domestically process black gold and become self-sufficient www.montsame.mn

Ulaanbaatar /MONTSAME/ The oil refinery project which had been an unachieved goal of Mongolia, has started and is progressing successfully at the moment. A couple months ago, the Government of Mongolia completed its obligation to construct the infrastructure of the plant worth over MNT 120 billion with its own money and labor. Minister of Road and Transport Development B.Enkh-Amgalan emphasized that the infrastructure has been built at thrice cheaper cost with the use of domestic workforce. The Government of India is disbursing funding for the project as scheduled. In other words, the most favorable conditions for realization of the project are here today. The only thing to hope is that the project will continue even when the government changes.

Gas price can be maintained at MNT 1000

The commissioning of the 27 km railroad, 17 km road, and 110 kV power transmission line connecting the oil refinery in Altanshiree soum of Dornogobi aimag and Sainshand city of the aimag opens up an opportunity to transport equipment and materials to the construction site to begin the construction works.

The construction of the non-technological facilities of the refinery with an initial estimated cost of USD 1.2 billion will start in the spring of 2020 and the crude oil processing facilities in 2021. In case the works are done promptly and stably, the plant will open in 2023 and Mongolia’s total production will increase by 30 percent, GDP by 10 percent. In addition, it is expected to bring many positive changes such as annual budget contribution of USD 150 million, 20 percent drop in the exchange rate of USD against MNT, 20-30 percent decline in foreign exchange outflows and creation of over 600 jobs. Most importantly, when Mongolia starts producing gasoline domestically, gas price will fall to around MNT 1000 per liter or even MNT 800 with the government’s support. Furthermore, the price could go down from MNT 800 once the plant’s capacity reaches 2 million tons.

Mongolia’s gas consumption reaches 1.8 million tons a year during its peak time and the country spends about USD 1 billion on this. Mining and agriculture, the main economic sectors, account for 60-70 percent of the total consumption. Statistics show that the consumption decreases to 1.2 million tons when mining is stagnant. It is anticipated that the refinery will produce 400 thousand tons of A-95 gasoline, 600 thousand tons of diesel fuel, 40 thousand tons of aviation fuel, 20 thousand tons of mazut and other petroleum products and satisfy at least 70-80 percent of the domestic demand.

Should raw materials be supplied at extraction cost or market price?

There are 33 petroleum exploration blocks in Mongolia. One million tons of oil is annually extracted from three of these blocks, namely Tamsag XXI, Toson Uul XIX located in Dornod aimag and Zuunbayan XIV in Dornogobi aimag, and exported to China. The oil in place of these producing blocks was estimated at 332 million tons and their total proven reserves at 43 million tons, which means only 15 percent of the total oil reserves can be extracted. There is almost no country in the world that extracts all of its oil in place as the allowed extraction volume depends on the energy in the ground layer. The more this energy is, the more oil can be extracted. For instance, in Russia, up to 80 percent of the oil reserves can be extracted in some blocks.

It is planned to extract 1.5 to 1.6 million tons of oil from the abovementioned three blocks each year between 2015 and 2039. Coming into operation of the oil refinery will enable to supply to it the entire crude oil extracted in Mongolia. However, should it be supplied at market price or the cost of extraction? Regarding its shares, the Chinese side will obviously go for market price.

According to a Production Sharing Contract that expires in 2032, 25-30 percent of the total extracted oil is allotted to Mongolia. If the Government successfully creates an opportunity to purchase its share of crude oil at extraction cost, it will hugely support the economy of the plant, highlighted D.Altantsetseg, CEO of the Mongolian Oil Refinery state owned company. It is because raw material costs make up 85 percent of the total production costs of an oil refinery and operational and other costs account for the remaining 15 percent.

Railroad considered to be more efficient than pipeline

It is planned to supply raw materials to the plant from the Toson Uul XIX and Tamsag XXI blocks. It had been thus decided to build an oil collection center in and a pipeline starting from Tosol Uul XIX as the block is 90 km closer to the refinery than Tamsag XXI, which is located 640 km away from the refinery. However, the Government of Mongolia concluded that establishing railroad instead of pipeline would be an optimal choice for developing railroad infrastructure in the eastern region. Even though it would be economical to use pipeline transport, construction of a pipeline itself costs USD 350 million. The construction of a railroad between Tamsag XXI and Sainshand soum also requires the same amount of funds needed in building a refinery. Nonetheless, refinery authorities support this position of the government, emphasizing that pipeline transport and railroad transport basically have no difference.

The necessities of proving oil reserves and intensifying exploration

8 million of the 43 million tons of total proven oil reserves of Mongolia has been extracted and exported and what is left now is 35 million tons of oil. Therefore, the refinery will have an annual capacity of 1.5 million tons. Intensifying oil exploration and increasing oil extraction are crucial to exporting products after fully meeting the domestic demand.

Within the goal, Mongolian geologists have actively carried out explorations and thus far discovered oil reserves from three blocks. Specifically, a number of wells drilled in the blocks Galba XI, Khukhnuur XVIII, and Matad XX in Dornod aimag contained oil. In 2018, 1500 tons of oil have been extracted from Galba XI on trial and exported to China. From the now relinquished block Khukhnuur XVIII, approximately 35 tons of oil has been extracted. Two of the three wells that are planned for this year have been drilled in the relatively active block Matad XX. According to a primary exploration report, one of the two wells contains oil.

1.75 percent interest loan to be repaid from seventh year

During his visit to Mongolia in 2015, Prime Minister of India Narendra Modi agreed to give Mongolia a soft loan of USD 1 billion for its infrastructure development. The year after, the government decided to build an oil refinery with the loan. A feasibility study then estimated that USD 1.2 billion would be needed for the construction of an oil refinery. The sides agreed to increase the financing of the oil refinery establishment project by USD 236 million during Mongolian President Kh.Battulga’s state visit to India in September this year. Minister of Finance Ch.Khurelbaatar and General Manager of Exim Bank of India Shri Saroj Khuntia signed an agreement on the additional financing on October 9.

As agreed, the repayment of the Indian 20-year soft loan with an interest rate of 1.75 percent will start seven years after the first disbursement. It is expected that the plant will cover its cost within the first five to eight years of operation. The project consulting service fee of USD 73 million in the detailed feasibility study equals not the usual 10 but 5.8 percent of the total project cost. Authorities of the Mongolian Oil Refinery company underlined that feasibility studies offer cost estimates within -20 to +20 percent accuracy and that efforts are being put to cut the cost.

Mongolia has previous experience in domestic gas production

Geologists of Mongolia and Soviet Union embarked on an oil expedition in the 1940s. Mongolia first started extracting oil from a well drilled in Choibalsan I block in Zuunbayan and Tsagaan Els oilfields of Dornogobi aimag in 1949. The country has extracted 490 thousand tons of oil every year from 1949 to 1969, producing A-76 and diesel fuels through its refinery. In 1969, when large blocks were emerging in Russia, the plant was put out of operation due to an accident.

Later in the 1980s, Mongolia had its oil blocks determined by the British Petroleum company from UK through research works of Mongolian and Soviet geologists, surface samples, and biochemical research. 24 oil blocks were classified in 1991 and the first Production Sharing Contract (PSC) was signed for Toson uul XIX and Tamsag XXI blocks in 1993. Then 1998 saw the first trial export of crude oil to China. Oil exploration activities took place between 1994 and 2010 and oil extraction intensified in 2012. This is the history of Mongolian oil exploration. It is commendable that now the time is nearing to have an oil refinery and gain almost complete oil independence from our neighbor in the north, Russia.

Iron ore, coking coal shrug off China coronavirus, look to stimulus www.reuters.com

It may seem slightly odd to ask if a commodity that has shed 15% of its value in a little over two weeks has actually fallen enough, but iron ore is looking quite resilient in the face of China’s coronavirus epidemic.

In theory iron ore and steel should be among commodities most exposed to the expected economic hit from the virus, which has killed more than 1,000 people and infected more than 42,000.

The epidemic has led authorities in Beijing to quarantine the central city of Wuhan, where the outbreak started, but more seriously for the economy, it has led to extended holidays after the week-long Lunar New Year break.

Given steel’s central role in construction, infrastructure and manufacturing, especially vehicles, it is likely that demand for the metal will slump in the first quarter.

How big a hit China’s economy will take is still subject to debate, with some analysts seeing growth in gross domestic product halving to about 3% year-on-year, while others expect the blow to be slightly more modest.

Even the best case scenarios are likely to prove deleterious to China’s steel sector.

Despite this, the price of spot iron ore has not been too badly pummelled by the virus fears.

Benchmark 62% ore, as assessed by commodity price reporting agency Argus, ended Monday at $81.35 a tonne, down 14.9% since Jan. 22, when the virus concerns really started to grab media headlines.

While a drop of nearly 15% is nothing to sneeze at, it is worth noting the price is still higher than the 2019 low, which was $78.15 a tonne on Nov. 11, when concern about a trade dispute with the United States was hitting sentiment.

The price action seems to suggest the market was more concerned by the trade dispute, which actually did not appear to have much impact on China’s steel production or demand, than by the virus, which is likely to have a very real effect on both.

It is also worth noting that while iron ore prices plunged when China resumed trading after the Lunar New Year break, they have since largely stabilised, staying in a fairly narrow $3 range since Feb. 3.

Domestic iron ore futures on the Dalian Commodity Exchange have outperformed the spot price recently, with their decline since Jan. 20 standing at only 9.2% by Tuesday.

Coking coal stable
Iron ore is only one component for the steel-making process, the other being coking coal, and here the price action is even more subdued.

Coking coal futures traded in Singapore, which are based on the price of Australian free-on-board cargoes, ended at $150 a tonne on Monday.

They hardly show any impact of the virus, with the recent low being just $146.08 a tonne on Feb. 4, and the contract is still up 10.3% since the end of last year.

Coking coal futures on the Dalian Commodity Exchange have also rallied, ending Monday at 1,225 yuan ($175.50) a tonne, slightly off the prior close of 1,227.5 yuan, but up 3.7% from the recent low of 1,181 yuan, and also up 5.2% from the end of last year.

The relatively sanguine performance of iron ore and coking coal in the face of the virus contrasts with Brent crude , which has dropped 18.3% since Jan. 20, and a steeper 22.7% from its high this year on Jan. 6.

While crude oil consumption in China is likely to be affected by the virus, its overall impact on imports may not be so dramatic as refiners and the government are likely to use the drop in prices to build strategic and commercial oil stockpiles.

For iron ore and steel, it would appear market participants are looking beyond the virus to the likelihood of increased stimulus spending by Beijing.

Once the virus is contained there is wide expectation for the government to announce measures to support growth, and steel mills will be hoping that infrastructure and other steel-intensive industries are favoured.

(By Clyde Russell; Editing by Clarence Fernandez)

Oyu Tolgoi announces performance results for fourth quarter of 2019 www.montsame.mn

Ulaanbaatar /MONTSAME/. Today, February 12, Oyu Tolgoi CEO Armando Torres along with the company’s senior managers held a press briefing to introduce the performance results for the fourth quarter of 2019.

Some highlights of the Oyu Tolgoi mining project’s performance in 2019 are:

• Oyu Tolgoi continued its globally competitive safety performance

• Total in-country spend has passed US$10 billion

• US$321 million taxes paid and US$431 million on national procurement in 2019

• Maintains the guidance for copper production – 146,346 tons of copper in concentrate

• Exceeds 2019 full-year production guidance for gold – 241,840 ounces of gold in concentrate

• Completed the construction of primary production shaft (Shaft 2) of the underground mine

• Reached highest performance record for the underground lateral development

In 2019, Oyu Tolgoi continued to progress and deliver important milestones for the underground mine development and make a significant contribution to the Mongolian economy, passing U$10 billion of in-country spend.

Prioritizing and maintaining excellence in safety, Oyu Tolgoi’s All Injury Frequency Rate (AIFR) was 0.16 per 200,000 hours worked in 2019.

As of 31st of December 2019, over 93 per cent of Oyu Tolgoi’s workforce of 13,800 were Mongolian with more than half working on the development of the underground mine. Oyu Tolgoi provided 680,354 people-hours of training in 2019.

Within this scope, Oyu Tolgoi provided the internationally recognized and accredited training to its 348 employees in the last year in cooperation with Holmesglen, the registered training organization in Australia.

In 2019, Oyu Tolgoi paid US$321 million in taxes, fees and other payments and collaborated with 838 suppliers, 564 of which were Mongolian businesses which accounted for 76 percent of total operations procurement spend.

Partnership was a key priority in 2019, with Oyu Tolgoi contributing to public health, primary education, infrastructure and many other areas.

In terms of major infrastructure projects, the highlights were the opening of the Oyu Tolgoi-Khanbogd 35.1-km paved road, the opening of a new hospital in Mandal-Ovoo soum, and the completion of the fifth kindergarten in Umnugovi province, sponsored by the Oyu Tolgoi funded Gobi Oyu Development Support Fund.

Underground Development Update

Construction of the primary production shaft (Shaft 2) was completed in October 2019, which allows the movement of 300 people per cage cycle versus a maximum of 60 people per cage cycle through Shaft 1. Underground development materials will be lifted to surface via the Shaft 2 production hoist.

Productivity improvement measures resulted in increased underground lateral development rates during the fourth quarter, with an average rate of 1,607 equivalent meters (eqm) compared to 1,214 eqm in the third quarter, with December seeing a record of 1,809 eqm.

Construction is progressing on Shafts 3 and 4 with both collars now installed. Final preparations are now underway to enable commencement of main sinking operations for both shafts during the second quarter of 2020.

"We continue to expect to complete the mine design in the first half of 2020 and the Definitive Estimate of cost and schedule in the second half of 2020."

Production for fourth quarter of 2019

As anticipated, mined copper production from the open pit was eight per cent lower than 2018 as mining activity moved to lower grade areas. Grades were 11 per cent lower for the year reflected in the 21 per cent decline in fourth-quarter production, partly offset by productivity improvements.

Other highlights:

Full-year copper production in concentrate of 146,346 tons vs original guidance range of 125,000 – 155,000 tons in concentrate
Full-year mill throughput of 40,777,225 tons, an increase of 5 per cent over 2018
Full-year gold production in concentrate of 241,840 ounces vs original guidance range of 180,000 – 220,000 ounces in concentrate

MNCCI offers force-majeure certificates free of charge www.montsame.mn

Ulaanbaatar /MONTSAME/ Considering the widening quarantine restrictions in China due to the coronavirus outbreak, the Mongolian National Chamber of Commerce and Industry (MNCCI) is offering certificate of force-majeure to the entities free of charge within its social responsibility action.

Financing agreement signed for World Bank Livestock Commercialization Project www.montsame.mn

Ulaanbaatar /MONTSAME/. On February 7, the Ministry of Finance of Mongolia and the World Bank signed Financing agreement for the Livestock Commercialization Project.

The project, funded with $30 million loan financing from the World Bank, will be implemented in 150 soums of 14 aimags and Ulaanbaatar city. It aims to improve the health and productivity of livestock and increase value of products, such as meat and dairy by commercializing targeted value chains in selected locations.

The signing ceremony was attended by Minister of Food, Agriculture, Light Industry Ch.Ulaan and other relevant officials as the 5-year project will be implemented by the Ministry of Food, Agriculture, and Light Industry of Mongolia.

The project will help improve the health and productivity of livestock and increase value of products such as meat and dairy by commercializing targeted value chains in selected locations.

With more than 60 million livestock and wide pastureland, the Mongolian agriculture and livestock sectors have huge potential to drive economic diversification and as a key source of broad-based employment.

However, major challenges such as low productivity, animal health issues, and vulnerability to climate change and extreme weather events, limit the sector’s potential. About 56 percent of Mongolia’s herders own 200 head or fewer of livestock and are trapped in a low-input, low-output, low-productivity cycle.

Animal disease, coupled with poor food hygiene and inadequate nutrition, limit the output and quality of meat and dairy products. As a result, Mongolian meat exports have stagnated at less than 10 percent of their potential despite the country’s proximity to the region’s largest markets for meat imports.

The new project aims to improve the quality of and access to veterinary services nationally and help establish trans boundary animal disease free zones. The project will help improve performance of the Mongolian Veterinary Services Authority to effectively control animal diseases, promote responsible use of antimicrobials, provide veterinary public health services, and improve food safety in line with international standards, according to World Bank Mongolia.

In addition, the project will improve livestock productivity and increase the volume of livestock products that meet market requirements by promoting partnerships between producers and processors. Collaborative research with academic and research institutions, as well as investments to improve animal breeding and nutrition services, will also contribute to this goal. Moreover, the project will provide immediate response in the event of an eligible crisis or emergency.

In particular, the project is deemed to eliminate livestock diseases cases by 25 percent at minimum, increase animal meat and milk outputs by 15 percent, involving 20 thousand herders directly and improving the value of livestock meat products by 20 percent.

As a result of the project, competitiveness of the livestock industry and exports market to be expanded with improved benefits of livestock animals and improved livelihoods for herders.

“Livestock and Agricultural Marketing Project” with grant aid of USD 11 million from the World Bank was implemented throughout 15 soums of 5 aimags of Mongolia between 2013 and 2017, reports the Ministry of Finance.

The project, aimed at establishing connection between herders with markets and consumers, improving livestock animal breeding and developing livestock industry value chain, covered 140 thousand herders to result in 78-percent growth in their incomes from livestock products.

Mongolia suspends coal exports to China on coronavirus fears www.reuters.com

ULAANBAATAR (Reuters) - Mongolia will suspend deliveries of coal across its southern border into China until March 2 to prevent the spread of the coronavirus, the country’s National Emergency Commission said on Monday.

Mongolian fined for spreading fake news about coronavirus spread in Mongolia www.akipress.com

Mongolian was fined 2 million tugriks for spreading fake news on coronavirus infection in Mongolia.