Ulaanbaatar/MONTSAME/ Interview with General Director of Erdenet Mining Corporation (EMC) state- owned enterprise that makes substantial contributions to the growth of Mongolian economy, Honored Industrial Worker of Mongolia, Doctor of Technical Sciences Kh.Badamsuren.

EMC HAS CONTRIBUTED MNT 800 BILLION TO STATE AND LOCAL BUDGETS IN THE FIRST 11 MONTHS OF 2020

-First of all, we would like to present a detailed introduction of EMC to our readers.

-In1973, a Mongolia-Soviet Intergovernmental Agreement was signed to establish the company as a joint venture with the Soviet Union providing Mongolia’s 50 percent share of the investment as a loan in addition to investing its own share. You know verywell about the resettlement of that loan known as the great debt.

In late 1980s, when I was working at Bor-Undur factory, I initiated and organized an expert roundtable of Ministry authorities, directors of all mining enterprises, engineers, and scientists in the field at Bor-Undur during the celebration of the 10th anniversary of the factory. The roundtable discussed several issues including increasing Mongolia’s stakes in Mongolia-Soviet joint ventures to 51 percent, and having the ventures pay royalties and subsoil taxes to Mongolia, and reached agreement in principle. The proposals were submitted to the government and accordingly, the 1991 agreement was established. Mongolia dealt with the issues at the right time. This is how Mongolia’s stakes in Mongolrostsvetmet and Erdenet joint ventures increased to 51 percent thanks to the efforts of many with great devotion to their home country, Mongolia.

Erdenet Mining Corporation that started out as a joint venture with a processing capacity of 4 million tons of ore has now become a state-owned enterprise capable of processing 32 million tons of ore. In the meantime, the company operated as a joint venture for 38 years and with public and private sector involvement for 2 years. In March 2019, it becamea 100 percent state owned enterprise.

The Government of Mongolia put special emphasis on the development of the company for the first time in the last more than 20 years with the approval of the General Guidelines for the Development of Erdenet Mining Corporation SOE until 2031 and the Government approved the guidelines with its Resolution No. 224 of 2019. The Government Agency for Policy Coordination on State Property approved the General Guidelines with the Resolution No. 252 of 2019. The approved General Guidelines were incorporated into five-year plans and are now reflected in annual business plans of the enterprise. EMC now has achieved and accomplished greater than ever before through uninterrupted normal operations thanks to the government’s policy and decisions.

-The shareholding of EMC is still a hot topic in politics. You worked with both the Government and the 49 percent shareholder. A few months after Mongolian Copper Corporation acquired the 49 percent shareholding from Russia in 2016, in December 2016, you were appointed to EMC. How was the situation when you assumed office? What condition was the company in? How was it before?Whataccomplishmentswere made during your term and what are the improvements?

-To be honest, I faced a difficult transitional period of challenges. I started my work by getting acquainted with the company’s activities and staff including the engineering and technical professionals.

Firstly, I accelerated the development of the General Guidelines for the Development of EMC until 2031, listened to the employees’ views on the definition of the company’s vision, mission, and values, set out goals to strengthen corporate governance, and adoptedacorporatesustainabilitypolicy with 5 key goals. EMC has the vision ‘to be a company of world standard and pride of Mongolia’ and mission ‘to follow sustainable development and responsible mining and create national wealth’. I am directing the company with these in mind.

Secondly, we conducted extensive reserve estimates and geological explorations.

-When you announced you will secure 60 years of further operation, I wrote ‘Is it Badamsuren’s romanticism, or...’. The factory appeared to be an old one running out of its reserves at the time.

-Since 2017, we have spent around MNT 27 million on geological explorations. As a result, we found out there are more ore reserves in the deeper section of the deposit and pinpointed locations of several potential sites. Moreover, we have finished confirming geological reserves of Erdenetiin-Ovoo deposit in compliance with the international JORC standard. This makes future major projects possible, but also raises the company’s value and provides assurance to foreign investors. Thanks to these efforts, theErdenet factory’s life has been prolonged by over 20 years, ensuring more than 60 years offurther operation. The assessment was made based on expert studies and calculations. I would like to finish my answer to the previous question.

Thirdly, Erdenet factory was equipped with the most advanced equipment and technologies of the time when it was first established. The main problems were the need to upgrade up to 80 percent of the main equipment that had aged and the expired service life of the engineering facilities.

Therefore, we are extensively upgrading the factory. Up to 25 percent of the factory equipment has been upgraded with investments totaling MNT 1.2 trillion between 2017 and 2020. This improved the reliability of the factory equipment and ensured normal operation of the factory.

Fourthly, procurement activitiesthat had been carried out separately were integrated, ensuring transparency, and have been digitized since 2019, and moved into single window system in accordance with relevant laws and regulations. While operating in a special regime with procurement activities made transparent and equal competition opportunities provided, we saved a total of MNT 140 billion–MNT 65.8 billion in 2019 and MNT 74.2 billion in the first 9 months of 2020.

Fifthly, the salary and bonus policy has been revised, and since 2017, miner’s salary and bonus have been gradually increased by 55 percent. In addition, the additional pension for the retired has been increased by 1.5-2.1 times. Within the approved budget and plan, EMC provides 24 types of assistance, such as medical treatment for its employees, financial support for housing, tuition fees, pensions for the retired, and allowances for mothers caring for their children.

In conclusion, I would like to say that as a result of the works done in the recent years, we have been able to get rid of improper management in human resources, and procurement through fundamental reforms.

We have announced 2020 as the “Year of Science-Based Intensive Industrial Development” and have begun to implement large-scale projects with an investment policy to ensure continuous and reliable production and increase efficiency. By the expected performance of 2020, the production and economic targets were fully met, the production plan was fulfilled by 100.3-119.0 percent, the revenue plan was fulfilled by 110 percent, the expenses were reduced by MNT 33 billion, and the net profit plan is to be exceeded. As of the first 11 months of 2020, MNT 804 billion was contributed in the state and local budgets.

-During your tenure, Erdenet has set historical records in production and finance. Is it difficult to set a new record in industry, as it is not easy to set a new record in a big sport? Do you have an ambition to improve your achievements?

-Of course. The mining and geological conditions of the Erdenetiin-Ovoo deposit are deteriorating, the copper content in the ore is declining, and the hardness of the ore is increasing. These are natural factors that directly affect the decline in production and increase costs. All of this must be overcome through good governance, good management, engineering skills, sound solutions, and the efforts of the mining community. That's how we can improve our past achievements. For me, it's not just about living in the present, it's about moving forward to a bright future.

Within the framework of implementing the Erdenet Mining Corporation's development guideline until 2031, firstly, main production expansion and modernization projects, secondly,infrastructure projects, thirdly, social development projects, and fourthly, new projects to improve the level of product processing will be implemented in stages. In short, the second campaign to renovate EMC has begun.

In order to increase production revenue and profits, ore processing is being expanded by 22.7 percent to 40 million tons. Thus, we are working to increase copper concentrate production by about 20 percent and increase our country's export revenue and make contribution to the country’s society and economy. We are also aiming to gradually introduce value-added copper products.

There are also plans to build a cathode copper plant with heap leaching technology and a copper concentrate smelting and processing plant. The Government of Mongolia's Action Plan for 2020-2024 includes projects to expand and modernize the Erdenet open pit mine, concentrator plant, and maintenance and mechanical plant to increase production capacity and efficiency. These projects are aimed at increasing production, revenue and profits, reducing costs, and increasing the competitiveness of EMC.

According to our plan, in 2020, EMC's annual sales revenue will reach MNT 2.1 trillion or MNT 5.8 billion per day. By 2025, it will reach MNT 5.6 trillion in a year, which means about MNT 14 billion per day, and in 2028, it will reach MNT 11 trillion in a year, reaching more than MNT 30 billion per day. That's a big number.

-Some people say that Erdenet is making such a profit because of the rising copper price in the world market. Some even say that the profit increased this much just because it was taken under state ownership in entirety?

-Of course, the profit of the organization does depend on the market price of the products sold. However, this is not the only factor that affects. The average price of copper per ton on the world market in 2019 was USD 6,005. As I mentioned above, this was the year that we witnessed our highest profitable year in thehistory of past 40 years.

In 2020, the state budget forecast the price of copper at USD 5,991. Due to the global outbreak of the pandemic, prices of some mining products have fallen sharply. In the first quarter of this year, copper price fell by more than USD 1,300 to USD 4,600. The average for the first half of the year was more than USD 500 lower than planned. However, since November 18, 2020, it increased to USD 7,000. In general, we are trying to achieve our goals regardless of the situation we are facing. No dividends were paid in 2017 due to EMC's loss in 2016.

In 2018, a total of MNT 68.7 billion in dividends was distributed. Of this, MNT 35 billion went to the Mongolian government and MNT 33.7 billion to the Mongolian Copper Corporation. In 2019,it became a 100 percent state-owned enterprise and paid MNT 150 billion in dividends to the Mongolian government. This is 2.2 times the total dividend paid in 2018. In 2020, we are paying USD 155 billionin dividends. Dividends are projected at USD 200 billion in 2021. So, it is unreasonable to say that the revenue of EMC has increased as the dividend for the 49 percent shareowner now remains at the company.

-Erdenet is working nonstop regardless of current situation of the pandemic. I assume that it must be hard to be well organized as it has large number of employees.

-Everyone was shocked after the news came out highlighting the cases of COVID-19 detected in Orkhon aimag. Shortly afterwards, the factory administration took immediate action and involved 7663 people in the rapid COVID-19 testing and 700 people in the PCR in a short period of time, which created a positive atmosphere for employees to feel calm and safe. In these difficult times, when production and services are declining due to the pandemic and the economy is shrinking, a unified program and plan of risk management measures have been developed, approved, and being implemented. We have increased the salaries of our employees by 10 percent in 2020. During this difficult time, our miners are being able to work together towards our shared goals and directions as more united than before, disciplined, calm and well organized. Most importantly, we are creating a guarantee for our future with today’s success.

B.Ganchimeg