Mongolia Industry and Mining

Most of the time Mongolia is mentioned in the international media is about mining and the vast gold and coal deposits awaiting exploitation and marketing.

So far, the Russian-Mongolian joint venture ” Erdenet ” has been the largest mining company and the largest taxpayer in Mongolia.

The mining company “Erdenet” was a Mongolian-Russian joint venture (51:49) until June 2016, before Russia sold its shares to Mongolia.

However, these shares did not become state property, but were sold to a private company “Mongol Kupfer”. The “Handels- und Entwicklungsbank” guaranteed the financing of the transaction.

The new government under Erdenebat reversed the sale “which had come about in a fraudulent manner” to “Mongol Copper”.

The owners took legal action against this decision and were ruled by the administrative court: the Russian shares in “Erdenet” were never owned by the Mongolian state. The buyers either get their property back or they are compensated.

In addition to coal and gold, the country has large deposits of copper, molybdenum ore, tungsten, zinc, tin, fluorspar, uranium, iron ore, silver and petroleum.

In 2011, Germany signed a “raw materials partnership” with Mongolia.

According to neovideogames, the industrial economy in Mongolia is based on the processing of raw materials from agriculture, energy- and water supply, construction and mining. The manufacturing industry concentrates on textiles, leather and hides, dairy products, beverages, sausage and meat products, as well as on building materials and steel production.

The Land Ownership Act of 2003 still does not allow foreigners to own land, but it does allow foreigners to enter into very long-term leases. This was one of the reasons for the rapid increase in foreign investment, which mainly benefited mining, service companies and the food industry.

For years there have been repeated protests against contractual agreements between the Mongolian government and international mining companies. The contracts would unilaterally disadvantage investors vis-à-vis Mongolia.

At the center of the dispute is ” Tourquoise Hill Resources “, 66% owner of the Oyutolgoi gold and copper mine (Turquoise Hill) in Khanbogd in the South Gobi Aimag. The second expansion stage (underground mining) has not yet started because Mongolia and Tourquoise Hill (Oyutolgoi, Türkishügel) could not agree on the amount of taxes and the financing. 34% of the company belongs to the Mongolian state, which accordingly has to bear 34% of the investment costs.

In May 2015, representatives of the Mongolian state company “Erdenes Mongol” and Rio Tinto signed a development plan for the start of underground mining in Dubai, which, however, was immediately called into question by members of the Grand State Assembly.

After the elections in June 2016, however, negotiations with international donors were successfully concluded and the financing of Mongolia’s largest economic project appears to have been secured.

Only after the elections did the negotiations with the investors for the second major project, Tavantolgoi (Five Hills), which is also in the South Gobi Aimag, move again.

The signing of the investor agreement between the Mongolian government and the three winners of the tender, Mongolia Mining Corporation (MMC), Shenhua Energy (China) and Sumitomo (Japan), which was planned for April 2015, had been postponed due to an objection by the then chairman of the Grand State Assembly.

The treaty does not take sufficient account of Mongolian interests and must be approved by the State Assembly.

On December 18, 2020, the head of the government chancellery L. Oyun-Erdene, the minister for mining and heavy industry G. Yondon and other representatives of the Mongolian government met with the designated director general of Rio Tinto Jakob Stausholm in an online meeting to discuss the implementation of Government Resolution No. 92.

The November 2019 resolution includes calls for revisions to the 2009 Investment Agreement, the 2011 Shareholder Agreement and the 2015 Underground Financing

Plan. Mongolia should benefit more from the exploitation of the Oyutolgoi gold and copper mine.

The Dane Jakob Stausholm will replace the French Jean-Sébastian Jaques as head of the Australian-British mining company Rio Tinto from January 1st, 2021.

Jaques had to resign in connection with the demolition of a 46,000 year old cemetery of the Australian Aborigines.

The government chancellery’s press release stated that negotiations between Mongolia and Rio Tinto had come to a standstill for the time being.

The main buyer for the raw materials extracted in Mongolia is China, which is also the largest direct investor.

High investments are also required for the establishment of a functioning electricity and water supply, for the reconstruction and construction of new railway connections for the transport of goods.

The ” Gatsuurt ” gold mine in Selenge-Aimag can also continue to be operated by Canadian investors, although several environmental organizations are protesting against any mining activities in the region, which is richly blessed with cultural goods. In October 2018 Centerra Gold ceased all of its Mongolian mining activities and sold the “Gatsuurt” and “Boroo Gold” mines.

The industry, including mining, contributed 37 percent to the gross domestic product in 2014, the share of exports was 83 percent and the textile industry is not included.

In the coming years, the share of the GDP accounted for by mining should continue to rise noticeably – provided that an agreement is reached with the investors as soon as possible.

Laying of the foundation stone for the first Mongolian oil refinery

On June 22, 2018, the foundation stone was laid for the first oil refinery in Mongolia.

The project had been talked about for a long time. It aims to end Mongolia’s dependence on Russian oil imports.

Prime Minister U. Khurelsukh and the Minister of Internal Affairs of the Republic of India Rajnath Singh attended the solemn ceremony in the south of the Dornod Aimag.

The refinery could process up to 1.5 million tons of crude oil a year or 30,000 barrels a day (bpd), said a spokesman for the state-owned Mongol Refinery.

The refinery is scheduled to start operations in 2022 and meet Mongolia’s needs for petroleum, diesel, aviation fuel and liquefied petroleum gas (LPG).

In 2017 Mongolia imported 1.5 million petroleum products, mainly from Russia, which corresponded to 18 percent of all Mongolian imports.

The project is estimated to cost US $ 1.35 billion and includes a pipeline and its own power plant.

Crude oil produced in Mongolia, which has been sold to China until now, is processed.

One billion of the costs are covered by a loan from the Export-Import Bank of India.

The relevant contract was signed during the visit of Indian Prime Minister Narendra D. Modi to Mongolia in 2015.