Transparent governance will lead to better return from mining
- By Misheel Lkhasuren -
- May 07,2021
The team of the Minister of Mining and Heavy Industry G.Yondon is seeking to improve mining governance by revising the Minerals Law.
They explained that transparent and open mining governance will ensure better returns from geological exploration, mining, mineral processing, sales and distribution. In other words, the government believes transparent and open governance will develop coherent and efficient mining.
It should be noted that the above initiative clearly harmonizes mining development policy. Therefore, let’s explain the transparent and open mining governance defined by the ministry, which covers geological exploration, mining, processing, sales and distribution.
By 2024, Mongolia is expected to earn 7.9 billion USD from mining exports through transparent and open mining governance. The country will also supply most of its fuel and steel products domestically.
Today, our country earns 5 billion USD by exporting mining products. But it spends 1.4 billion USD to buy fuel and steel from abroad. In reality, this means that Mongolia earns 3.6 billion USD from mining products. So, if the current goal is achieved, mining revenues will double in three years, according to the minister.
Geological exploration is the most important part of the mining industry. Mining will not develop if geological exploration does not reveal mineral deposits. Therefore, scientists and experts in this field say that geological exploration should be done 20 years before the development of mining. In other words, a deposit discovered through relentless exploration is turned into a mine in 20 years.
The geological exploration sector in the country is in decline. The number of active mineral licenses reached 1,071 in the first quarter of this year, while the number of exploration licenses reached 900. Exploration licenses are declining every month. Researchers predict that it will drop to 300.
The decrease in the number of active exploration licenses is due to two factors. First, no additional exploration licenses have been issued since 2010. Second, no reserves have been identified in previously licensed exploration areas. There were also areas where potential reserves could be identified, but which could not be explored due to local protests.
As a result of exploration, a deposit is discovered. It needs to be mined after the reserves are approved. Miners work to extract one cubic meter of rock at the lowest cost. In order to reduce costs, it will be necessary to use modern techniques and technologies. Private mines are constantly updating and investing in technology to reduce costs.
However, the equipment and technology of state-owned mines are outdated. This is due to insufficient investment and the fact that the price of products is set by the government. Therefore, the government is planning to upgrade equipment and technology of Erdenet Mining Corporation, Erdenes Tavan Tolgoi, Baganuur and Shivee-Ovoo companies. This will allow state-owned mines to operate more efficiently.
Of course, it is more profitable to process the extracted minerals and raw materials, and produce the final product. Processing industry of mineral resources is very poorly developed in our country. Mongolia can hardly do the next stage of processing other than enrichment.
The Ministry of Mining and Heavy Industry plans to build a coal concentrator, copper concentrate, oil refinery and steel plant. Erdenes Tavan Tolgoi will start work this year to commission a coal washing plant with a capacity of processing 30 million tons per year. Once the first units of the plant are commissioned, value-added coal will be exported.
In addition, the feasibility study for a copper concentrate processing plant based on Erdenet Mining Corporation was approved and a sales contract was signed. Foreign investors are offering to cooperate in the construction of the plant. Other studies are currently underway to build the plant.
An oil refinery is also being built in Altan-shiree soum of Dornogovi Province. In accordance with Government Resolution No. 59 of 2017, it was decided to build the oil refinery with a capacity of processing 1.5 million tons of oil per year with a soft loan from the government of India. It is a great advantage for Mongolia to be able to supply its fuel domestically.
Moreover, QSC LLC, which owns Darkhan Metallurgical Plant under a concession agreement, plans to build a steel plant. However, the company’s work was stalled because the Darkhan-Uul Province government rejected to allocate land to the company.
It is necessary to sell mined and processed products. The country exports its minerals to its southern neighbor, China. In some cases, products are sold at low prices. In particular, state-owned companies sell their products to resellers. It is obvious that some resellers will seek to reduce the price in order to resell the product.
In order to sell its products at global market prices, it is necessary to establish a mineral exchange. The ministry has reflected this in the law’s revision. The exchange will allow for fair competition, transparency and open trading.
After processing mineral resources, the income generated from sales will rise. In order to do this, a bill on the establishment of the Sovereign Wealth Fund was developed. It has three funds: Stabilization, Development and Future Heritage Fund. The purpose of the Stabilization Fund is to cover the deficit in the event of a revenue shortfall. The Future Heritage Fund aims to provide mineral benefits to future generations. Savings are being created in the fund in accordance with this policy. A new Development Fund will be established. The fund will make the necessary development investments at the national level. In short, the Sovereign Wealth Fund attempts to secure benefits from mining to the people.
Article 6.2 of the Constitution of Mongolia stipulates, “Land other than land allocated to Mongolian citizens for ownership, as well as the subsoil, its resources, forests, water resources, and wildlife are the public property of the state. The state policy on the use of natural resources, which is based on a long-term development policy, will aim to ensure the right of every citizen to live in a healthy and safe environment, to accumulate the benefits of subsoil resources in the National Welfare Fund, and provide it equally and fairly to citizens. Citizens have the right to information about the environmental impacts of
the use of subsoil resources within the framework of their right to live in a healthy and safe environment. Exploitation of strategically important mineral deposits shall be in accordance with the principle that natural resources are in the hands of the people, and the legal basis for the majority of its benefits to the people shall be established by law.”
The Ministry of Mining and Heavy Industry emphasizes that the above-mentioned policies and measures are in full compliance with the Constitution of Mongolia. This is the redesign of the mining governance.