The document summarizes Mongolia's mining sector and its importance to the economy. Mining accounted for 30% of GDP and 91% of exports by 2010, with copper, gold, molybdenum, zinc, iron ore, coal, and other minerals being key commodities. Mongolia has over 8000 mineral occurrences and growing production, but also faces challenges like legal uncertainties, infrastructure constraints, and delays in major new mining project approvals that could slow further development. The mining sector growth has driven national economic growth but will require continued reforms and investments to sustain its contributions.

1. 1
Mining in the Mongolian Economy
Prospects and Challenges
Dr Graeme Hancock
Oil, Gas and Mining Policy Division
The World Bank Group

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Introduction
The economy is growing fast
• One of the most successful transition economies
• Active democracy in a cohesive and peaceful society
• Economic growth has been fast – on the back of
mining
• Mining 2002 2010
• as a % of GDP 9% ~30%
• as a % of Exports 30.4% 91%
• as a % of Govt Revenue 5% 40%
• China accounts for ~85% of Mongolia’s exports

3. 3
Annual Mineral Production
of Main Commodities (2010)
 Copper 130,000 t 26.6%
 Gold 5.1 t 6.2%
 Molybdenum 1400 t 1.8%
 Zinc 55,000 t 4.6%
 Iron Ore 3.5 Mt 8.7%
 Coal 16.6 Mt 30.3%
 Fluorspar 376,000t 2.0%
 Oil 2.0 Mbbl 5.3%
 Most commodities (except gold) on a steep growth profile
 Mining (and Oil) accounted for approximately 91% of
exports
Commodity Exports % of total exports

4. 4
High Mineral Potential
 Mongolia has some 8000 mineral
occurrences
 200 operating mines although most are of
relatively small scale alluvial gold operations
 Most mineral occurrences are only now being
evaluated by modern mineral exploration
techniques
 A significant pipeline of new projects at
advanced stages of exploration

5. 5
Gold Potential
 A significant number of gold prospects exist and
a large number of gold mineral occurrences
 Production has fluctuated as a result of both
technical and political issues
 Placer Gold operations are declining in
importance as producers, and this trend is
expected to continue
 Small scale mine production is significant
 Gold production stifled in recent years by tax
policy – expecting recovery after repeal of WPT

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Artisanal and Small Scale Mining
 Up to 100,000 ASM miners during summer
months
 Mostly alluvial gold and coal mining
 Poor environmental and safety record
 Public concern over lack of rehabilitation and
mercury pollution of streams
 Sector requires formalization and development

8. 8
Coal Potential
 Coal potential of 150 billion tons in 300 known
occurrences in 12 basins
 Some 20 billion tons of proven reserves of both
lignite and high quality coking and thermal coal
 In 2010 the coal sector produced approx 25
million tons and exported 16.6 million tons of coal
to China
 Mongolia remains heavily dependent on coal as a
primary energy source producing 93% of total
heat and electricity generation

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Major New Developments
 Development of large scale projects including Oyu
Tolgoi, and the Ukhaa Khudag and Tavan Tolgoi Coking
coal deposits (~6 bn tonnes coking and thermal coal)
will likely propel mineral exports to in excess of 98% of
total exports in the next two to three years
 Significant total capital requirements for operations
totaling over US$8.5bn (excluding Shivee Ovoo)
 In addition capital costs of supporting Infrastructure
(approx $5.5 bn) will challenge the Government’s
capacity to raise financing
 Opportunities for PPPs and private sector investment in
support services and businesses although Government
is yet to successfully develop these opportunities

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Issues and Challenges for
Mining Sector Development
 Ongoing Legal/Policy Uncertainties
 The 2006 Mineral Law requiring State Equity holdings
in “Strategic Deposits”
 The Windfall Profits Tax on Copper and Gold
Production of 68% (repealed on 1 January this year)
 The Sliding Scale Royalty
 Application of arbitrary coal prices to combat transfer
pricing
 Uncertainty has reduced incentives to explore for large
scale resources and more focus has been on smaller
projects which are unlikely to be classified as
“Strategic”
 Other than OT and TT No other Strategic Deposit is
moving towards development

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Issues and Challenges for
Mining Sector Development
 Political / Administrative Issues
 Delays in TT Project Investment Agreements and
contracts and approaching elections adding to
uncertainty
 Tying of NE rail development to TT will likely result in
delayed development as this will result in substantial
new contract negotiations – on rail as well as TT
Shared access agreements etc need to be negotiated –
not covered by existing regulation - adds uncertainty
 Incomplete Regulatory Framework with sometimes
arbitrary decisions from Government Agencies
 Ongoing role of the Erdenes MGL LLC and it’s capacity
to fund new equity stakes

13. 13
Issues and Challenges for
Mining Sector Development
 Future infrastructure constraints to exports loom large
• Slow decisions on energy sector development with
new projects expected to require substantial new
generating capacity (initially 600-1000MW)
• Congested Border crossings are a major constraint to
new exports of bulk commodities
• Rail issues continue to be a real challenge
• Slow decisions on approvals to build and operate
railway lines to China for coal exports
• Confusing signals concerning rail gauge
• Confusing signals over rail route selection

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Possible Coal Export Routes

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Possible New Railways in Mongolia

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IFC Doing Business Ranking 2010

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Issues
0
10
20
30
40
50
60
2004 2005 2006 2007 2008 2009 2010
Mongolia International rankings
TI Corruption Index Fraser Institute mineral policy ranking

25. 25
Comments and Questions
“Small” Tavan Tolgoi Mine – South Gobi

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World Bank quarterly economic updates
available at
www.worldbank.org/mn
ghancock1@worldbank.org