Dr. Ch. Khashchuluun, CEO of UBRM Consulting, Mongolia

1. Mongolia and
MINING
The policy evolution: what is next?
Ch. Khashchuluun
UBRM Consulting
Monday, March 18, 13

2. Guess a country
• Total GDP 0.9 billion dollars, GDP growth rate 5.5%
• Annual GDP per capita 385 US dollars
• Largest sectors of economy
• Trade 28.8% of GDP
• Agriculture 20% of GDP
• Hotels and restaurants 15.1% of GDP
• Total export 615 million dollars
• Total import 800 million dollars
• Total investment: 244 million dollars, total public
investment 30 million dollars
Monday, March 18, 13

3. Guess again a country
• GDP 10 billion dollars, expected 2013
growth rate 18%
• GDP per capita 4000 US dollars
• Investment/GDP ratio 60.6% one of
top 5 in the world
• 2013 public investment expected to
reach 4 billion dollars
• Export 4.3 billion dollars
Monday, March 18, 13

4. Guess again another
country
• Population 3 million
• GDP 37 billion US dollars
• GDP per capita 12,600 US dollars
• Exports 15 billion dollars
• Large services sector: transport, banking,
hotels, retail
• Good infrastructure
Monday, March 18, 13

5. Did you recognize those countries?
• Its just one - Mongolia
• First slide 2003
• Second slide 2013
• Third is a forecast for 2018
Monday, March 18, 13

6. Astonishing transformation
From agricultural economy
Monday, March 18, 13

7. ..To a booming commodity economy
and its just a beginning..
Monday, March 18, 13

8. • Economic growth 17.3% in 2011, one of highest in world
• First quarter of 2012: 12.3%, one of highest in world again
• Forecast for 2013: 18%
• Forecast: average growth rate of 14% for next decade
• GDP per capita reached 3000 USD from up from 1700 in less than 3
years
• Poverty rate is down from 39% to 29% in 2 years
• Unemployment is down to 8% from 11% in 2 years
• Doubling of exports in 2 years
Monday, March 18, 13

9. • Managing the transformation:
• Benefit the population, reduce
poverty
• Use the commodity boom to develop and
diversify the economy, create more jobs
• Accumulate mining revenue for future
generations
• Prepare for cyclical boom and bust crises
• Invest in human development as much as
humanly possible
Monday, March 18, 13

10. Governance
• Anti-cyclical budget policy: budget increase limit is implemented
• National audit checks elections platforms of parties for
financial feasibility
• New budget law to strengthen development planning
system and its financing
• Public investment legislation is approved, all large public
projects require pre-FS and FS
• Creation of SWF
• Ceasing cash transfers from July 2012, moving to target
groups
• Anti-corruption law and efforts. Law on conflict of interests
is enacted.
• Strong emphasis on environmental protection
Monday, March 18, 13

11. Impact of mining on
Mongolian economy
• Exports boost
• Investment destination
• Engine of growth
• Employment boost
• Poverty alleviation
• Technology transfer, vocational education development
• Financial resources
• Access to world financial and commodity markets
• Boost for local and international infrastructure
Monday, March 18, 13

12. Thats’ Mongolia’s strategy
• 1990s first attempt to bring in foreign investment after
Soviet aid dried up
• 1997 new Mining Law
• 2005 a top Exploration investment destination
• 2006 Catching commodities price rise windfall: creating
Strategic deposits and government share ownership
system
• 2007 National Development strategy: use large strategic
deposits as a leverage for economic growth (before
2015)
• 2009: First Strategic deposit is contracted to Rio Tinto
and TH
• Stronger push for environmental protection: River basin
law, freezing of new licenses
First stage
of bringing in
FDI
Second stage
of mining as
growth engine
Monday, March 18, 13

13. Strategy cont’d
• 2011 Starting search for contractor
for Tavantolgoi deposit,
• 2012 Fine tuning the investment
process
• 2013 Starting negotiations for rest
of strategic deposits (coal,
phosphor, iron ore, gold, etc) for FS
and environmental impact
assessment
• Consolidate government mining
holdings in various mines
(Baganuur, Erdenet, Sharin Gol, etc)
•
Third stage
of mining as
growth engine
-
addressing
issues of
environmental
degradation
and high
concentration
of growth
Monday, March 18, 13

14. Strategy forecasted
• National Development strategy:
after 2015 more to attention to
value added industries
• Iron ore smelting - Darkhan
• Copper ore smelting Dornogobi
• Oil processing - Darkhan
• Coal processing - Dornogobi
• 2013 improvement of Strategic
investment law
Fourth stage
of mining as a
value creator
Monday, March 18, 13

15. What about mining?
• More local coordination for mining - Obtain local residents‟ opinion in the
processes of issuance of mineral licenses;
• Stricter control - Introduce a practice of issuing exploitation licenses on the
basis of the Government‟s resolutions;
• - Put certain limitation on the number of mineral licenses to be issued to
economic and legal entities;
• - Mining exploration license shall be issued only for those areas which are
authorized by the state / Green zones
• - Pursue the principle not issue permits to mines which are identified
economically non-viable by feasibility studies, and entail greater environmental
damages;
• - Grant the right to exploit a deposit to economic entities that have provided a
financial guarantee certifying the concerned entity is able to do the restoration
works in line with the applicable standards.
• - To further elaborate the definition of “strategically important deposits”
stipulated in the Minerals Law on the basis of a survey, and implement a special
policy in regard to energy and coking coal, copper, iron ore and rare earth
elements
Monday, March 18, 13

16. Mining strategy cont’d
• Create a legal environment to enable the national economic entities to have
preferential supplier or sub-contractor right in the projects implemented in the
mining sector;
• ! Renew the list of strategically important deposits and intensify the processes
to put the large deposits into economic circulation. Consolidate the state
ownership of strategically important deposits in line with a corporate structure,
and in accordance with provisions of the Law on Human Development Fund,
provide citizens with preferred shares;
• ! Ensure that the extraction, storage and trading of gold is transparent;
• ! Further elaborate the regulations to extract minerals through micro mining
processes and improve the control on enforcements ;
• ! Facilitate application of principles and standards of “The Extractive Industries
Transparency Initiative” and “The Responsible Mining Initiative”.
• ! Ensure compliance with the Law to Prohibit Mineral Exploration and Mining
Operations at River Headwaters, Protected Zones of Water Reservoirs and
Forested Areas, and develop environmentally friendly mining;
•
Monday, March 18, 13

17. Mining policy cont’d
• Renew the economic statistical data of natural resources,
and a system for assessment methodology to assess the
impacts of the minerals industry on the country‟s economic
and financial sectors;
• ! Reduce export of minerals as raw materials in order to
ensure the economic growth stability, gradually upgrade the
processing level of export products in line with international
standards, and increase the export volume of value added
mining products;
• ! Establish a complex metallurgical plant with modern
techniques and technology relied on iron ore deposits
located in the Darkhan and Selenge region;
•
Monday, March 18, 13

18. • The Tavantolgoi coal deposit shall remain under the state
ownership. In order to exploit the deposit, attract domestic
and foreign investment to economic entities and
companies to carry out extractive operations.
• Subsequently, take measures to sell the Tavantolgoi shares
at the domestic and foreign stock exchanges
• ! Ensure transparency of license trading;
• ! Provide support to efforts to introduce environment
friendly, and leading techniques and technology in mining
operations, count the number of degraded areas due to
mining, involve the responsible subjects in rehabilitation
processes, and allot the rehabilitation expenses in the
state budget account;
Monday, March 18, 13

19. Anticipating the changes
• More local control
• More overview of environmental aspects
• Less new licenses to be issued
• The new Mining Law - thats what it says
• The key is stay business friendly and
foreign investment friendly while
implementing those changes
Monday, March 18, 13