Minister for Minerals and Energy D. Zorigt: "Non-Metal Minerals Projects Will Be High on Agenda"

The GDP of Mongolia which was 1 billion MNT in 2000 almost quadrupled in 2007 reaching 4.5 billion MNT. Substantial changes were observed in the structure of the economic growth: in 2000 the services sector accounted for around 47%, agriculture – 32.7% and industries – 20.3% respectively of the entire economic pie. By 2007 the services sector contracted to 36.9% whereas the industrial segment expanded to 40% and agriculture reduced to 23.1%. The size of the industrial sector, mainly represented by the minerals development has tripled in the same period – in 2002 the mining sector share in GDP was 10.4% increasing to 33% in 2008. Of the total exports, minerals sector accounts for 79.5%. This all suggests that industrial sector predominates in Mongolia’s economy, yet, in reality, production of finished products remains very low. It is also clearly visible that Mongolia has become increasingly vulnerable to the prices of the raw materials and the few minerals produce that we supply to the world markets. Although Mongolia did benefit from high commodity prices during the past cycle, the total volume of mining production, especially of certain minerals such as gold, has significantly shrunken. I wish to illustrate here the very effect of the global crisis on Mongolia’s economy as experienced through the minerals sector.
Given some short term factors, the copper price had plunged below 3000 USD per ton, then bounced back to 3500 and today averages at 3300 USD. The forecasts for 2009, 2010 and 2011 of major banks and economic analysts suggest the copper price to range between 3200-3500 USD per ton. The probability for the price to go below 3000USD is low, yet the chances to rise beyond 3500 USD is equally mean.  
Gold was not badly hit by the 1930s crisis; yet its real price did increase then. The World Bank experts view that the gold will enjoy somewhat stable position in 2090-2010 at around 800 USD per ounce, however, in 2013 or beyond it may plummet as low as 550 USD, then would slightly bounce back. In 2009 the price for iron ore may reduce by 30%, as international banking and financial organizations estimate. As by November 2008,   iron ore prices had been continuously increasing for some consecutive 6 years; however, it is likely to be hit first in the new year. The long term forecasts for iron ore shoot for 52 USD per ton, as studies of research organizations indicate. Banks and financial organizations also predict that the long-term iron ore price would be lower than its current price.

Fluor spar price increased in the second half of 2008, however, factored by the shrinkage in steel industry, the fluor spar might record a somewhat lower price. The effects of all this on our economy and our budget may be daunting.  The budget revenues for 2009 are likely to reduce almost twice compared to that of 2008. The reason for the reduction is that the windfall profits tax revenue shall fall short of the planned level to earn only slightly over 20 billion MNT for the budget. Therefore, the first foreseeable way to overcome the crisis would be to start developing the deposits of strategic importance and put into operation processing industries to be established based on the deposits thus establishing a net of national plants. Developing the deposits of strategic importance may stimulate private investment to supplement investments to be made from the state budget. For instance, in case of just Oyu Tolgoi project, some 80-100 national companies supply products and services. Once a large production activity starts in the mining industry, the number of contracted national companies would increase, and the private sector investment just for Oyu Tolgoi project would reach 2.7-4.4% in the first 4 years. In the course leading to 2019, only through royalties, income taxes and other taxes, some 1.4-1.8 billion MNT will be contributed to Mongolia’s budget. As the gold price is likely to stay stable in the coming 2-3 years, it is important that we keep the current level of production, that the Government openly discusses the planned for production projects and works to increase the production of the gold sector.
The overall prospects for mineral products prices tend to be scanty in the nearest 3 years. Production volume as well is likely to decline. However, tungsten, brown coal and coking coal – non-metal minerals – might experience modest decline in prices. Therefore, I view that non-metal minerals should be given a special attention to support efforts to increase production thereof.
It is equally important to seek for ways to protect the prices of the new products to be delivered by plants at deposits of strategic importance from risks, establish risk funds at especially private plants and introduce price insurance mechanism. Another issue of utmost importance is training of the national mining personnel. We shall pay rigorous attention to this matter in agreements to be concluded with the local authorities, pursuant to Article 42 of the Minerals Law of Mongolia, in Investment Agreements and other contracts and agreements.  
The key means to support the private sector is to make the legal and regulatory environment clear and stable. A designated by Parliament Working Group did examine the Minerals Law and the Subsoil Law. The issues will be reviewed again and measures will be taken to make the state laws more stable, more comprehendible and consistent with the rights and benefits of Mongolia. I deem it correct to change and improve the legal environment during this course. In conjunction with this, we will pay special attention to abiding by a direction to develop processing and final products plants especially at the deposits of strategic importance, and including in the Investment Agreements clauses and provisions to allow the investors in especially lead projects for Oyu Tolgoi and Tavan Tolgoi   build smelters, coal processing plants and coke plants, and clauses to direct such efforts.
Noting that mining investment is to be the main factor to ensure economic growth as a policy priority, the Government did establish the Working Group. The Working Group is in the process of its work.