“Build mining townships, and stop all new exploration”

What do our senior mining professionals think about the new era dawning for development of Mongolian mining? How should it proceed and what are the likely challenges on the way? We invited D.Dondov, State Honored Miner who also served as a minister, to share his thoughts on the sector where he continues to be involved as a lecturer at the Mining institute and as an independent member of the Board of Directors of Erdenes-Tavan Tolgoi and of the Professional Council of Mineral Resources. He is also one of the judges of the Mongolian Mining Journal Awards, and here he answers questions from Ariuntuya.   

How did you start your career?  
I began to work in mining when I was a student, even before I graduated as a mining engineer in 1965, in Russia. Earlier, only about ten Mongolians had done this.  Our university laid great stress on hands-on training for students and thus used to send us to mines but we were paid for our work. We learnt all about mining environment, and the life and character of miners.

In May 1961, when I finished my first academic year, I worked as a stone digger and shovel man in an Estonian mine for six months. After the second year, I went to another mine to work in my chosen field, as a markscheider. Russia has lots of mines and I worked in an underground rare earth mine, as also in a lead mine at a depth of 1,500 meters in north Ossetia and in a gold mine in Siberia. Most of the time I worked as an underground markscheider.

On finishing university in 1965, I was appointed to Burentsogt mine in Mongolia. I began work on November 25 which is Mongolian Miners’ Day. Burentsogt was one of the most important mines of Mongolia because it produced rare earths that were used in making Russian satellites. It was run under the tight control of the government and the central commission of the Revolution Party. I worked there as a markscheider in three years, and our work was enjoyable, as all of us engineers were graduates of the same university.

I believe you had an accident there that put an end to your work in an underground mine…
Yes. I was trapped deep underground for12 hours by myself under ore that had not been properly blasted. This was not unusual. Rescue workers were at risk, too. I was fortunate to be brought out alive but I had broken bones and was marked as unsuitable to work underground in future. Three months later, I went to the newly opened open pit mine at Sharyn Gol and worked there as chief markscheider for four years and general engineer for five years more. From Sharyn Gol I went to Baganuur and the ministry.

Were you not the first director of the Baganuur mine?
Yes, I was. I went to Baganuur in 1978, when the first stake was put. I was the first director of the mine and held that position for 12 years. A planned township was built around the mine, and I had to ratify each and every new building that came up. This was the first time in Mongolia that apartments were allocated to miners and their families. Over 8,000 people were engaged in building the whole mine complex over 4 years.

Should such townships as Erdenet or Baganuur be built at Oyu Tolgoi and Tavan Tolgoi, too?
Both Erdenet and Baganuur townships were built with foreign loan. There can be no question that all mine workers, diggers and other staff, should be provided with comfortable conditions where they can live with their family. Oyu Tolgoi LLC ferries their workers by plane and hires local people as housekeepers or guards. When the deposit is exhausted, there will be little to show for the decades of mining except for some growth in Khanbogd soum and some buildings. There will be nothing permanent like Erdenet and Baganuur.

I think we have to reassess the company’s policy. Even if it cannot build complete townships as in the Soviet era, there should be a living area for the staff, with schools and kindergartens. Family life should not be disrupted. Shops, restaurants and such services will make their appearance because of demand for them. Maybe private construction companies should be allowed to build apartments in Khanbogd soum to be sold to or rented by OT staff.  If OT provides water and electricity, the construction business will naturally flourish there.

Why do you think people are moving to Tavan Tolgoi in numbers but not to Oyu Tolgoi?
This is because people know that OT is not the property of Mongolians. Tavan Tolgoi is, and that is why so many are trying to find a new life in Tsogttsetsii. We can only hope Erdenes-Tavan Tolgoi will make serious efforts to make this come true. Tavantolgoi Trans LLC produced 5 million tons of coal last year but has done nothing for the development of the locality  or the country.  I blame Ajnai Baterdene for this. He has exported huge amounts of coal but has never tried to build a school. He pays tax, and that is good, but he should do something more for social development.

That way I’m glad to see how Energy Resources is focusing on Mongolia’s future and doing things for long-term social development. Erdenes-Tavan Tolgoi must set an example of development through mining, building both new townships and processing plants. The most important thing to come out of the mining boom should be substantial improvement of people’s living standards. How does Mongolia gain if companies earn money from its mineral resource and keep it in foreign banks?

I think we should be firmer with Oyu Tolgoi LLC. Sending staff by plane, giving them gers to live in, feeding them nice meals, washing their clothes free while it exploits our mineral resources is just cheating. OT hires our young people at high salaries, makes them work extremely hard, almost like soldiers, for 14 days and then sends them back to UB where they spend their money in night clubs. It would be different and much more productive if, instead, they lived in Khanbogd with their family. They will spend their money sensibly, instead of blowing it up. Their life will also be stable if they stopped living like migratory birds. In sum, townships are an essential adjunct to any large mining operation.

Will Erdenes-Tavan Tolgoi build such a township?
They had plans, but it would be difficult as it needs a lot of money. There is a long way to go before capital is raised in international stock exchanges.  

What do you think of the decision to divide the Tavan Tolgoi deposit into two parts?
We need to increase our coal production, and we also wish to retain ownership. There is no problem with the division, as the deposit is large enough to accommodate more than two companies and several open pits, provided, of course, the right technical plans are made and then carefully implemented.

I expect Erdenes-Tavan Tolgoi to produce 15 million tons a year and the others chosen to invest another 20-25 million tons. We shall also need to find a good trading partner to sell this huge amount of coal most profitably. The whole issue of Tavan Tolgoi has several complex and complicated aspects: geopolitics, state policy, national security, balancing neighbours, etc.

Important decisions cannot be taken on the basis of sentimental preferences but on what best serves our purpose. After we decided on the rail route to Russia, we received, for the first time in Mongolian railway history, 35 new diesel locomotives. Negotiation are always tricky and we can never be certain a decision is right or wrong. Maybe if we do not quickly build a narrow-gauge railway to China they will not buy our coal.

With so many countries eyeing our world class deposit, we cannot hope to resolve all issues according to our wishes. The first priority is to protect the interests of the Mongolian people and this will mean putting some restrictions on foreign and domestic investors’ interests. A foreign operator producing coal for us is not so beneficial for Mongolians, and domestic  companies do have the expertise to do the work but they cannot raise capital in foreign stock exchanges.

Everything will not be perfectly resolved, to everybody’s satisfaction. There is one little thing I must say. Mining companies must not insist on 2-3 years of experience before giving someone a job. How can fresh graduates get experience if they do not get a job first?

Apart from Erdenes Tavan Tolgoi, two other companies, Tavantolgoi Trans and a Japanese company. also own licence there. How do they work together?
Each part of the deposit under a separate licence has to work under its own feasibility study and work plan.  There is no problem as the areas licensed to Tavantolgoi Trans and the Japanese company are small and will be exhausted soon.

I also think the Government should take back the licence from Tavan Tolgoi LLC to preempt any later legal conflict. The Government has the legal right to take back  a licence given to a private enterprise and by a regional administration. The Baganuur Mine was similarly  taken away from the regional administration.

But that will violate the right to property?
No, the terms of the agreement take care of that. It will be no problem. To go back to Daitsiku, there was no need to give them a licence in the first place, as exploration of Tavan Tolgoi had been financed from the state budget. But still, the state has a right to cancel that licence. Take the case of Shivee-Ovoo. There the Government took back from the company the licence over a plot that held 600 million tons of coal.   

Tell us about the feasibility studies made by Russians at your invitation when you were Deputy Minister of Fuel and Power.
The Institute Gyproshakht made several feasibility studies in Mongolia, of the Sharyn Gol mine in 1965, and then of the Aduunchuluun coal mine, some parts of Baganuur, and also of Tavan Tolgoi. The last was a very detailed one, and was also very long. Now, a Canadian company Norwest was hired to make a new study. They used the basic material prepared by the Russians, and added some updates. The Russian work was excellent, covering mining operations, township construction, water sources and supply, transportation including railway etc. I think Norwest just added a few things regarding use of present-day equipment or technology.

You submitted a report to the Government on the Tavan Tolgoi project. Did it include anything of fundamental importance?
This was in April 2009. My report mainly stressed that the deposit could produce 20 million tons of coal per year and the need to build a facility to process 15 million tons of coal. My conclusions were based on the Gyproshakht study. I also said some parts of the deposit needed further exploration. Gyproshakht had said the deposit could easily be made into two large mines, each with 15-20 million-ton capacity, along with some smaller mines with capacity for 3-5 million tons per year. There could also be a facility for coking the thermal coal and a power station. I supported these.

How does JORC raise reserves?
This is because it calculates differently. The details of this are a bit technical for you. But there is no reason to think JORC is infallible, and in any case, the JORC addition to the reserve is not so significant.