Strategy on strategic mineral missing

By N. Ariuntuya

The term “strategically important” in reference to certain mineral deposits has long been used in the laws of both Russia and Mongolia but there is considerable amuity in people’s mind about its intention and application. Some find the demarcation unnecessary, while others go so far as saying it is offensive, but the apparent justification behind identifying some deposits as strategic is to facilitate distribution of profits made from mineral resources among the people, with the State regulating the whole process.

The two appendices to the State Great Khural Decree No.27 of 2007 cover the issue of strategically important deposits in Mongolia. The first lists 15 deposits as already accepted as strategically important while the second refers to another 39 deposits and asks the Government to first estimate their reserves accurately, and then to submit the findings to Parliament which will decide on whether any or all of them qualify to be termed strategically important. The language of the decree makes it clear that the list is not final and sacrosanct. If the reserve in a deposit is exhausted, it loses its place on the list and, by the same logic, if a new deposit with appropriate reserves is discovered, it can be added to the list. It is up to Parliament to do either.

However, nothing has been done in the five years since the decree to take its underlying concept forward. The Government has not published any detail of the 39 candidate deposits. No one knows which ones, if any, of them are to join the list. In recent years, nearly 100 other deposits have had their reserve estimated, but there is no word on whether any of them qualifies for inclusion in the list. Nor has anything been heard about how much of a newly listed strategically important deposit will the State own, or how the profits from it will be distributed. These are issues that matter to the people and the total silence regarding them in the last five years has bred confusion and suspicion about the state’s intention. Also to be remembered is that there are no official guidelines on how strategic mines are to be run.

It is believed three considerations were taken into account when making the list of strategic mines under Decree No.27. These were: reserve amount, whether or not exploration had taken place with State funds and the criteria mentioned in a definition in the Minerals Law. This last goes like this: “Mines that have the capacity to affect national security, have an impact on the national and the local economy and social development, or produce or has the potential to produce more than 5 per cent of the GDP” will be taken to be strategically important mineral deposits.

There has always been criticism that Parliament passed the decree without any reference to professional opinion and the list was prepared on purely political grounds. In the five years since the decree, geological studies in Mongolia have been carried out exclusively by the private sector. It is widely held that application of the three criteria mentioned above will disqualify many of the 39 candidate deposits from ever being on the list as they have run out of reserves. On the other hand, several deposits where the exploration licences are owned by foreign-invested companies will have to be included, on the basis of the amount of reserves, verified by use of international standards, they have had to declare prior to listing on international stock exchanges. Many observers feel up to 60 mines will have to be transferred to full or partial State ownership if the criteria laid down by Decree 27 are to be enforced.

Regular readers would recall that MMJ reported the formation of a working group to study the issue of strategic mines. This group has recommended 10 new criteria for registering strategic mines, and has submitted its report to both the Minerals Professional Council and the Ministry of Mineral Resources and Energy. It is not known if the present three criteria are among the ten. The Minerals Authority is believed to favour stricter criteria, but both the Minerals Authority and the Ministry are tight-lipped, saying only that the matter is still under study and no definite decision has been taken yet. There are rumours that the list is certain to be expanded.

The Minerals Professional Council has started work on determining the exact boundaries of the strategic mines. Lack of accurate mapping has at times led to conflicting claims by holders of exploration licences but everything is expected to be resolved when the authorities complete the work.

At long last things seem to have started moving and Decree No.27 is possibly heading for implementation in letter and spirit. A new list of strategically important mines is very much on the cards. Once the Ministry approves and accepts the recommendations of the working group, they will be submitted to Parliament for discussion and final decision.

1. Ulaan-Ovoo coal mine

It is located inTushigsoum, Selenge aimag, 17 km from the Russian border, 120 km from Shaamar railway station and the Ulaanbaatar-Sukhbaatar road, and 430 km from Ulaanbaatar. Soviet geologists did the exploration work with State funds in the 1970s and estimated the deposit contained 280 million tons of good grade coal.

Toronto-registered Prophecy Coal Company is the sole owner of the mine. It started buying parts of the mine in 2006 and acquired 100% ownership in 2010, when operations were also started. Technical and economic evaluation work was done by Minarco-MineConsult of Australia. This put the total reserve of the mine at 208 million tons of which 174.5 million tons are Measured and 34.3 million tons Indicated. The mine’s annual capacity is estimated to be 6 million tons.

Since September 2011, Prophecy has sold and delivered 188,915 tons of thermal coal, including 8,055 tons to Russia, 23,543 tons to private Mongolian companies and 157,317 tons to government-owned power plants in Mongolia.

The company has contracts to deliver an additional 228,388 tons in 2012, the majority of which will be for the Darkhan and Erdenet power plants. Russian buyers have shown interest to buy a substantial quantity of UlaanOvoo coal but Prophecy is withholding sales to Russia pending the opening of the Zheltura border crossing and announcement of a revised export royalty scheme from the General Department of Taxation of Mongolia. It is optimistic that the Zheltura border will be opened soon. This will play a significant role in delivering Ulaan-Ovoo coal to Russia and to South East Asian countries through the trans-Siberian railway.

Prophecy is currently doing exploration work in Zheltura area besides its coal project in Ulaan-Ovoo mine.

2. OvdogHudag coal mine

It is in Bayanjargalan and Undurshil soums of Dundgovi aimag and the exploration was done with State funds during socialist times. It is located not far from the Ulaanbaatar-Sainshand railway. The initial estimate of reserves was 169.2 million tons, but a re-estimation in 2011 raised this to 324.9 million tons. TaliinShigtgee LLC owns the mining licence and is currently operating the mine.
During studies on coal liquefaction it was found that the coal from OvdogHudag is one the best in Mongolia for this purpose.  The mine has the advantage of being located alongside the railway to be constructed to TavanTolgoi and OyuTolgoi deposits.

3. Bayanteeg coal mine

Located in Nariinteel soum, Uvurkhangai aimag, this mine is 130 km from the aimag center and 560 km from Ulaanbaatar. The deposit was discovered in 1961 and exploration took place in 1978.

Bayanteeg Shareholding Company is the owner. The company established the mine in 1962 with an annual output capacity of 25,000 tons of coal and has been supplying nearby soums with coal since then. Now it also delivers coal to Arkhangai, Uvurkhangai and Bayankhongor aimags. A fresh re-estimation put the Bayanteeg mine reserves at 29.6 million tons, of which 4.6 million tons have so far been extracted.

The mine covers 584 hectares and the exploration licence number is MV-00367. The State plans to build a 40-MW power plant based on Bayanteeg mine. There is also talk of building a medium-size coal-to-gas plant in Bayanteeg as part of the first phase of the Coal Project which ends in 2015.

4. NuurstKhotgor thermal coal mine

This is in Bukhmurun soum, Uvs aimag and as a mine it has a significant role to play in the development of the western area. It supplies coal to Uvs and Bayan-Ulgii aimags.

State-owned Korea Coal Corp. bought 51per cent of the total shares of the mine for $10 million in December 2010.

With a reserve of 109 million tons in NuurstKhotgor open mine, it would be possible to operate the mine for 30 to 40 years even if the annual production capacity is increased. The mine was officially opened in 2011, and from this year, the company’s annual sales target is 300,000 tons, gradually rising to more than 1 million tons. Korea Coal is confident of finding buyers in Russia’s Tuva and Altay and China’s Xinjiang.

The total area the mine covers 128.7 sq km. The unexplored areas are also expected to hold a reserve, and if this indeed turns out to be true, NuurstKhotgor might become a world class coal mine.

Canada- and Mongolia-invested Mongolia Minerals Company has bought a coal mine in the Khotgor coalfield. A company statement says: “We are working on the Technical and Economic Evaluation of our project. Once this is done, we plan to construct a 325-km road to Dayant port, Bayan-Ulgiiaimag and deliver the coal to Xinjiang, China. There Mongolian coal is to be used for energy and as well as industry.”

Nearly ten companies own mining licences in the NuurstKhotgor coalfield.