G.Iderkhangai
Uncertainty surrounds the development of the Tsagaansuvarga copper project, halted by its owners Mongolyn Alt (MAK) for lack of funds after completing 45% of the construction schedule. According to the Minerals Law, the history of the deposit allows the state to own 34% of the project, but that would mean the government has to bear an equal percentage of the development costs.
Initially the Government said it would raise its part of the expenses by issuing $360.6 million of bonds. For various reasons it had second thoughts and seemed inclined to surrender any claim to owning any percentage of the ownership. That it could not be possible to raise the money is believed to have been the major reason behind the intention to leave the project entirely to the private sector.
Things seemed to be moving that way when the Standing Committee on the Economy, in its first discussion of the proposal, agreed that state ownership in Tsagaansuvarga is not necessary. Still, parliamentary approval was needed for such abandonment by the government of a legal right, and this was expected on June 13, but a decision was put off as the Justice Coalition took a break for five days, claiming it needed the time to finalise its views on such a momentous issue.
If the government does finally leave the project, it will be left to MAK to raise the development funds on its own, or go for any other arrangement. Given the financial constraints on all mining companies, it is imperative that MAK knows where it stands, and what it has to do to bring the development project to a successful conclusion. Company officials have said they are ready to go it alone, but wants a quick end to the uncertainty.
It may have to wait a while, though. In the discussion in Parliament before it took the break, the Justice Coalition made it clear it did not favour the state forsaking its claim, and also did not accept the recommendation of the standing committee.
MAK sure it can raise the moneyIn the event that the project is indeed left to MAK, the company will first have to inform EBRD (The European Bank for Reconstruction and Development) of the developments. This is because EBRD is committed to lending the company $450 million for the project, of which $200 million has already been spent. If the state does forgo its share, it will not release any funds as its share of the construction, and once this is formalised, but not earlier, MAK will be able to ask EBRD for the remaining $250 million of the loan.
MAK has used the initial $200 million to purchase equipment for preparing the open pit mine and the awaited $250 million will be used on actual construction work, installing 220-kw electricity transmission lines, and building the water supply system from Narangiin Khooloi.
The estimated total cost of construction of the Tsagaansuvarga project is $1 billion, so MAK will need quite a substantial amount of funds beyond the EBRD loan, but the company is unfazed. G.Tsogt, Vice President, Industry and Project Implementation, Mongolyn Alt, says they are confident they can access the required amount “ by selling our copper concentrate. We are certain we shall be able to attract foreign investment”.
Tsagaansuvarga mine is expected to recoup its investment expenses between the sixth and seventh years of operations. The mine life has been put at 17 years in the feasibility study. Sales over this entire period will total MNT11 trillion and MNT3.4 trillion will be paid in taxes and royalties. The figures are based on the estimate that global copper price would be $5512/ton, and that of molybdenum concentrate $1300/ton.
Tsogt said the company has asked for a fresh feasibility study. According to the present one, the project will be profitable only if copper price is above $5512/ton.
MAK is keen on adding value to its copper concentrate, but is aware that a processing plant cannot be built in one or two years. However, MAK executives are optimistic that with three copper mines -- Erdenet, Oyu Tolgoi, and Tsagaansuvarga – operating in the country, a way will be found to process their output in Mongolia, instead of exporting the raw concentrate, which commands a much lower price. In full capacity, Erdenet will produces 550,000 tons, Oyu Tolgoi over 1 million tons, and Tsagaansuvarga 320,000 tons of concentrate annually, enough to make a smelter justifiable and viable. A proper smelter would also help small and medium-size copper processing plants to come up.