Interview
“Using professional valuers will increase deposit worth”
2016-07-08
Mongolian mining sector, there are several issues to be paid attention such as creation of new legal environment, improvement to the existing methodologies of mineral deposit valuation, training of professional valuers. Regarding these issues, we have talked with mineral economist, doctor and professor D.Galsandorj.
Interviewed by G.Iderkhangai
Would you talk on valuation situation of Mongolian mineral deposit?
Mineral deposit valuation or mineral projects evaluation, concluding a mining agreement, its implementation are a issue of great significance not only for Mongolia but also internationally
With regard, firstly the standards, procedures and the legal environment to valuate mineral assets, and secondly the means of valuation have been studying.
In addition, it was made a valuation and a conclusion on what rate Mineral deposit and mining project valuation is, the connection of the institutes such as governmental and non-governmental institutes, companies which conduct feasibility study and Professional Mineral Council, and if the mineral valuation rule can be made in accordance with the international standard.
Valuation of business projects, particularly mineral deposits or mining project valuation and estimating the fair value should be an issue complicated and complex. What are the best practices and experiences on mineral deposit valuation in countries of highly developed mining sectors?
In countries such as Australia and Canada where the mining sector was dynamically developed, the standard and procedure to valuate mineral and mining projects were processed and implemented in 1995. Australia made amendments in Australian mineral valuation code 4 times for last 20 years.
The last amendment was made in 2015. In recent years, legal environment development is flourishing dynamically for making mineral valuation code improved in countries such as Canada and South Africa. Typically, the countries, where the mining and mineral industry was highly developed, are following their mineral valuation codes in accordance with their national laws.
There is an institute named a Committee of International Mineral valuation code, which develops a common rule of mineral valuation code and have it to be followed internationally. USA, Australia, Canada, South Africa, and Chile are the members of the Committee.
Mineral valuation codes are entering into the countries where the mining and mineral industry is developing dynamically, especially in Europe. Poland and Kazakstan have been working to let these standards and rules enter into their countries for many years.
What is the leading and good experienced country that implemented mining and mineral standards?
This rule was developed by a non-governmental organization, Australian Association of Mining and Minerals, and Metallurgists, then submitted to the Ministry of Mining and Minerals, Stock Exchange and Financial Regulatory Committee and were accepted by them. In this way, the mining and mineral project valuation is made after it was accepted internationally.
Same rule exists in Mongolia. There is a Professional Council that unites 30 Mining industry associations in Mongolia. Therefore, professional associations need to study the baseline study on mineral deposit valuation regulations and let it enter into Mongolian condition immediately.
Then in future, it needs 1-2 years to develop the rules and procedures completely in connection with the activities of Ministry of Mining, Financial Regulatory Committee and Stock Exchange of Mongolia.
On what should we pay attention to provide a legal environment to mineral deposit valuation?
I would like to mark if the company that is going to raise funds from a Stock exchange in any country, it should be familiarized with rules and procedures of that country.
In other words, the Ministry of Mining, Professional Mineral Council, Mongolian Professional Valuator Institute and Professional Associations need to prepare professional mineral valuators.
Valuators who make valuation are mainly financial analysts today. Most of them are economists. But, mineral valuation should be made by mineral economists. There is a well-deserved demand to train mineral economists, retrain and qualify them.
There are also over 30 means of valuations except for 3 methods of mineral valuation which I mentioned. Professional valuators should familiarize.
As for preparation of it, it needs to organize trainings and qualify valuators with the support from domestic and external donor institutes. Of course it will continue for 2-3 years.
At recent time, when the Ministry of Mining and Minerals and “Centerra Gold” company are negotiating about replacing State property share at Gatsuurt gold deposit with a special fee for mineral operation, the government raised a suggestion to let its mineral deposit valuation by arbitral international institute. But, do we have overall mineral deposit rule and methodology in our country?
As for Gatsuurt gold deposit, investment agreement is going to be concluded. The agreement for gold deposit development is being concluded, but it is important if the deposit valuation is proper or not.
It should estimate how much capital and expenses would be used and how much income would be for 70 tons of gold during 10 years. It becomes more important issue how much it would be for 34% out of total income, how much it would be the income for 3% royalty per year and 10 years, and if the royalty for deposit operation is rationally and it would be mutually beneficial.
It was negotiated that about 50% out of total income of Oyu Tolgoi deposit would be in Mongolia. But, reviewing the financial activity and annual report, about 20% of the total sales value paid to Mongolian budget. Therefore, it is visible whether the income to the country and local community, and the outcome are real or not will depend on how the mineral deposit valuation was made rationally.
We have experiences and lack of skills in investment agreements of strategic mineral deposits previously. Hence, it has a priority significance to make mineral deposit valuation or to make it in accordance with an international rule in concluding agreement for new deposit development.
Interviewed by G.Iderkhangai