THE signing of the Oyu Tolgoi (OT) Underground Mine Development and Financing Plan by the Government of Mongolia, Turquoise Hill Resources and Rio Tinto is not only the best news to come from Mongolia for some time … it is a major boost to the global mining industry.
For resource-rich Mongolia, it provides the biggest indication yet that the country is reopen to foreign investment and will give the country an urgently needed and long overdue shot in the arm as far as economic growth, employment, infrastructure development and the well-being of its population are concerned.
The world’s mining industry has been struggling to survive the impacts of low commodity prices and reduced demand for resources with capital subsequently being extremely difficult to secure. The big news out of Mongolia increases the size of the light at the end of the tunnel and provides encouragement to all other mining companies – just when it is most needed.
Yes, Mongolia has a long way to go to make up for the time and foreign investment lost during the lengthy OT Stage 2 underground development impasse, but this agreement and other recent positive signs emanating from the country’s new Prime Minister and super coalition set it well and truly back on track.
As the Prime Minister of Mongolia Chimediin Saikhanbileg said about the OT agreement, “Mongolia is back to business. Oyu Tolgoi is a world-class copper-gold asset and its further development is of great economic significance for Mongolia. We have finalized a way forward with our partners which re-establishes the foundations of a new and constructive relationship based on mutual trust and our joint long-term commitment to Mongolia’s growth.
“Unlocking Oyu Tolgoi’s underground mine will have a significant impact on the Mongolian economy, which will benefit Mongolian citizens for generations to come.
Our joint agreement clearly positions Mongolia as an attractive country for investment and underscores the fact that Mongolia is open for business.”
OT’s Mongolian operator is Oyu Tolgoi LLC and that company’s president and chief executive Andrew Woodley echoed the thoughts of many in the mining world with his statement: “I am very pleased our shareholders have resolved the outstanding issues to progress with the development of the underground mine at Oyu Tolgoi. With this agreement, further progress can now be made to unlock the large, high-grade ore body that lies well below the surface of our operation and is one of the best copper-gold ore bodies anywhere in the world.”
As outlined in a recent update from the Mongolian Investment Banking Group many Mongolian assets are currently at depressed valuations and often with unfavourable liquidity at this point. “As such, if and when the market does turn for these assets, which we believe it will as already evidenced by the change in risk and returns for Turquoise Hill Resources and Entrée Gold as speculation mounted for resolution for OT Stage 2, then there is scope for significant asset price performance. In our view, current prices and lack of liquidity provide a favourable opportunity to begin accumulating exposure for those believing the majority of execution risk for Stage 2 delivery has been passed on from the sovereign to the investor.”
The remaining major piece to be placed in the Mongolian mining puzzle is the Tavan Tolgoi (TT) coal project but with the Prime Minister’s focus on breathing life back into the suffocated mining industry, surely resolution of the TT issues is not too far away.
The Prime Minister is to be congratulated on his efforts to form a working coalition which has led to a number of recent decisions which had previously seemed years away and he must be encouraged and supported by the global mining community to continue the good work.