Mongolia plans to add value

By John Miller, Editor

Mongolia plans to value-add

After many years of existing in the giant shadows cast by neighbouring Russia and China Mongolia is now starting to cast its own shadow thanks largely to its untapped mineral wealth.

Being sandwiched between China and Russia, it is ideally positioned to sell and distribute its resources to the emerging economic powerhouses, which are both thirsty for what Mongolia has to offer.

At present mining accounts for about 65% of Mongolia's GDP and this figure looks set to increase markedly, up to as much as 95%, as new projects come on line and exploration intensifies.

This forecast has led to the government examining ways of reducing the country's reliance on mining, with industrialization and value-adding among the possible solutions aimed at bringing the figure back to around 60%.

One of the proposals in the pipeline is the establishment of a $10 billion desert industrial complex that will meet rising Asian demand for coal and copper from some of the world's largest untapped mineral resources.

A copper smelter, oil refinery, power plants and chemical coking facilities are planned at Sainshand in the Gobi desert to carry out value-added processing for the Tavan Tolgoi coking coal deposit and Oyu Tolgoi copper mine. The project would also see 1000km of railway lines constructed through South Gobi and eastern Mongolia, one of which would connect Tavan Tolgoi to Russia with the other four to run into China

Tavan Tolgoi holds about 6 billion tonnes of coal in the desert of southern Mongolia, making it one of the world's largest unexploited coal reserves. Rio Tinto and Ivanhoe Mines are developing Oyu Tolgoi, which is one of the world's largest copper resources.

The Mongolian government plans to fund 60% to 70% of the project through debt financing and is seeking local equity sponsors, including private equity, pension funds and institutional investors for the remaining 30% to 40%.

About 40% of the funds would finance the infrastructure part of the plan and the rest would be used for industrial facilities. If private funds are not sourced, the ambitious project is unlikely to proceed.

Mongolia is seeking bids from engineering and construction companies to do 'master planning' for the industrial complex and railroads as the project's management consultants.

If the project's master plan, expected to be completed by April 2011, proves to be economically viable, the government wants to start construction in the second half of next year. Building will take two to three years, with production estimated to begin in 2014, starting to generate economic benefits from 2017.

Apart from saving the Mongolian economy from the risk of being overly dependent on mining and subject to fluctuations in commodity prices, the industrialization also will create about 78,000 jobs between 2010 and 2021.

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