Browsing through the monthly statistics for major social and economic indicators of Mongolia, one is involuntarily drawn into the figures and the steady growth of a sector that has been making tremendous contributions to Mongolia’s development.
The minerals sector has in recent years demonstrated gradual, continuous and sustained growth. In the first six months of this year, the sector grew by 10.7% over the corresponding period of last year. Remarkably, compared with 2000, the minerals sector has grown by 43.3%. Furthermore, metal processing increased by 10.9% and coal production jumped 12.8% over the year-ago period; the sector now accounts for 65.4% of Mongolia’s gross industrial output.
In just one year, mineral sector exports have grown by US$18.4 million, eclipsed only by imports, which surged US$24.3 million.
But the question remains: How has a sector, which not long ago was barely surviving, turned into a flourishing multiplier of Mongolia’s assets?
One key reason is the adoption of the Minerals Law in 1997. A country’s political stability, combined with a favourable legal environment, does wonders for its economic competence. Chile, for example, has pioneered world copper production since it institutionalized a favourable legal environment for its minerals sector. And this is just one of dozens of success stories. Inspired by the achievements of their colleagues in other countries, and in the hope of making tangible contributions to the national economy, a group of Mongolian mineral specialists produced what is now the foundation of this flourishing industry.
The mineral sector requires large capital expenditures and the investment pay back period is lengthy. And since the start of its transition to a market economy, Mongolia has attempted to attract foreign investment, particularly into the minerals industry, which has been identified as a priority. With this in mind, the government has strived to create a friendly, just and open legal and regulatory environment for foreign investors.
The timing of these changes marks the start of a new history for Mongolia’s minerals sector. Vast, thinly populated Mongolia has awakened to the sound of drilling machines and bulldozers, not to mention the unfamiliar words of western geologists. Mongolia’s minerals sector has become one of the hottest destinations on the business calendars of multinational mining corporations, each with its expertise and advanced technologies. Their best geologists were chosen to explore Mongolia, some of whom have made stunning discoveries. One company that has chosen to invest in Mongolia is
Boroo opened a gold mine in 2004 with an ambitious plan to produce 5 tonnes of gold annually. All the high-level dignitaries of Mongolia — the president, the prime minister and others — have visited the operation.
In 1998, the government of Mongolia and Boroo Gold entered into a “stability agreement,” a guarantee from a government to a company that is designed to help it run a stable and sustained business.
Even with a stability agreement in hand, it was difficult to find a financier for the project. In April 2002, Canadian firm
As of April 18, 2005, the Boroo gold mine had produced 10.4 tonnes of gold (333,900 oz.). In the first 4 months of this year, Boroo Gold extracted 2.8 tonnes (89,900 oz.).
In 2004, Boroo paid a 4-billion tugrik (US$3.35 million) royalty to the government of Mongolia, which amounts to 1.1 billion (US$920,000) tugrik so far in 2005.
According to Mongolian law, Boroo Gold will start paying a limited corporate income tax rate of 15% beginning in 2007, and from 2010 onwards shall pay the full rate. The lifespan of the mine was extended by one year as a result of exploration work conducted by the company in 2004. Boroo Gold has already spent US$1.6 million on exploration in the Boroo deposit area, and the company has earmarked US$1.5 million for further exploration there this year.
In addition to Boroo, the company is carrying out vigorous exploration at the Gatsuurt deposit, roughly 40 km from Boroo. Gatsuurt is thought to have reserves comparable to those of Boroo. Boroo Gold is looking at processing Gatsuurt ore at the Boroo operation as part of a detailed feasibility study of the Gatsuurt deposit, which is slated for completion by late-2005. In other words, Centerra Gold plans to be in Mongolia for many years to come, thereby investing heavily in Mongolia’s economy.
Currently, the company employs more than 500 people, of which only 41 are expatriates. In fact, the company set up a training centre in Baruun Kharaa, graduates of which have been working at the mine since Boroo went into production. The company plans to hire local workers for the majority of its ongoing labour needs. The average annual salary of a Mongolian worker is 420,000 tugrik (US$352), and in 2004 the company spent 2.3 billion tugrik (US$1.9 million) on salaries and wages. The company operates under the most up-to-date safety standards, and employees enjoy a pleasant working environment, as well as other benefits.
The company is indeed making enriching investments. Imagine more than 400 unemployed people on the street who in one year became diligent taxpayers and committed employees, working shoulder-to-shoulder with world-class specialists using advanced equipment and technology.
The contributions of Boroo Gold to the local community are also noteworthy. The company donated 466.5 million tugrik (US$390,000) to a community development fund. This year, the company will spend another US$500,000 promoting humanitarian efforts.
Last year, the company contributed 34.9 billion tugrik (US$29.2 million) to the Mongolian economy through taxes and fees, salaries and wages, donations and grants, and contracted services.
Eventually the success of Boroo Gold manifests the ultimate meaning of our efforts to attract foreign investment. First, many Mongolians get jobs and start living better lives; second, export earnings increase; third, the government’s fiscal position improves. And, most importantly, the development of mines helps lay a firm foundation for more industrialization. All of which is not accomplished without a solid Minerals Law.
The doors of the Mineral Resources and Petroleum Agency of Mongolia are open to investors interested in pursuing mining in Mongolia. There is no barrier, red-tape, bureaucracy or cronyism involved.
Today, Mongolia boasts 120 gold mining companies. Combined, they produce more than 10 tonnes of gold per year, one-quarter of which is produced by Russian-owned
Another,
And soon the Tumurtein Ovoo zinc mine in Sukhbaatar province will begin production.
About 22% of Mongolia is mapped. In other words, the overall mineral potential of the country has yet to be determined. One day someone will discover another Oyu Tolgoi, or Tumurtein Ovoo or Tavan Tolgoi, and no doubt many young Mongolians will work in these mines, co-authoring a new chapter in the his
tory of Mongolia’s mineral sector.
— The preceding is an edited version of a paper written by a member of the organizing committee of Discover Mongolia 2005, an international investors forum slated for Sept. 14-16 in Ulaanbaatar, Mongolia.
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