Trafigura rattles zinc market with huge order for LME metal
Orders to withdraw zinc from warehouses overseen by the exchange have surged by 97,225 tons over the past two days.
But much of that optimism is centred on positive outcome over Oyu Tolgoi expansion
Mongolia’s economy is set to return to strong growth next year, the Asian Nation’s central bank governor said Tuesday.
Central bank head Naidansuren Zoljargal said gross domestic product could expand as much as 17% next year from around 11% this year according to WSJ Online.
Foreign direct investment in the country dropped 49% to September 2013 compared to last year which already marked a 17% year-on-year decline, the value of the currency, the tugrik, is down more than 20% this year, inflation has returned to double digits and the Mongolian central bank’s off-balance sheet spending is burning through foreign reserves as foreign debts balloon to 55% of GDP.
Changes to Mongolia’s 2012 Strategic Entities Foreign Investment Law (SEFIL) came into force at the start of the month and is designed to turn around a slowdown in its economy which was the world’s fastest growing at the start of the decade and a steep fall-off in foreign investment.
While the new investment law has been universally hailed as a positive step the number one issue that has to be resolved before investor confidence will return to the country is the future of the massive Oyu Tolgoi copper-gold mine.
Oyu Tolgoi which could have final bill of as much as $14 billion is 34% owned by the Mongolian government with Rio Tinto-controlled Turquoise Hill (TSE:TRQ) owning the rest.
Talks over Oyu Tolgoi’s expansion and the reworking of the initial 2009 deal which first unleashed the Mongolian investment boom, have dragged on for the better part of a year. Both sides provided fresh faces for the Oyu Tolgoi board in September to break the impasse.
Vancouver-based Turquoise Hill last week suspended work on the $5.1 billion underground expansion of Oyu Tolgoi saying it will move forward with a $2.4 billion rights offering, as talks on financing arrangements with the Mongolian government including a World Bank-led $4.5 billion debt package – the largest in the history of mining – have gone nowhere.
The rights offering will help the company repay a bridge loan and a $1.8 billion interim funding facility.
In a press release yesterday from the company that holds Mongolia’s share of the mine, representatives stated that the government “is flexibly available to prioritize and continue the discussions on terms and conditions of the project financing separate from any other issues.”
The disputes are centred on costs with Rio’s management fees and the Mongolian government’s share of funding of surrounding infrastructure proving particular sticking points.
Production at Oyu Tolgoi’s open pit began this year and the mine is now operating at nameplate capacity of 100,000 tonnes of ore processed per day.
The giant copper mine is set to contribute as much as a third of the nation’s economy if the underground expansion goes through.
Construction workers in the capital Ulan Bator where almost a third of the population now lives by Al-Jazeera.
3 Comments
Honheree
The key word is “could”. I am sure Naidansuren Zoljargal is making a prediction based on nothing more than his dream. Perhaps, he would like to bet me his job on his 17% growth prediction?
The current open pit at OT with average 6% copper grade cannot be making money. The only way is for the grade to be close to or over 1% copper. With blending high grade u/nderground (>1% copper) and open pit the average copper grade ‘could’ reach over 1%.
That might have happened if the underground development had NOT been halted due to uncertainties caused by the Mongolian government, constantly demanding more and more of OT. Another scenario that is just as, or more likely (the Mongolian bank head is only looking at his dream scenario) is, that because of the economic situation etc., Oyu Tolgoi open-pit will be mothballed, with more job losses and even less economic growth.
The only way investors in mineral development and mining, in a positive world economic climate, will return to Mongolia,(other than Chinese, whose long term goal is to economically control Mongolia, whatever it costs) is for the Mongolian government to stop talking and start acting to show they want investors, specifically:
1) open up exploration licenses and cancelled exploration licenses for acquisition in an open and clearly NOT corrupt process
2) Complete a Minerals Policy as promised, followed by a fair and transparent Minerals law.
3) set up regulations WITH trained inspectors to enforce them, who actually monitor and enforce them (including 5) below) .
4) Change the Forests and Water Law to permit exploration and mining in a RESPONSIBLE managed way, that if implemented properly would actually increase the forests.
5) adhere to the law and deal with the 175,000 artisanal miners, who are creating environmental disaster and causing good companies to have problems with locals.
6) keep their promises and Laws FOR LONGER THAN ONE YEAR and think of the long term, rather than for the next election.
7) Remove/imprison bureaucrats and politicians at ALL levels who are corrupt and do not follow the legal process and fine them at punitive levels, as opposed to the current fines that are a joke.
8) Fine companies and cancel licenses of those companies involved in corrupt activities, (as proven by clear evidence)
9) create regulations that state clearly minimum safety, environmental and community guidelines that companies must follow.
But I fear it will take a wait and see period of a few years before investors gain confidence, to invest in Mongolia. As they say, once bitten twice shy. In the case of Mongolia it has bitten and taken chunks of flesh several times, not just once..
honheree
Please note typo – o/p grade for OT should read 0.6% copper
Ikh
“…sees return to 17% growth next year.” Oh how I laughed. Is this journalism?
In addition to the laundry list of woes outlined by Honheree, there is the matter of Mongolian neo-Nazis, the Tsagaan Khass, allowed by law enforcement to roam the countryside at will, extorting funds from mining companies through intimidation. My crystal ball tells me that next year will NOT be the dawn of a bright new day, but further descent into anarchy for Mongolia.