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Mongolia Mining Report Q3 2012
Business Monitor International, June 2012, Pages: 57
The Mongolia Mining Report provides industry professionals and strategists, corporate analysts, mining associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Mongolia's mining industry.
Growth in Mongolia's mining industry will be led by a rampant increase in coal, copper and gold production. The bulk of this growth will occur in 2013 as the Oyu Tolgoi copper-gold mine begins commercial production. There is an upside risk to our forecast as development of the massive Tavan Tolgoi mine could start sooner than expected.
Rapid Growth Across All Commodities We expect the downward trend in Mongolia's mining sector to come to an abrupt halt, as the sector undergoes phenomenal growth. The impressive growth rates in copper and gold production will be driven by the Oyu Tolgoi mine, a joint venture (JV) between Ivanhoe Mines (66% ownership) and the Mongolian government (34% ownership). We expect copper production to reach 559kt ('000 tonnes) by 2016, an annual average growth rate of 27.9% from 2010 levels. Decreasing ore grades at the country's largest mines have led to a slow decline in Mongolia's copper production. As for gold, we expect production to reach 892koz ('000 ounces) by 2016, more than four times 2010 levels.
We expect coal production to more than quadruple to 107mnt (mn tonnes) by 2016. Growth will be driven by South Gobi, a subsidiary of Ivanhoe Mines, as the company continues to invest in the Ovoot Tolgoi mine, currently the country's largest coal mine. There are substantial upside risks to our coal outlook as the Tavan Tolgoi mine, currently owned by the Mongolian government, is due to start output by around 2015, assuming no additional delays are faced.
In July 2011 the government announced that it had chosen US miner Peabody Energy, China's Shenhua Energy and a Russian Railway/Mongolian-led consortium to develop the western bloc at Tavan Tolgoi.
However, the government took back the decision afterwards and announced that a final decision will come in early 2012. We do not expect a resolution at least until after the June 2012 parliamentary elections where government officials will less likely put on a tough stance on miners.
Regulatory Environment And Key Players Mongolia has made significant progress over the last decade to improve its business environment. Most importantly, the government rescinded the 68% windfall tax in early 2011, which had been a significant impediment to foreign investment into the country. The repeal of the tax led to a wave of investment including the completion of the Oyu Tolgoi agreement, which will bring billions of dollars of investment into the country.
Mongolia's mining sector is dominated by Ivanhoe Mines and state-owned players such as Erdenes MGL and Erdenet. Small companies such as Centerra Gold and Erdene Resource Development also have a stake in the country and have substantial exploration projects. We expect the mining sector to become more fragmented.
Executive Summary 5
SWOT Analysis 7
Mongolia Business Environment SWOT Analysis 7
Global Mining Outlook 8
Table: Recent Tax Increases 10
Table: Largest Coal Projects 12
Table: Major Frontier Mining Projects 13
Europe Mining Sector Outlook 14
Table: Major Nordic Mining Projects 16
Table: Key Gold Projects In Eastern Europe 17
Industry Trend Analysis 18
Table: Mongolia's Production & Mining Industry Value Forecasts 20
Industry Forecasts 21
Coal: South Gobi To Drive Growth In The Near To Medium Term 21
Table: Mongolia's Largest Coal Projects 22
Table: Mongolia's Coal Production 25
Copper: Oyu Tolgoi To Change Dynamics 26
Table: Mongolia's Largest Copper Projects 28
Table: Mongolia's Copper Production 28
Gold: Oyu Tolgoi To Transform Sector 29
Table: Mongolia – Largest Gold Projects 30
Table: Mongolia's Gold Production 31
Regulatory Structure 32
Europe Business Environment Ratings 35
Table: Mining Business Environment Risk/Reward Ratings 35
Competitive Landscape 39
Table: Mongolia – Comparative Metrics 41
Company Profiles 42
Centerra Gold 42
Table: Centerra Gold – Financial Results 45
Ivanhoe Mines 46
Table: Ivanhoe Mines – Financial Results 49
Commodity Strategy 50
Copper To Edge Lower 50
Aluminium: No Sustained Recovery Ahead 51
Oil: Prices To Pull Back 52
Gold: Still Bullish 53
Business Environment Ratings Methodology 54
Table: Mining Business Environment Indicators 55
Table: Weighting Of Components 56