ULAANBAATAR (Scrap Monster): Mongolia’s mining sector output will grow to US$11.5bn by 2015, marking a fourfold increase from 2010 levels of US$2.6bn. Most of this rapid growth will occur in 2012 and 2013 as the Oyu Tolgoi mine comes online.
Mongolia is set for a rapid increase in production of copper, gold and coal leading to fast growth in the mining sector. It is expected that a dramatic reversal of the trend of static growth in mining output, with rapid rates of growth across the mining complex over the coming years, according to Fast Market Research.
An annual average growth rate of 31.4% in gold output to reach 791kozpa (thousand ounces per annum), and 46.2% growth in copper production to 720ktpa (thousand tonnes per annum) is expected between 2011 and 2015.
The phenomenal rates of growth in copper and gold output will be largely driven by the Oyu Tolgoi mine, a joint venture (JV) between Rio Tinto and Ivanhoe Mines, which is due to come online in 2013. This mine is set to be one of the largest copper and gold mines in the world and will make Mongolia a significant producer of both metals.
In terms of coal production, an annual average growth rate of 17.0%, reaching 27.0mntpa (million tonnes per annum) by 2015 is forecasted. This increase will be driven by South Gobi, a subsidiary of Ivanhoe, which is increasing production at Ovoot Tolgoi, the country's largest coal mine, to 6.5mntpa by 2014.
This growth will reverse the decline experienced over the last three years. There are substantial upside risks to coal outlook as the Tavan Tolgoi mine, currently owned by the Mongolian government, is due to commence output by 2015.
The annual production figures have yet to be released, but the mine is believed to contain 6bnt (billion tonnes) of reserves, making it one of the world's largest untapped coal deposits. Aside from these developments, Mongolia has great potential for further growth in mining output across all metals as very little of the country has been mapped. Therefore, it is likely that significant deposits of minerals are yet to be discovered.
Mongolia has made significant progress over the last decade to improve its business environment. Most importantly, the government recently rescinded the 68% windfall tax which had been a great impediment to foreign investment into the country.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. Recently, however, there has been a slight deterioration in the country's business environment as the government suspended almost half of the country's mining licenses on environmental grounds, having previously cancelled two exploration licenses for the Canadian miner Khan Resources.
Mongolia's mining sector is dominated by Rio Tinto and Ivanhoe, but other smaller companies are active including Centerra Gold and Erdene Gold, both of which have substantial exploration projects.
Mongolia’s mining sector will become more fragmented going forward with numerous companies tempted by the country's mineral potential. Indeed, in addition to Rio Tinto and other large-scale miners to enter the Mongolian mining sector, such as Vale, tempted by the country's considerable undeveloped coal reserves.