Turquoise Hill notes Administrative Court proceedings in Mongolia

MONTREAL , Nov. 19, 2019 /CNW/ - Turquoise Hill Resources (TRQ) today notes Administrative Court proceedings in Mongolia with regard to a lawsuit initiated by the Darkhan Mongol Nogoon Negdel Non-Governmental Organization (NGO) relating to the Government of Mongolia's process in finalising the Oyu Tolgoi Underground Mine Development and Financing Plan (UDP).

Early reports suggest the Administrative Court of first instance has upheld claims by the NGO that due process was not followed by the Government of Mongolia in finalising the UDP, although the Court's formal written ruling is expected to be released only in the coming weeks.

TRQ strongly refutes any suggestion that the UDP or any of the foundational OT Agreements are illegal. Adherence to the principles of the Investment Agreement, ARSHA and the Underground Plan has allowed for the development of the Oyu Tolgoi mine in a manner that has given rise to significant long-term benefits to the people of Mongolia .

We will update the market as further information becomes available.

Source:Turquoise Hill

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Mongolia lawmakers seek to rewrite Oyu Tolgoi deal

* Group recommends 2015 Oyu Tolgoi expansion deal be scrapped

* Flagship project subject to repeated political disputes

* Any changes could undermine investor sentiment - advisor

By Munkhchimeg Davaasharav

ULAANBAATAR, April 5 (Reuters) - A group of Mongolian legislators has recommended one of the agreements underpinning Rio Tinto’s Oyu Tolgoi copper mine should be scrapped and another changed, adding to the giant project’s political problems.

The Gobi desert copper deposit promises to become one of Rio Tinto’s most lucrative properties, but it has been subject to repeated challenges from politicians who argue the spoils of the country’s mining boom are not being evenly shared.

It has also been at the centre of an anti-corruption investigation that has seen the arrest of two former prime ministers and a former finance minister.

The original 2009 Oyu Tolgoi Investment Agreement granted 34 percent of the project to the Mongolian government and 66 percent to Canada’s Ivanhoe Mines, now known as Turquoise Hill Resources and majority-owned by Rio Tinto.

Nationalist politicians have repeatedly called for the deal to be adjusted in Mongolia’s favour.

Terbishdagva Dendev, head of a parliamentary working group set up last year to review the implementation of the Oyu Tolgoi agreements, told reporters this week the group had concluded the original 2009 deal should be revised.

A 2015 deal known as the Dubai Agreement, which kickstarted the underground extension of the project after a two-year delay, should also be scrapped entirely, he said.

“Of course there will be international and local pressure, though if we do have rule of law ... the agreements should be amended for good,” he said in a separate television interview.

Rio Tinto did not immediately comment on the issue when contacted by Reuters.

A lawyer involved in Mongolian mining deals speaking on condition of anonymity said opponents of the original agreement argue the Dubai Agreement made changes to the 2009 deal and should therefore have been subject to full parliamentary approval. Instead it was just approved by the prime minister.

The 200-page review has been submitted to Mongolia’s National Security Council as well as a parliamentary standing committee on economic matters. It is unclear when or if its recommendations will be implemented.

“It will be very hard to terminate the underground mine plan, since it must be done by mutual agreement,” said Otgochuluu Chuluuntseren, advisor at Mongolia’s Economic Policy and Competitive Research Center and a former government official.

“Also foreign investors who were participating in the project finance might intervene in the process to protect their interests,” he told Reuters, adding that it could also damage investor sentiment for years.

The flagship Oyu Tolgoi project helped spur a mining boom that drove economic growth up to double digits from 2011-2013, but a rapid collapse in foreign investment and falling commodity prices saw Mongolia plunge into an economic crisis in 2016.

Mongolia was also embroiled in a row with Rio Tinto over tax and project budget issues that saw Oyu Tolgoi’s expansion put on hold. A series of other disputes with foreign miners also weakened investor sentiment. (Reporting by Munkhchimeg Davaasharav; additional reporting by Barbara Lewis in London; editing by David Stanway and Richard Pullin)

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Dubai financial plan of Oyu Tolgoi Investment Agreement to be audited by Mongolian gov’

Ceremony for start of auditing into Oyu Tolgoi underground mining development and financing plan/Dubai agreement) held on Monday was attended by D.Khurelbaatar, chief auditor of Mongolia, A.Enkhbat , advisor to the chief auditor, Ts.Batbayar, quality assurance department of National Auditing Agency, S.Enkhbaatar, head of Compliance auditing department and Oyu Tolgoi LLC officials led by executive director Armando Torres and others.

National Auditing agency is to review the Dubai financing agreement for development of Oyu Tolgoi mine according to following  article 15 of  Mongolian law on State Auditing:

1.2. To audit operations of legal entities that received financing from state budget, contributes to budget revenue, fully or partially owned by state;

1.20.To audit agreements, negotiations related to government guarantee, loan and all types of financial obligations, including technical, financial feasibility studies or investment agreements of projects to be fully or partially funded by state budget;

1.8. To be audited and assessed if it is deemed necessary.

This auditing is initiated by resolution no.06 of the Parliamentary standing committee in 2016 and the resolution no.03 passed in 2018. The auditing will cover following 2 topics: Actual investment in first and second phases of Oyu Tolgoi project and estimation of investment  and investment loan for shareholders,  loan repayment status and expected to continue throughout 2018-2019.

D.Khurelbaatar, state chief auditor stated the auditing will be done according international auditing standard” auditing agencies to find out about public expectation and depiction without reducing independence and provide timely, suitable response” and will cooperate with professional consultancy, research, engineering-technical teams based on factual information and documents. 

He pledged the auditing will be done within legal framework and adhere to principle of providing accurate and correct information for public.

Armando Torres, executive director of Oyu Tolgoi LLC said he will support the auditing operation and cooperate with auditors.

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OT’s 1.8 billion USD revenue will be spent on underground mining’

Trans. by B.DULGUUN

 The Prime Minister of Mongolia, state-owned Erdenes Oyu Tolgoi, Turquoise Hill Resources and Rio Tinto signed the “Oyu Tolgoi Underground Mine Development and Financing Plan” as part of the Oyu Tolgoi (OT) Project on May 18, 2015 to determine the path for the development of the underground mine at OT.

The following is an interview with CEO of Erdenes Mongol LLC B.Byambasaikhan and CEO of Erdenes Oyu Tolgoi LLC D.Ganbold, clarifying some very imported issues related to OT.

Although Mongolia could’ve addressed an arbitrary court regarding disagreements with Rio Tinto about the OT Project, it was decided that investments for underground mine would be started. Why was this choice made? 

D.Ganbold: The two parties of the negotiation mutually agreed that going to an arbitrary court was an open option. Project investment has delayed for two years without any special reason. Therefore, collaborators negotiated to make sure that both sides reached a mutual understanding to prevent future controversy. Some things that were unclear in the investment agreement established in 2009 were cleared out and made more specific. It can be understood that the choice to negotiate was chosen as it was strictly believed to be a beneficial decision for the economy of Mongolia as well as the investing company.

B.Byambasaikhan: The concept of the value of money is intertwined with time. Investment for the development of underground mine of the OT Project is beneficial to Mongolia’s economy on condition that it’s done now. The OT investment agreement was established in 2009. Development work began from 2010 and in 2011. Consequently, in economy grew by 17.3 percent. It’s essential to increase the economic growth again. It seems that the two sides saw OT from different perspectives. Mongolians used to consider OT as someone else’s. Presently, OT has become the largest company in Mongolia with 6,400 Mongolian employees. Approving the Underground Mine Development and Financing Plan has now allowed Mongolia to treat OT as its property, control its operations, and gain from its profits. 

During negotiations, the public expected changes in the investment agreement, but nothing was changed. Why weren’t there any changes? 

B.Byambasaikhan: The investment agreement becomes a device for attracting investment. Mongolia used this device successfully in 2009. We’ve realized in the past three years that broaching this device that’s working perfectly could bring danger of closing the path for future investments. It’s important to follow established agreements. If we establish an agreement today but deceive our partners the next day, who would possibly be willing to invest? 

The OT Project received investment of seven billion USD. An estimation to invest an additional six billion USD has been approved. According to the 2009 investment agreements, wasn’t only five billion USD required? 

D.Ganbold: There’s a term called initial investment. The total cost can be 20 million USD with an initial investment of five million USD. It’s impossible to execute the OT Project with five billion USD for 100 years. Five billion USD is nowhere near for mining gold and copper that’s a km deep underground. It’s true that the initial investment for the project was estimated to be five billion USD and it’s true that more money was spent than was initially estimated. That’s why it’s causing political disputes about overspending.

Depending on mining and geological conditions, technology, and financial and economic situations, the cost increased because conditions that were expected according to feasibility studies changed drastically. Mutual recognition for this was required from both sides. 

The OT Underground Mine Development and Financing Plan states that OT will repay current and future loans. The Mongolian government lent the 34 percent of OT Project from Rio Tinto. How will this loan to Rio Tinto be repaid? 

D.Ganbold: People will get confused if we talk too specifically. Let’s take Erdenet Mining Corporation (EMC) and OT as an example. EMC was co-established by Russia and Mongolia. At the time, the Mongolian side didn’t have money so its 50 percent of the company was loaned from Russia. The loan collateral was EMC’s copper mine and its future profit. Mongolia repaid its loan until 2000. In other words, Mongolia didn’t receive its 50 percent dividends from 1978 to 2000. If we took a loan, it should be repaid. Although Mongolia didn’t get its dividends, it gained money from taxes and fees, including royalties. We all know how EMC changed the image of Mongolia’s economy and financial prospect. OT is a project two times bigger than EMC. Only a year ago, it began productions and has sold a million ton of concentrates so far.

B.Byambasaikhan: The OT Project is a mining business joint ventured by two owners. People do business to profit. The majority of OT’s resources are deep underground. The company will profit more if those resources are mined and processed before marketing to the global market. Rio Tinto accepted the duty to execute this project efficiently and signed an agreement with Mongolia. In accordance with this agreement, we’re holding the principle to work with more profit. Mongolia’s started receiving revenues from all types of taxes, fees and charges. At the recent negotiation, we agreed to charge five percentage of royalty without cutting costs from fees for the use of mineral resources. People misunderstood this as OT cutting its costs. Companies that have given partial payment will repay their remaining sums. 

People are interested in the Mongolian side’s yield from the project that’s become 54.9 percent. Why was Mongolia’s yield increased by 1.9 percent? 

B.Byambasaikhan: The main factor was copper price. Mongolia’s yield was estimated at 54.9 percent by calculating with current copper prices. The investment agreement didn’t state about project yields. Both sides had verbally agreed that the Mongolian government would take 53 percent and Rio Tinto 47 percent. Yield ratio was issued in the new plan for the underground mine. We’ve made financial modeling according to international standards for mining. This made Mongolia’s yield increase to 54.9 percent. 

How much is this in USD? 

B.Byambasaikhan: 45 to 54 billion USD is estimated to accounted to the Mongolian side. This approximation was made while considering fluctuations in costs.

D.Ganbold: Mongolia’s yield from the project can increase and slightly lower the counterparty’s yield depending on the market price, technology, other situations and ore contents. We don’t know what could happen in 100 years. The principle for accounting yield will remain the same. We’ve written this on paper, and have mutually agreed and signed the paper.

B.Byambasaikhan: Mongolians will gain its share of the profit from OT if the mine works proficiently. Mongolia has to run a good government within the scope of its legislations and investment agreement. The feasibility study will manage OT’s operations and the government will implement. Our government has been taking measures to increase OT’s efficiently though its representatives in the board of directors. Now, an even more specific measure will be taken. Sales and audit of OT will be monitored by Mongolian representative members in the board in accordance with the recently approved plan. 

How will financing for the underground mine be raised? 

B.Byambasaikhan: There’s an estimation stating that investment of 5.7 billion USD is required for the underground mine development. We’ve planned to have 4.2 billion USD lent from banks and get the remaining balance from OT’s revenue and money inflow. 

What conclusion has been reached for tax related issues? There were some conflicts about differences in accounting method. Was Mongolia’s method acknowledged? 

B.Byambasaikhan: We’ve reached a mutual understanding. We’ve agreed in the investment agreement that we’ll create conditions for sustainable operations for OT. The 2009 investment agreement is a document that was established within the framework of all legislations that were effective in Mongolia at the time. The Tax Law was amended in 2011. A Mongolian tax inspector inspected OT against the amended Tax Law of 2011 and charged a penalty from the company. We’ve negotiated to have all inspection and checkups done according to tax laws that were issued in the 2009 investment agreement. 

Who will be in charge of raising the investment of 4.2 billion USD? 

B.Byambasaikhan: The board of directors of OT has been given that responsibility. If they work well, Mongolia will get a loan of 4.2 billion USD and begin development work. Certain permissions and licenses are necessary for constructing development works. Mongolia’s licensing agencies should work quickly. This way, development of the project will progress quickly, create 3,000 jobs, and improve the economic circulation. 

Besides attracting funds, what other works need to be done? 

D.Ganbold: Political policy decision has been made. Now, the company works are starting. Land and water approvals need to be acquired, the feasibility study have to be approved, and human resources need to be found and trained. Daily operations will begin now.

B.Byambasaikhan: Economists made estimation that the Mongolian economy suffered a loss worth three billion USD due to the delay of the OT Project. Still, we’ve prevented further loss and laid a foundation for increasing jobs and raising profits. Mongolia knows extremely well that it’s impossible to attract investment if Mongolia hasn’t got credibility on international markets. People started looking at Mongolia from a positive perspective when it announced that it’ll work consistently to the investment agreement that was initially established with our partners. This shift in views can be seen from the improvement of evaluations for bonds released by the Mongolian government and the private sector at international markets. We’ll continue to do bigger negotiations in the future. The global market is open to Mongolia if we can be more responsible. 

Source: Unuudur

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Rio’s Turquoise Hill Says Parties to Seek OT Funding Extension

Turquoise Hill Resources Ltd. (TRQ), the miner controlled by Rio Tinto Group, said all parties in the Oyu Tolgoi copper mine in Mongolia agreed to seek a funding extension for the underground expansion amid talks with the government.

Requests to extend the funding commitments to Sept. 30 will be sent to lenders, Kay Priestly, chief executive officer of Vancouver-based Turquoise Hill, said in statement yesterday.

Mongolia’s government and Rio Tinto have been in talks over disputes related to the mine including cost overruns and the financing conditions. Rio laid off 1,700 workers and put the underground tunneling on care and maintenance mode in August.

“All parties remain committed to the underground development of Oyu Tolgoi and to resolving the outstanding shareholder issues,” Turquoise Hill’s Priestly said. “Constructive discussions between all parties have resulted in significant progress being made in resolving the issues, and those discussions are continuing.”

Oyu Tolgoi is the largest single investment in the history of Mongolia, according to the project’s website. Rio controls the project through its 51 percent stake in Turquoise Hill Resources, which owns 66 percent of Oyu Tolgoi LLC. The Mongolian government holds the remaining 34 percent.

Source: Bloomberg

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Turquoise Hill Provides Update on Oyu Tolgoi and Discussions With the Government of Mongolia

VANCOUVER, BC, Feb 12, 2014 (Marketwired via COMTEX) -- Turquoise Hill Resources today provided an update on Oyu Tolgoi's operations, project financing and discussions with the Mongolian Government.

Oyu Tolgoi

Oyu Tolgoi's 2013 gross revenues were US$55 million(1) on sales of 26,400 tonnes of concentrate. Year to date sales volumes have fallen short of expectations and some sales have been deferred into the second and third quarters of 2014.

Sixty percent of Oyu Tolgoi's 2014 production is under contract, with additional volumes confirmed and subject to contract finalization. Discussions are advancing well to place the balance of material. Production rates have recently been impacted by various post-commissioning issues including the failure of the rake blades in the tailings thickeners. This is expected to result in the shutdown of one line for a period of six to eight weeks. The operations team is taking the opportunity to pull forward plant maintenance and modification work, that would have required plant slow down later in the year. For 2014, Oyu Tolgoi continues to target production of 150,000 to 175,000 tonnes of copper in concentrates and 700,000 to 750,000 ounces of gold in concentrates. However, Oyu Tolgoi will monitor production levels and if necessary, match them to meet customer requirements, with the goal of returning to more normal levels of inventory by the end of 2014.

Discussions with the Mongolian Government

On July 28, 2013, Turquoise Hill announced that funding and all work on the underground development of Oyu Tolgoi would be delayed. Since then, engagement with the Government of Mongolia has continued with the aim of resolving a number of outstanding shareholder issues and to progress project finance. An option to restart the underground development, subject to certain conditions being met, has been proposed. However, further delays may occur if outstanding shareholder issues, including project finance, are not resolved before the expiration of lender commitments on existing project finance arrangements.

All parties are committed to further construction of the underground and development of Oyu Tolgoi subject to resolution of shareholder issues, agreement of a comprehensive funding plan including project finance, completion and approval of the feasibility study by all shareholders and the Mongolian Minerals Council and receipt of permits required for development.

About Turquoise Hill Resources

Turquoise Hill Resources TRQ -0.87% TRQ -0.87% CA:TRQ -0.53% is an international mining company focused on copper, gold and coal mines in the Asia Pacific region. The Company's primary operation is its 66% interest in the Oyu Tolgoi copper-gold-silver mine in southern Mongolia. Turquoise Hill also holds a 56% interest in Mongolian coal miner SouthGobi Resources CA:SGQ +5.26% (hk:1878).

Follow us on Twitter @TurquoiseHillRe

Forward-looking statements

Certain statements herein, including statements relating to matters that are not historical facts and statements of the Company's beliefs, intentions and expectations about developments, results and events which will or may occur in the future, constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking information and statements relate to future events or future performance, reflect current expectations or beliefs regarding future events and are typically identified by words such as "anticipate", "could", "should", "expect", "seek", "may", "intend", "likely", "plan", "estimate", "will", "believe" and similar expressions suggesting future outcomes or statements regarding an outlook. These include, but are not limited to, statements respecting anticipated business activities; planned expenditures; corporate strategies; and other statements that are not historical facts.

Forward-looking statements and information are made based upon certain assumptions and other important factors that, if untrue, could cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such statements or information. Such statements and information are based on numerous assumptions regarding present and future business strategies and the environment in which the Company will operate in the future, including the price of copper, gold and silver, anticipated capital and operating costs, anticipated future production and cash flows, the ability to complete the disposition of certain of its non-core assets, the ability and timing to complete project financing and/or secure other financing on acceptable terms, and the evolution of discussions with the Government of Mongolia on a range of issues including the implementation of the Investment Agreement, project development costs, operating budgets, management fees and governance and the existence or filing of legal proceedings against the Company and its officers and directors. Certain important factors that could cause actual results, performance or achievements to differ materially from those in the forward-looking statements and information include, among others, copper, gold and silver price volatility, discrepancies between actual and estimated production, mineral reserves and resources and metallurgical recoveries, mining operational and development risks, litigation risks, regulatory restrictions (including environmental regulatory restrictions and liability), activities by governmental authorities, currency fluctuations, the speculative nature of mineral exploration, the global economic climate, dilution, share price volatility, competition, loss of key employees, additional funding requirements, capital and operating costs for the construction and operation of the Oyu Tolgoi Project and defective title to mineral claims or property. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements and information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. All such forward-looking information and statements are based on certain assumptions and analyses made by the Company's management in light of their experience and perception of historical trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. These statements, however, are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information or statements.

With respect to specific forward-looking information concerning the construction and development of the Oyu Tolgoi Project, the Company has based its assumptions and analyses on certain factors which are inherently uncertain. Uncertainties and assumptions include, among others: the timing and cost of the construction and expansion of mining and processing facilities; the impact of the decision announced by the Company to delay the funding and development of the Oyu Tolgoi underground mine pending resolution of outstanding issues with the Government of Mongolia associated with the development and operation of the Oyu Tolgoi Project and to satisfy all conditions precedent to the availability of Oyu Tolgoi Project Financing; the impact of changes in, changes in interpretation to or changes in enforcement of, laws, regulations and government practices in Mongolia; the availability and cost of skilled labour and transportation; the availability and cost of appropriate smelting and refining arrangements; the obtaining of (and the terms and timing of obtaining) necessary environmental and other government approvals, consents and permits; the availability of funding on reasonable terms; the timing and availability of a long-term power source for the Oyu Tolgoi Project; delays, and the costs which would result from delays, in the development of the underground mine (which could significantly exceed those projected in the 2013 Oyu Tolgoi Technical Report); projected copper, gold and silver prices and demand; and production estimates and the anticipated yearly production of copper, gold and silver at the Oyu Tolgoi Project.

The cost, timing and complexities of mine construction and development are increased by the remote location of a property such as the Oyu Tolgoi Project. It is common in new mining operations and in the development or expansion of existing facilities to experience unexpected problems and delays during development, construction and mine start-up. Additionally, although the Oyu Tolgoi Project has achieved commercial production, there is no assurance that future development activities will result in profitable mining operations. In addition, funding and development of the underground component of the Oyu Tolgoi Project will be delayed until matters with the Mongolian government can be resolved and a new timetable has been established. These delays can impact project economics.

The Company's MD&A also contain references to estimates of mineral reserves and mineral resources. The estimation of reserves and resources is inherently uncertain and involves subjective judgments about many relevant factors. Mineral resources that are not mineral reserves do not have demonstrated economic viability. The accuracy of any such estimates is a function of the quantity and quality of available data, and of the assumptions made and judgments used in engineering and geological interpretation (including future production from the Oyu Tolgoi Project, the anticipated tonnages and grades that will be achieved or the indicated level of recovery that will be realized), which may prove to be unreliable. There can be no assurance that these estimates will be accurate or that such mineral reserves and mineral resources can be mined or processed profitably. See the discussion under the headings "Language Regarding Reserves and Resources" and "Note to United States Investors Concerning Estimates of Measured, Indicated and Inferred Resources" in the Company's MD&A filed on SEDAR and EDGAR.

Readers are cautioned not to place undue reliance on forward-looking information or statements. By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predicted outcomes will not occur. Events or circumstances could cause our actual results to differ materially from those estimated or projected and expressed in, or implied by, these forward-looking statements. Important factors that could cause actual results to differ from these forward-looking statements are included in the "Risk Factors" section in the Company's Annual Information Form dated as of March 25, 2013 in respect of the year ended December 31, 2012 (the "AIF"). Readers are further cautioned that the list of factors enumerated in the "Risk Factors" section of the AIF that may affect future results is not exhaustive. When relying on our forward-looking information and statements to make decisions with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and potential events.

The reader is cautioned not to place undue reliance on forward-looking information or statements. All forward-looking information and statements herein are made as of the date hereof. Turquoise Hill does not intend or undertake to update or revise forward-looking statements or information, whether written or oral or whether as a result of new information, future events or otherwise, that may be made by Turquoise Hill or on its behalf, except as required by law.

(1) Rio Tinto, Turquoise Hill's majority shareholder, will release further Oyu Tolgoi-related financial information on Thursday, March 13, 2014. Readers should note that such information is prepared on a different accounting basis to Turquoise Hill and it will not therefore be fully comparable to Turquoise Hill's financial results, which are expected to be released to the market in the second half of March, 2014.

        
        
        
        
                  Contacts   
        
        Investors 
            
        
          Jessica Largent
         Office: +1 604 648 3957
         Email: jessica.largent@turquoisehill.com
            
        
        Media
        Tony Shaffer
        Office: +1 604 648 3934
        Email: tony.shaffer@turquoisehill.com  
        
        
        
        

SOURCE: Turquoise Hill Resources Ltd.

        mailto:jessica.largent@turquoisehill.com
        mailto:tony.shaffer@turquoisehill.com
        

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Ch.Otgochuluu: Reducing gold taxes will not affect Oyu Tolgoi

By B.DULGUUN

The following is an interview with a member of Oyu Tolgoi LLC’s board and Head of the Strategic Policy and Planning Department of Mongolia’s Ministry of Mining, Ch.Otgochuluu about Mongolia’s mining prospects this year, tax reduction on gold mining and Oyu Tolgoi.

-In 2013, the price of Mongolia’s main export goods dropped  and state budget income decreased. What can be expected this year, in terms of price of main export goods such as coal?

-Coal prices has decreased 30 to 40 percent on international markets. So far, we haven’t observed any indication that it will rise. This is connected to the rise in number of suppliers to our main trade partner, China. For instance, Russia and the USA are collectively supplying around many million tons of coals to China. Indonesia, Africa and Australia have increased their export amount in order to cut back on tax. In other words, coal companies are increasing their export amount in order to prevent crisis in case coal prices drop even lower.

Competition is increasing with the increase of suppliers. In market terms, there isn’t any condition for prices to rise as there are more suppliers and not much increase in demand. Therefore, market analysts have concluded that there will not be an upsurge in coal prices this year.

In such situations, our nation has no choice but to cut back on spending to counterbalance the negative effects of low coal prices. This is the only way to profit from coal exports. Furthermore, we need to hasten the railway projects and get rid of port related bureaucracies. We need to formulate a long-term strategy and find partners immediately. We might lose our current market position if we don’t come up with a solution for supplying quality products for stable prices in the long term.

-Many of our nation’s biggest exporters have said that the negative prospects for coal producers might result in losses this year, and that the economic hardships will continue. What does the Ministry of Mining anticipate this year?

-The price of coal will change considering many factors. For instance, the economy of the USA and Germany are recovering. Thus, China’s coal imports will increase as their exports recuperate. However, coal imports from our country must not drop as their coal consumption increases. We need to work to prevent this from happening instead of making unreasonable speculations about coal prices by cutting back on expenses and increasing the export amount.

Theoretically, as the USA and Germany recover, China will not only increase its exportation but also its western regions will develop faster. Considering the fact that it’s already in the process of reconstruction, the use of steel and iron ore will increase. Hence, there is a possibility for coal demands to increase this year.

Moreover, Mongolia must receive more foreign investment, increase exportation, and decrease importation. For instance, there is no need to import products such as chalk in the mining sector. We can save some capital if we can produce it domestically.

-How is the copper outlook for this year?

-There’s also a possibility for copper prices to rise. The poor economic growth in China directly effects coal prices in Mongolia. As China develops faster, copper prices increase. However, there is a surplus in copper supply to China’s current demand. China is still importing copper when they have already accumulated an adequate amount for its current use. For these reasons, the competition for copper producers is getting fiercer.

China, Chile, Africa, Peru and Russia all supply copper to China and they all want to ramp up the amount. Mongolia’s policy on copper export will be to increase it as much as possible to maintain our current position in the market. In general, it is safer to look for other markets in the long term. Countries such as (South) Korea and Japan have a high demand for copper. Thus the best long-term strategy for our nation is to figure out a way to supply copper to these countries.

-How much copper did Oyu Tolgoi export last year? How much will it export this year?

-In 2013, Oyu Tolgoi produced some 200 million tons of copper concentrate, and sold it in accordance with its contract. However, there were some problems at border ports last year. We are planning to at least produce and export approximately 600 to 700 thousand tons of copper concentrate this year. This estimation will depend on the capacity of our border points for shipments and road development.

-Shouldn’t Mongolia be focusing on increasing competitiveness rather than price of raw materials?

-Mongolia isn’t able to set prices in the international market or make an impact. Exchange rates fluctuate independent from our market. Our only choice is to enhance technologically to increase efficiency and cut back on expenses and increase productivity. We need to find cheaper transportation, water and energy sources.

-Last year, gold and petroleum exports increased dramatically and exceeded the expected income to the state budget. How are gold prospects for this year? How will the new law on reducing gold taxes, which is being debated at the parliament, affect gold prospects?

-The legislation to reduce royalty on gold is still under discussion. Overall, tax on gold is fairly high compared to other countries; around 10 percent higher than average. A close example is China. Their tax on gold is much lower than Mongolia’s. But export tax on gold is very high in China. Big countries all around the world have similar policies. This means that they want to keep gold in their country as much as possible to stabilize and strengthen their currency rates. Mongolia’s export tax on gold is very high compared to others which resulted in the rise of smuggling and illegal activities related to gold. If we can reduce illegal gold trades by for example, selling it to the Central Bank, exports will decrease.

-State revenue will decrease if gold exports decrease. Wouldn’t this affect the economy negatively? In general, how does reducing tax benefit the economy?

-Gold and MNT are both indicators of Mongolian currency value. Mongolian currency will be more stable if more gold is reserved at the Central Bank which could also counterbalance USD to MNT exchange rates. This is the biggest benefit for the economy. We might lose around 40 million USD in royalty but gain two billion USD in monetary reserve. The biggest policy decision for us today is, whether we should export gold with or without tax, or should we stabilize our domestic currency value.

-How will tax reduction on gold affect Oyu Tolgoi?

-It will not affect Oyu Tolgoi. Currently, Oyu Tolgoi is producing copper concentrate, not gold. There are some contents of gold in the copper concentrate but it’s hard to differentiate in its current state. In other words, concentrate which has some gold content is physically sold to Chinese copper refineries. It is possible to buy gold in a non physical form.   The law on tax reduction on gold will reduce royalty to 2.5 percent, for a duration of five years. This was designed for smaller gold mines. If Mongolia can build a refinery in five years time, and gold miners refine their gold and sell it to the Central Bank, they could be exempted from royalties.

-The state policy for the mineral resources sector is being finalized. What was defined as the sector’s main export good in the policy?

-We are currently debating whether to export some refined mining products and reserve some within the country. Strictly speaking, we can’t export too much when prices are low and import back in ten years when industries recover. Therefore, we need to refine some products, and sell it not for 100 MNT, but for 300 MNT by adding value. This means that we exercise higher taxes on some products to reserve it in the country.

-Can you give any examples?

-It’s not appropriate to export raw iron ore. Firstly, we need to process the raw product. Secondly, we need to reserve it for future domestic needs. But this needs to be decided after the law is approved. Mongolia supplies 20 million tons of coal to China every year. While small countries in Africa produce 200 million tons in a year. China has a large market and we only supply a small percentage.

Mongolia’s approved coal reserve is 23 billion tons, and estimated is around 177 billion tons. It’s more preferable to trade coal while it’s expensive since we can’t refine or consume it in Mongolia. The state income will multiply if we can export 100 million tons instead of 20 million in a year. Even if we sell all the coal in Umnugobi Province, we will still have plenty of coals left.

Mongolia has plenty of coal in reserve. Thus, it’s essential for us to compete in the world market and make others dependent on us.

-There were many ups and downs for Oyu Tolgoi in 2013. When will the financial issue of the underground mine be resolved?

-There were many problems last year. We started exportation after launching the concentrator plant. As soon as exportation begun, we produced amounts equivalent to Erdenet and expanded the economy as much.

There were many pros such as completing the first stage successfully before schedule.

But we are stuck on the financing for the underground mine. The world economic crisis also played a part in this. Oyu Tolgoi project isn’t alone responsible for the snag that the financing for underground mine  caused. A large project is progressing smoothly as planned. We have plenty of time and we will start construction as soon as the financial issues are resolved. The discussions related to this issue are progressing well.

Source:UB Post

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Oyu Tolgoi financing commitments extended

Ana Komnenic | December 16, 2013

Turquoise Hill (NYSE:TRQ) has a few more months to wrangle with the Mongolian government.

The company announced on Monday that its parent, Rio Tinto, has received extended commitments from the 15 commercial banks that have agreed to finance the expansion of the Oyu Tolgoi mine in Mongolia.

The commitments were set to expire on December 12.

Rio Tinto now has until the end of March to resolve its issues with the Mongolian government over financing the expansion. These discussions have been dragging on for about a year now.

The Mongolian government, which owns 34% of Oyu Tolgoi, has been reluctant to cough up the cash, saying the price tag is $2 billion more than expected.

The mine could cost as much as $14 billion if the underground expansion goes ahead.

A government source told Reuters last month that legislators envisioned a deal by early 2014.

"All parties are committed to resolving the shareholder issues and advancing the necessary steps to restart the underground mine; including resolution of the shareholder issues, completion of the feasibility study, project financing, permitting and approvals," Vancouver-based Turquoise Hill said in a statement on Monday. "The feasibility study remains on track for completion in the first half of 2014."

Mongolia has a strong interest in making this a reality – the mine is expected to contribute as much as a third of the country's economy.

Meanwhile, Dutch commodity trader Trafigura revealed on Monday that it had agreed to provide financing for the Oyu Tolgoi mine in exchange for long-term supplies. The company did not provide any further information on this deal.

Oyu Tolgoi is set to produce 150,000 to 175,000 tonnes of copper in concentrates and 700,000 to 750,000 ounces of gold in concentrates in 2014.

Source:http://www.mining.com

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