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Oyu Tolgoi: one step in a long journey

Published by
World Coal,

Russel Taylor

Much has been written about the Mongolian government and Rio Tinto’s recent agreement over the Oyu Tolgoi copper deposit. But while the Oyu Tolgoi agreement is positive and welcoming news for the country and its 3 million people, I feel that its significance has been greatly exaggerated. In itself, it is not a silver bullet for the Mongolian economy, foreign direct investment or the mining industry. But it is a much needed first step: one step in a long journey.

Mongolia’s economic rollercoaster ride

To grasp just how significant the fall of Mongolia’s economy has been you only need to look back over the last 5 yr. In 2010, it burst onto the world economic stage as mining started to have a much needed positive impact. Then in 2011, Mongolia stunned the world of economics by having the world’s fastest growing economy and the world’s most improving currency. The mining boom was in full swing and everyone wanted to invest and be part of it. Foreign direct investment soared, unemployment was low and Mongolia looked to be the mining and investment capital of the world. But it was short lived. As fast as Mongolia burst onto the global economic stage, it faded away. A wave of anti-foreigner hysteria backed by political interference in the investment law, has seen Mongolia’s dream run come crashing down.

Coal is a significant opportunity for Mongolia

Mongolia has some of the largest mineral deposits in the world of coal, copper, gold, molybdenum, fluorspar, uranium, tin and tungsten deposits, among others. If Mongolia is to reach its full mineral resource potential, it cannot rely on Oyu Tolgoi alone. It should be noted that Oyu Tolgoi will not be in full production for at least another 6 yr. Therefore Mongolia must also fully develop all of its resources – and most importantly its vast coal deposits. Oyu Tolgoi has overshadowed another major development in Mongolia’s mining industry: the completion of the Tavan Tolgoi coal tender. The Tavan Tolgoi coal deposit is located south, in the Gobi Desert. It is 540 km from the capital city of Ulaanbaatar and 240 km from the Chinese border. It contains in excess of 7 billion t of high-quality metallurgical and thermal coal reserves. It has been described as one of the largest untapped coal reserves in the world.

In December 2014, a Tri-Consortium of China’s Shenhua Energy, Japan’s Sumitomo and Mongolia’s Energy Resources won the tender to develop the Tavan Tolgoi deposit in Mongolia. Several months on and this US$4 billion project is stalled in negotiations. The main sticking points are the outstanding loan to the Aluminium Corp. of China and the Build-Own-Operate-Transfer railway agreement. This could be a mirror image of the protracted Oyu Tolgoi agreement and stall the economy further. Tavan Tolgoi is a major mining project for Mongolia and it could provide approximately 30 – 50% of Mongolia’s GDP. However it is much more important, as it is the litmus test for all of the other mining projects that are yet to commence. Failure to successfully develop Tavan Tolgoi in the short term will further erode the confidence that international investors have in Mongolia and may result in a continued restriction of foreign direct investment. Mongolia does not have the wealth to develop its mining industry; it needs foreign direct investment. It also needs the expertise and experience of foreign individuals and companies, to ensure that the industry develops efficiently and sustainably. International mining can and will assist strengthening Mongolia’s economy, provide much needed jobs and the development of local businesses.


The announcement of the agreement with Rio Tinto with regards to the Oyu Tolgoi copper project is very positive news for Mongolia. However, it does not signal an immediate return to a very strong Mongolian economy or an immediate go ahead for the development of Mongolia’s mining industry. It is one step in a long journey and the Mongolian Government has much work ahead to rebuild Mongolia’s economy and international reputation.

The mass exit of foreign investors and their funds will not be solved overnight. It may take years for foreign investors to regain confidence in Mongolia and return. To ensure a return of foreign direct investment and a prosperous and sustainable economy, the Mongolian government has three main tasks:

  1. Formalise the Oyu Tolgoi agreement so that it has no more debate and delays.
  2. Formalise the Tavan Toligoi agreement and ensure that it commences in the near future.
  3. Secure the return of foreign direct investment and Mongolia’s reputation as a fair and stable business environment.

If these three objectives can be completed, Mongolia will have a great platform to build a robust economy and a bright future for its growing population.

Edited by . This article first appeared in the August issue of World Coal. 

About the Author: Russel Taylor has over 20 yr of experience in the coal mining industry as a mining engineer, project director and mining executive. Most recently, he was Executive Vice President and Project Director at Reliance Coal Resources in India.

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