Published on February 18, 2014
Mongolian Mining (Coal) Supply Chain University of Electronic Science and Technology of China School of Economics and Management Khulan Altangerel Shinebayar Choidorj Battsetseg Seddavaa
Mongolia, sitting on vast resources of mineral wealth, is at last beginning to realise the potential that has been talked about for many years as more of its resources come to market.
Mongolia the sleeping giant of coking coal supply Mongolia contains the biggest copper reserves in Asia, 3% of world’s fluorspar reserves and approximately 1% of the world’s gold reserves. The country’s coal resources are considered some of the last untapped quality deposits anywhere in the world and their development could significantly impact international supply dynamics.
Competitiveness: low cost, Geographical location, and High quality coals Mongolia overtakes Australia as China’s largest cocking coal supplier
Mining Policy According to the 2010/2011 Fraser Institute Annual Survey, Mongolia ranks 54th out of 79 districts in the world regarding the government mining policy index, higher than Russia (69/79), China (62/79), and is the second highest in Asia.
Mongolia’s average real GDP growth is projected to be 13.4% annually over the coming 5 years due to mining initiatives, according to IMF’s World Economic Outlook 2012. Figure: Real GDP growth rate: Mongolia vs. BRIC countries
The performance of export of goods (million USD)
Has approximately 1,000 identified mineral deposits and 8000 occurrences that include copper, gold, iron, coal, and uranium15 deposits have been targeted by the government as strategically important
Investment in Mongolian Mining Mongolia share in 2006-2009 World’s Biggest Mining Investments
Foreign Investment into Mongolia has increased significantly over the past few years. Government encouraged foreign investment and participation in exploration, expoiltation and processing of minerals. “Going Global” Strategy of encouraging Chinese companies, in particular State Owned Enterprises (SOE) to “GO OUT ” to invest overseas. Canada is the second largest foreign investor in Mongolia.
BEHRE DOLBEAR’S SURVEY RANKING 2010 (25 countries) Mongolia - one of the top seven countries for mineral investment.
Mining companies Mining companies in Mongolia fall into two categories: 1) Foreign companies and 2) Mongolian companies. The multinationals are typically in the country in order to observe and potentially acquire smaller targets. They do some exploration but most projects so far are joint venture form. Due to their high corporate governance standards, they uphold high social and environmental standards, usually significantly higher than the local requirements. These mining companies outsource activities to mining service companies.
Types of mining service companie s operating today
Mongolian Mining Sector Development Timeline
Mining supply chain Stakeholders
Difficulties of Mining Today Remoteness Underdeveloped infrastructure Weak logistic systems Technology know-how deficiency Lack of near urban developments Skilled labor problems Environmental issues Shortage in investment
Most of largest deposits are located in remote areas with basically “0” infrastructure Relative to its regional neighbors, it takes roughly twice as long to obtain an electrical connection, power outages and water supply failures are all high.
Mongolia ranked at 107 out of 144 countries for the quality of overall infrastructure in the 2013 Global Competitiveness Report. But mining business requires an establishment of practically complete supply chain infrastructure, including physical and electronic and new urban settlement.
Underdeveloped infrastructure-> High Transportation cost-> Inefficient Supply chain Mongolian current infrastructure affects high transportation cost in mining supply chain since the earth and unpaved roads are the main factor that increases road transport cost. So controlling the increase in transportation cost is becoming the biggest challenge in the supply chain management. Due to lack of good infrastructure there is the necessity to construct paved roads for short distances and a railway line for the longer distances to transport the mineral products. Railways are the preferred mode of transport for mineral products within the country, as well as for their export. Railways are also the most environmentally friendly mode of transport for the sector.
Government Investment Projects In Mining Sector Government of Mongolia officially announced list of priority projects to implement in Mining sector up to 2015 (Decree 320 from 14 Oct 2010) with approximate estimated budget of $20.2BN including: Oyu Tolgoi, $4BN Tavan Tolgoi coaking coal project, $0.8BN Tavan Tolgoi Power station, $0.5BN Atanbulag Zamiin Uud highway, $1.2BN Local and international highway, $1.2BN New Railroad, of $0.8BN Fifth power plant, $0.3BN The government’s highest priority project is the construction of a railway line to connect the existing main line with the Gobi and eastern regions of Mongolia.
The Mineral Resources Authority of Mongolia estimates Mongolia has a huge, ~162bnt of coal resources and ~9.8bnt of recoverable reserves contained in >300 deposits spread across all five regions of the country. However, Mongolia is only in the very early stages of exploiting this natural endowment and coal production is growing rapidly along with the necessary infrastructure investment.
In 2009, Mongolia produced 13.2mnt of coal of which 7.6mnt (58%) was exported. In 2010, production almost doubled to 22.5mnt and exports increased to 16.6mnt (74% of production). Sophisticated forecasters expect Mongolia’s coal production to reach 60mnt with up to 55mnt of exports by 2015.
Coal Supply Chain Coal Mining Coal Processing Domestic market Agriculture Plants Export market Thermal Power plants Households
Road Construction USD0.07/km/t USD0.055/km/t 2,600km Millennium road – paved East-West Road – to be constructed Road transport costs of USD0.07/km/t will fall to USD0.055/km/t as roads are upgraded and paved.
Railway Construction The government intends to construct 5,683.5 km of railway over the next decade at a cost of ~USD17bn (assuming a cost of USD3mn/km), linking its coal deposits to markets in Russia and China. USD0.07/km/t USD0.03/km/t
Access to International Markets & Seapots
Railing coal to the Russian far east from Tavan Tolgoi is not yet possible but could be ~USD110/t once stage 1 of the Mongolian rail plan is completed.
Conclusion There is considerable scope for companies to benefit from the government investment in infrastructure and improved access to markets in China and Russia and other seaport markets. Road transport costs of USD0.07/km/t will fall to USD0.055/km/t as roads are upgraded and paved, and to USD0.03/km/t with the construction of railway. Once the problems facing with the infrastructure are solved, the transportation cost and other costs will be reduced significantly and it will allow the efficiency improvement in the mining supply chain.
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