Investments in Mongolian mining Industry for foreigners

Mongolia is a country rich in natural resources. Its estimated mineral wealth is about $3 trillion, with coal, copper, and gold being the main reserves. The country has historically attracted significant foreign investment in its mining sector.

Mongolia is home to several major mining operations, including the Oyu Tolgoi copper and gold mine, which is jointly owned by the Mongolian government and global mining giant Rio Tinto. The mining industry has also attracted investment from many major players around the world.

About 110 kilometers north of Ulaanbaatar are various gold mines such as the Boroo mine and the Gatsuurt mine. In addition, the Khotgor coal mine, an open-pit coal mining site, is located about 120 kilometers west of Ulaanbaatar. There are significant mining projects in southern Mongolia, particularly in Ömnögovi Province, including the Tavan Tolgoi Coal Mine and the Oyu Tolgoi Copper Mine.

Legislation

Mining is an important industry in Mongolia, and the country’s parliament and government have enacted various policies and regulations to govern the sector. These include long-term and medium-term mining policies, as well as related laws and regulations such as the Minerals Law and the Investment Law.

The Mongolian government has promised to make the licensing process transparent and simple, and to support responsible mining practices. In addition, the government is committed to protecting the rights and interests of foreign and local investors in the mining sector.

As part of Mongolia’s long-term policy “Vision 2050”, and the medium-term “New Recovery Policy”, a process is underway to support exploration, production and processing of the minerals sector.

To achieve this, the government is in the process of updating the legal environment for the mining sector, with several bills currently under consideration. Some of these bills are in the parliamentary debate stage, while others are in the drafting stage. These include the Law on Heavy Industry, the revision of the Law on Petroleum Production, the Law on Commodity Exchange, the Law on the National Treasure Fund, the revision of the Law on Minerals, and the revision of the Law on Subsoil.

In December 2022, the Parliament of Mongolia approved the draft law on the commodity exchange.

Law on Minerals

The mining sector in Mongolia is regulated by the Law on Minerals, which was first adopted in 1994 and has been amended several times since then, including in 1997 and 2006.

The 2006 revision of the law established a new category of strategically important deposits to be developed by both the Mongolian government and private entities. Today, in addition to the Minerals Law, Mongolia has a total of 10 pieces of legislation regulating the sector.

The Minerals Law sets out the rules and regulations governing all aspects of the mining industry, including the issuance of licenses, collection of taxes and fees, and protection of the environment and local communities.

Some of the key provisions of the Minerals Law include:

1. License Requirements: The law sets out the requirements for obtaining a license to explore and mine minerals in Mongolia. This includes submitting an exploration plan, paying fees, and providing guarantees for environmental restoration.

2. Environmental Protection: The law requires mining companies to conduct environmental impact assessments and take measures to mitigate any negative impacts on the environment. This includes site restoration after mining operations have ceased.

3. Revenue Sharing:The law requires mining companies to pay taxes and royalties for their mining operations. A portion of these revenues must also be shared with local communities.

4. Local Employment:The law requires mining companies to provide training and employment opportunities for local workers. The law also requires mining companies to purchase goods and services from local businesses whenever possible.

5. Transparency and Reporting:The law requires mining companies to regularly report on their operations, including production levels, revenues, and environmental performance. This information is made publicly available to promote transparency in doing business.

The Mongolian government has developed a “Vision 2050” or the General Development Plan until 2050. The main goals are:

• Development of export infrastructure
• Development of the processing industry

The Parliament of Mongolia, by its Resolution No. 18 dated January 16, 2014, approved the State Policy on Mineral Resources for 2014-2025. The main objective is to create a stable environment for investment, improve the quality of exploration, production and processing of minerals by introducing advanced technologies and innovations that have a minimal impact on the environment, produce value-added products and increase competitiveness in the international market.

The mineral policy is aimed at improving existing laws and regulations, as well as introducing international standards in a number of areas, such as:

• creating a special legal environment for the exploration and production of common minerals;
• supporting cooperation and legal organization of prospectors through public policy and improving relevant legislative regulation;
• improving the registration and supervision of the transfer/purchase of controlling shares of enterprises and companies/special licenses for exploration and production of minerals;
• ensuring the necessary legislative environment that allows specialized organizations with qualified engineering and research groups to carry out exploration projects in the mining sector.

Resource Potential

Previous geological studies and mineral exploration in Mongolia have identified a total of 2,500 deposits of 85 types in 10,000 occurrences, as well as thousands of geochemical and geophysical anomalies and mineralized objects.

Gold exploration is mainly conducted in the southern and northern parts of the Khentii and Khangai Mountains. Copper and molybdenum deposits are found in the Orkhon and Selenga River basins, fluorspar in Eastern Mongolia, and phosphorus in the Khuvsgul region. Large coal reserves are observed in the Tavan Tolgoi, Khar Tarvagatai, Achit Nuur, Bagan Nuur and Uvdug Khudag deposits. And the Nalaikh, Sharyn Gol, Aduunchuluun and Baganuur deposits play an important role in providing urban settlements with thermal coal, as they are located in key industrial areas.

Mongolia has many iron ore deposits, such as Tumur Tolgoi, Bayar Gol and Tamir Gol. Most copper ore deposits are located in the Orkhon, Selenga, Gobi, southern Kherlen, Bayankhongor and Khankhukhia regions, of which the largest is the Erdenet copper-molybdenum deposit in Orkhon-Selenga Province.

The country has many gold and zinc deposits, such as Tumurtyn Ovoo, Salkhit, Tulgatai Mountain and Modon Ovoo. The Berkh milling spar mine was discovered in 1954 and is one of the largest fluorspar deposits in Mongolia. There are also many fluorspar deposits in the eastern part of the country.

Most of the phosphorus deposits are located along the western shore of Lake Khuvsgul, starting from Mount Soyon. Minerals such as crystal, topaz, sapphire, garnet, chrysolite, amethyst, turquoise and jade can also be found, and some of these deposits are of industrial importance.

Mongolia also has a term “strategic mines,” which refers to mineral deposits that are considered critical to the country’s economy and development prospects. These mines typically contain valuable minerals, and in some cases can demonstrate wealth not only in individual deposits but across an entire region.

To provide easy and accessible access to geodata for industry and investors, Mongolia has established a National Geological Database, which is managed by the National Geological Survey agency. The database provides accurate resource information, which is critical to supporting investment in the sector. In 2022, the National Geological Survey of Mongolia published updated maps of mineral deposits and occurrences in the country, providing a comprehensive understanding of the country's resource potential.

Geological surveys at a scale of 1:200,000 have been carried out on 99% of Mongolia's territory. However, work at a scale of 1:50,000 covered only 43% of the territory. 84% of the total territory was covered by hydrogeological surveys, and only 38% of the territory was covered by geophysical surveys.

Licenses

The Ministry of Mineral Resources and Petroleum of Mongolia issues licenses for mining and exploration of mineral resources and supervises the activities of license holders. The Ministry of Environment and Tourism approves environmental management plans for mining and exploration license holders. Without this approval, the license may be terminated or suspended.

There are two types of mining licenses:

• Exploration Licenses, under which license holders may conduct exploration for minerals in a specified area.
• Mining License, under which its holder may mine and extract minerals and receive benefits therefrom.

Under the current Minerals Law, only legal entities registered in Mongolia may apply for and hold exploration and mining licenses.

Exploration Licenses are issued for a period of up to three years, renewable three times for three years. The size of the exploration area shall not be less than 25 hectares and shall not exceed 150,000 hectares.

The holder of an exploration license has the right to apply for a mining license for MRPAM. Mining licences are issued for an initial term of 30 years and can be renewed twice for additional 20-year periods. Licences for radioactive minerals are subject to a different regime.

In 2014, the Minerals Act was amended to provide for exploration licences to be issued through applications and tenders. Thus, changing the pretext that investors choose their own land for exploration, investors now apply for exploration licences only in areas designated by the government.

However, from 2017, licences will be issued only on a competitive basis.

Coal

Mongolia ranks 23rd in the world in terms of coal reserves. China is the largest consumer of this vast coal resource. Mongolia alone accounts for 30-40% of China's coking coal demand, making it one of the largest competitors in the Chinese market.

There are 12 basins across the country, each containing three types of coal, with a proven coal reserve of 32.6 billion tons. The Mongolian Coal Industry Association also reports that there are about 173 billion tons of undiscovered reserves that could be discovered through further geological exploration.

Mongolia alone supplies 30-40% of China's total coal consumption and is one of the largest players in the coking coal industry.

The total area of subsoil for which mining licenses have been issued is 1,836,487.3 hectares, of which 44.26% is allocated for coal mining.

Of the 38 coal mines currently operating in the country, more than half are coal mines:

• 7 state-owned and local enterprises in eight mines
• 28 domestic and joint ventures in 33 mines
• 7 companies with 100% foreign investment are implementing 8 coal projects

Mongolia exports coal through five border checkpoints: Gashuunsukhait, Shiveekhuren, Hangi, Bichigt, and Yarant. Most of the exports go through the Gashuunsukhait-Gantsimao port (51.4%), and 40% go through the Shiveekhuren-Sehe crossing.

Coal is exported by both road and rail, with the majority of exports still being transported across the border to China by road. Only a small portion goes through the or just under 1% — is exported through the Zamyn-Uud-Eren border crossing.

There are a number of public-private partnerships in road and rail construction projects, which will ultimately help increase coal exports.

The Mongolian government has developed a plan to improve the country's rail system. Three major rail projects have been completed in 2022, and several more are in the pipeline.

1. Tavan Tolgoi - Zuunbayan Railway Project

The Tavan Tolgoi - Zuunbayan route has been completed and trial operations have begun. Its annual cargo handling capacity is expected to be 15 million tonnes, with the potential to double.

Continuous length: 416.1 km

Location: From Tavan Tolgoi coal deposit in Tsogttsetsi soum, Umnogovi aimag to Zuunbayan in Dornogovi aimag, covering Tsogttsetsi and Manlai soums of Umnogovi aimag, Mandakh and Zuunbayan bags of Sainshand soum in Dornogovi aimag.

Annual capacity: 15 million tonnes of cargo.

2. Tavan Tolgoi - Gashuunsukhait Railway Project

The construction of the Tavan Tolgoi - Gashuunsukhait Railway has been completed. Gashuunsukhait, its annual throughput capacity is 30-50 million tons of freight traffic. It will reduce the current cost of exports from the Tavan Tolgoi deposit by 3.8 times. The railway is of great social and economic importance, as it connects Tavan Tolgoi, which produces 50% of the country's coking coal, and Gashuunsukhait, the largest coal export port.

Continuous length: 233.6 km

Location: Extends from the Tavan Tolgoi coal field in the South Gobi to the Gashuunsukhait border crossing.

3. Zuunbayan - Hangi Railway Project

The Zuunbayan - Hangi Railway has been completed and has an annual capacity of 20 million tons of freight traffic. The railway project will also increase the export value of more than 10 mines in the Gobi region.

Continuous Length: 226 km

Location: The railway starts at Zuunbayan station of the Ulaanbaatar Railway in Zuunbayan county, Sainshand soum, Dornogovi aimag, and runs to Hangi Port, connecting it with the Chinese port of Mandal.

Hangi Port is strategically located between Gashuunsukhait, the main coal and copper export port, and Zamyn-Uud, the main import port.

Upcoming railway projects:

• 13 km railway from Shiveekhuren to Seke
• 10 km railway from Bichigt — Zuunkhatavch
• 100 km railway project along the Bichigt - Khuut route
• 300 km railway project along the Shiveekhuren - Shinedjinst route

Mongolia's policy is to process its own coal, thereby adding more value to the industry before exporting it abroad. Although coal accounts for more than 30% of total exports, coal processing only accounts for about 20% of total exports. Current government policy aims to increase the number of coal processing plants.

There are currently about 30 coal processing plants operating in Mongolia, of which about 20 use the wet process and the rest process coal using dry process technologies.

Mongolia's first coal processing plant was built in 2011 by Energy Resource LLC as part of the Ukhaa Khudag project. Built in three stages, each stage of the plant has the capacity to wash and process 5 million tons of coal per year. In the decade since its commissioning, the plant has processed a total of 69.5 million tons of raw coal, produced 34.6 million tons of coking coal, and processed 13 million tons of thermal coal.

Located in Nariin Sukhait, Umnugovi Province, the MAK processing plant has an annual processing capacity of 1 million tons of coal. The plant, which currently operates at 65% of its production capacity, uses 100 liters of water and recycles 92% of the water used. The capacity can be further increased to 5 million tons.

In April 2021, the Professional Council on Mineral Resources reviewed and accepted the feasibility study for the construction of the Tavan Tolgoi coal processing plant. The plant will have three building blocks with a processing capacity of 10 million tons per year each and a total capacity of 30 million tons per year. The cost of the project is estimated at $911.5 million, and the return on investment is expected within seven years. The plant will be specifically used to process low-grade coking coal at Tavan Tolgoi, and produce coking coal concentrate, semi-soft coking coal concentrate, and middlings for export to international markets.

Mongolian state-owned Erdenes Tavan Tolgoi, MSE-listed Tavan Tolgoi JSC, and HKEx-listed Mongolian Mining Corporation (also known as Energy Resource LLC) all operate coal mines in the remaining Tavan Tolgoi deposits. The three projects account for more than half of Mongolia’s coal exports.

According to JORC standards, the Tavan Tolgoi deposit has coal reserves of 7.4 billion tonnes, of which 5.1 billion tonnes is coking coal and 2.2 billion tonnes is soft coal. for thermal coal, Erdenet Tavan Tolgoi said.

State-owned Erdenes Tavan Tolgoi began mining raw coal in 2010 and became the first domestic company to exceed $1 billion in sales revenue in 2019.

Mongolian Mining Corporation (also known as Energy Resource LLC) is the largest producer of washed hard coking coal in Mongolia. The company owns the Ukhaa Khudag deposit, part of the remaining Tavan Tolgoi deposits, and the Baruun Naran coking coal deposit, both located in the South Gobi region of Mongolia.

In addition, the remaining Nariin Sukhait deposits, located more than 400 km from the Tavan Tolgoi deposits, are home to numerous projects, including Southgobi Resources, Usukh Zoos, and Mongolyn Alt Corporation, all of which produce coal for export.

The Nariin Sukhait deposits contain approximately 380 million tonnes of high-grade, low-ash, low-sulphur metallurgical and thermal coal.

In western Mongolia, Mongolia Energy Corporation (MEC) operates the Khushuut Coking Coal Projects, which are located about 1,350 km west of Ulaanbaatar in Mongolia's Khovd Province. It is about 311 km from the Xinjiang-Takeshiken border, connected by the Khushuut Road. The Hong Kong-listed company sells coking coal and thermal coal to northern China.

Another promising large coal deposit is the Aspire Mining Limited project.

Aspire Mining Limited — is a 100% Australian Securities Exchange listed metals, coal and rail company with a 100% interest in the Ovoot coking coal project and a 90% interest in the Nuurstei coking coal project. Ovoot's flagship Aspire project, located in Khovsgol Province in Mongolia, contains 255 million tonnes of JORC coal reserves.

The company has not yet commenced operations on its coal project, having delayed its implementation.

In 2022, the Mongolian government completed new rail projects to increase coal and other mineral exports. This includes the 267 km Tavantolgoi-Gashuunsukhait railway, the 416 km Tavantolgoi-Zuunbayan railway, and the 227 km Zuunbayan-Hangi Port railway.

These railways will be broad gauge. However, the key consumer market in China has a narrow gauge rail network. Therefore, the two sides have yet to agree on plans for gauge changeover points and the development of cargo handling terminals.

Gold

The gold mining industry contributes significantly to Mongolia’s foreign exchange reserves and has a significant impact on export revenues; thus, it is considered an industry of great economic importance to Mongolia. In an effort to support gold miners, the Central Bank of Mongolia has implemented the Gold financing program three times since 1992, providing crucial support to the sector.

Mongolia has numerous placer deposits. However, the share of placer deposits in the total explored gold reserves is relatively small. In addition, exploration activities have declined sharply since the Law on the Prohibition of Exploration and Mining of Minerals in River Headwaters, Water Protection Zones and Forest Lands was passed, which prohibited gold mining near rivers and ponds. As a result, mining activities in placer deposits have steadily declined. Numerous placer gold deposits have been reported in the provinces of the central region, including Tuv, Selenge, Bayankhongor, and Darkhan-Uul.

To increase overall gold production, the Mongolian government has been strongly supporting the introduction of advanced technology in large, medium-sized deposits instead of using low-productivity small mines.

The number of reported hard rock deposits in Mongolia is highest in Selenge, Tuv, and Ömnögovi provinces. Of the major mines, Boroo and Gatsuurt have been depleted.

Other gold-bearing metal deposits include copper, lead, and zinc. Most of the country's explored gold resources are contained in these deposits. By far the largest in size is Oyu Tolgoi. The Oyu Tolgoi copper-gold deposit alone has a total of 1,028 tons of gold resources. In addition, the Oyu Tolgoi deposit has 810 tonnes of additional gold reserves that can be used under certain circumstances.

In 2020, most of the newly registered hard rock gold deposits were in Zavkhan, Umnogovi and Bayankhongor provinces, while most of the placer gold deposits were located in Tuv, Selenge, Khentii and Bayankhongor aimags. Among them, several large gold deposits were registered.

Place gold mining licenses make up the majority of active licenses, while hard rock deposits account for about 90% of the total gold reserves. In recent years, the number of hard rock gold mining projects, including Altan Tsagaan Ovoo, Bayankhundii and Tsagaan Tsakhiur, operated by foreign-invested companies has been increasing due to the influx of foreign direct investment.

There are 462 placer gold mining licenses and 92 hard rock gold licenses throughout Mongolia. In addition, gold-bearing metal licenses remain valid. In terms of quantity, placer gold accounts for the largest share of all mining licenses, at 26%.

The number of mineral exploration licenses is decreasing. This is due to the ban on the process of issuing exploration licenses by request or application. Today, exploration licenses are issued only through a tender organized by a government agency.

In terms of geological exploration in Mongolia, the southwestern region of the country belongs to the Central Asian Orogenic Belt, which includes the largest known commercial gold accumulations after South Africa. The zone includes several known large gold deposits, including Oyu Tolgoi, Kharmagtai, Bayankhundii, Altan Nar, and Uudam Khundii. However, the amount of geological exploration in the zone is quite limited.

As part of the Gold 2 program, the BUM Alt 2019 gold geological exploration is being conducted in the western and southwestern regions, covering almost a third of Mongolia's territory. Successful completion of the study will enable shorter, lower-cost exploration of deposits and reserves.

Provinces subject to geological study: Bayan-Ulgii, Uvs, Khovd, Zavkhan, Govi-Altai, Bayankhongor, Uvurkhangai, Arkhangai, Khuvsgul, Bulgan, Dundgovi and Umnugovi.

Existing large gold deposits were mostly discovered as a result of many years of geological research and exploration. For example, Steppe Gold's Altan Tsagaan Ovoo project in Dornod Province was first discovered 18 years ago. Erdene Resource Development has been exploring areas of the Bayankhundii gold deposit for 16 years. The Tsagaan Tsakhir gold deposit of Naran Mandal LLC was also discovered as a result of exploration conducted between 1950 and 1960.

Mongolia has several large gold mines in the provinces of Tuv, Selenge, and Ömnögovi. Also, depending on the location of the placer mines, gold mining is mainly concentrated in the provinces of Selenge, Tuv, Uvurkhangai, Bulgan, and Bayankhongor.

Since the beginning of 2011, the Mongolian government has paid special attention to creating a favorable legal environment, especially in the gold mining sector. In addition, the royalty rate, which was 10%, was reduced to 2.5% to encourage miners to sell their gold to the central bank. These were significant support measures that increased gold production and gold purchases by the central bank.

Plus, in 2017, the Gold 2 program was implemented, which offered preferential loans to gold miners, resulting in an increase in gold production.

As stated in the Law on Minerals, gold mined in Mongolia must be sold to either the Bank of Mongolia or its partner commercial banks. The central bank buys gold at world market prices. New gold testing laboratories were also established in Darkhan-Uul and Bayankhongor provinces, which increased the transparency of gold trading and increased turnover. Plus, the improved tax environment and the impact of the Gold financing programs to support gold miners have had a positive impact on the gold sector.

Mongolian gold is exported in two forms: fine gold and gold concentrate.

Oyu Tolgoi is a major exporter of gold concentrate, with China as its main destination. It is one of the largest copper and gold mining projects in the world.

Since 1990, the Government of Mongolia has implemented a number of policies in the gold mining sector. The “State Policy on Mineral Resources” was approved by the Parliament of Mongolia in 2014 and serves as the basis for the development of the gold mining industry and related laws and regulations.

The 2014 amendments to the Law on Minerals have had a positive impact on the gold procurement of the Bank of Mongolia. The Minerals Law was amended again in 2019, setting the royalty on gold to 5%. The tax increase did not reduce the overall turnover.

In addition, 30% of royalty revenue and 50% of exploration and mining license fee revenue now go to the local budget. This was an important step in promoting cooperation between gold miners and the local community.

The Ministry of Mining and Heavy Industry is the central government agency responsible for policy development, monitoring, and coordinating stakeholders in the mining sector.

The Mineral Resources and Petroleum Authority of Mongolia is the implementing agency under the Ministry of Mining and Heavy Industry. The agency formulates mining policies, provides enforcement support, collects information and data on gold mining activities, implements policy guidance, and offers licensing services.

Mongolbank — The Bank of Mongolia or the central bank manages the purchase, sale, storage and refining of gold in accordance with the Treasury Law. Private gold mining organizations and miners, as well as third-party intermediaries, are required to sell their gold to the central bank or its partner commercial banks as specified in the Treasury Law. The purchase price of the Bank of Mongolia shall be taken from the London Metal Exchange.

In addition, the Bank of Mongolia has the right to store gold with itself or with other foreign correspondent banks. It is also the only legal entity authorized to export gold in Mongolia.

The Bank of Mongolia makes payments in gold based on the results of gold and silver content analysis of molten gold at the Precious Metals Laboratory of the Probation Inspection Agency, and deducts 5% royalty under the seller identification number and transfers it to the General Administration of Taxes.

In order to accelerate the implementation of the Gold-2 program, the Bank of Mongolia provides long-term advance payments and financing to gold mining companies that can be repaid in gold. The financing is offered in two forms. First, short-term working capital financing for up to 6 months. Second, investment financing for up to 24 months.

The Agency for Standardization and Metrology — The Assay Office is responsible for the identification, quality control, registration and monitoring of gold samples.

Gold mined and refined in Mongolia has an average grade of 90%, but must be refined to 99.99% to be sold on the international market.

Mongolia refines its gold in other countries such as Russia, the UK and Japan. As gold production increases and several new ore and placer mining projects come on stream, the government believes that a domestic gold processing plant is needed.

It is not possible to export, pledge or trade gold that has not been refined to the global fine gold standard at a refinery guaranteed by the London Metal Exchange certification.

Copper

Mongolia has the 12th largest copper deposits in the world and is the 5th largest exporter of copper ores. Two key copper deposits, namely Oyu Tolgoi and Erdenet, are the largest in Central Asia.

Copper plays a major role in Mongolia’s economy, and its contribution to mining in the overall economy is considered the third largest in the world, ranking the country above other mining-focused economies. The Rio Tinto-backed Oyu Tolgoi project is projected to become the world’s 4th largest copper producer by 2030.

Mongolia has 18 copper deposits with active mining licenses. Of these, the largest are Erdenet, Oyu Tolgoi, and Tsagaan Suvarga.

Exploration projects are progressing rapidly, particularly in the Southern Mongolian porphyry copper and gold belt, where the Oyu Tolgoi and Tsagaan Suvarga projects are operating. For example, ASX-listed Xanadu Mines and TSX-listed Kincora Copper have been exploring the region for many years.

Mongolia has two main copper concentrate processing plants that produce copper concentrate for export: the Erdenet and Oyu Tolgoi projects. The country began exporting copper concentrates in 1970 with the establishment of the Erdenet mine, a key copper concentrate deposit.

Refined copper supplies from Mongolia are handled by Erdmin LLC and Achit Ikht LLC. The latter exports processed copper cathode to China. Erdmin LLC produces copper cathodes and copper products such as copper wire for domestic consumption.

Mongolia is interested in processing copper concentrates and producing copper cathodes. Therefore, the following two projects are included in the Vision 2050 program:

• Opening a copper smelter with an annual capacity of 124,100 tons near the Erdenet plant.
• A copper refining plant project that will use copper concentrates from Oyu Tolgoi to produce copper cathodes.

With new projects such as Tsagaan Suvarga and Kharmagtai, Mongolia is expected to become one of the world's largest copper suppliers in the coming decades.

Mongolia exports 100% of its copper concentrates to the Chinese market via road and rail. The Erdenet plant uses the Erdenet-Zamyn-Uud route, while the Oyu Tolgoi plant supplies via the Oyu Tolgoi-Gashuunsukhait route for export.

China's demand for Mongolian copper concentrate is expected to remain strong in the medium to long term.

Oyu Tolgoi is known to be one of the largest copper and gold deposits in the world. The Mongolian government owns 34% of Oyu Tolgoi (OT), with the remainder controlled by Rio Tinto, the world’s second-largest mining company, which operates the mine. The project is located approximately 550 kilometers south of Ulaanbaatar and 80 kilometers north of the Mongolia-China border. The site is cut by the Oyu Tolgoi trend, a 12-kilometer north-south oriented corridor that contains the known Hugo North, Hugo South, Oyut, and Heruga deposits. The Hugo North facility is currently being developed using the underground method.

The copper processing plant, associated facilities and necessary infrastructure were originally designed to process approximately 100,000 tonnes of ore per day from the Oyu open pit mine.

The project is expected to produce an average of 500,000 tonnes of copper per year from both open pit and underground operations between 2028 and 2036.

Prior to the Oyu Tolgoi project, the Erdenet Mining Corporation (EMC) accounted for one-third of Mongolia’s fiscal revenue. Currently, the EMC plant produces 37 million tonnes of copper ore, approximately 580,000 tonnes of concentrates, up to 5,000 tonnes of molybdenum and processes 32 million tonnes of copper ore annually.

The mining contract was extended for an additional 30 years due to the discovery of additional mineral resources worth US$21.2 million during exploration work conducted in 2017–2019.

EMC SOE supplies 3% of all copper traded in the world markets and 5% of molybdenum concentrates, and ranks 6th in Asia by copper production volume.

Aranjin Resources Limited is a new copper exploration company focused on Mongolia. The company has three highly prospective projects across Mongolia, including Sharga, Bayan Undur and Victory Discovery at Baavhai Uul Project with an 80% interest through a joint venture agreement with ION Energy.

Aranjin's management and board have extensive experience in developing and scaling mining projects, having sold Hunnu Coal to Banpu Coal for US$500 million and Steppe Gold, which is currently the largest gold producer in Mongolia.

The company currently has three highly prospective projects across Mongolia. Drilling has commenced and is ongoing at ION Energy’s Sharga, Bayan Undur and Victory Copper Nickel Discovery’s Baavkhai Uul deposits under a joint venture agreement with Aranjin Resources.

China’s preferred source of copper will be Belt and Road countries such as Mongolia. Strong copper concentrate supply chains are already in place through Oyu Tolgoi. The Aranjin, Sharga and Bayan Undur projects, as well as Victory Discovery, are close to the Chinese border.

Iron Ore

Mongolia’s central region has vast iron ore resources.

Iron ore mining began in 2005. Most of the proven iron ore reserves in Mongolia are located near the Selenge and Darkhan aimags, which are considered the industrial center of Mongolia.

Mongolian iron ore products are mostly low-grade. Tumurtei, Tsakhiurt-Ovoo, Tayannuur and Eren-Khorosho are included in the category of deposits with iron ore reserves of more than 50 million tons. Mongolian iron ore is transported mainly by rail, since local trucking rates are higher than rail. However, most of the iron ore deposits are small and located far from the main railway. Therefore, building railways for all these deposits is not financially viable.

The main iron ore reserves in Northern Mongolia are connected to the main railway, and iron concentrates are sent to Chinese steel mills directly by rail. However, Ulaanbaatar Railways has a monopoly in Mongolia and charges relatively high rates for transporting iron. To reduce these costs, there have been several cases of mining companies building self-financing railways.

An example is the largest iron ore mining company, Bold Tumur Eruu Gol, which built an 85-kilometer section of railway line between its mine in the Eruu district of Selenge Province and the Ulaanbaatar railways. In total, the distance between the mine and the border with China is 1,100 km. Currently, most iron ore mines export to Baotou, one of China's main steel-producing regions, via the Sainshand - Zamiinuud - Erlian - route. Baotou.

The Mongolian government has completed the development of the 227 km long railway project along the Zuunbayan-Khangi route in 2022.

Chinese demand is the main driver of the doubling of global steel production over the past decade, and the main driver of iron ore demand. Although Mongolia's iron ore reserves are not as significant compared to major exporters, its geographic proximity to its largest consumer, China, is a significant advantage.

Currently, Mongolia's steel production is lower than its consumption. The largest steel producer is the Darkhan Steel Plant, which uses local steel scrap to produce steel. Its capacity is 100,000 tons per year, but its capacity utilization is only 50-60%.

Oil

Mongolia's oil industry has existed for about 80 years. American geologists first surveyed the Gobi region and suggested the presence of oil reserves in the 1930s. Since then, Mongolian and Russian geologists have conducted numerous large-scale surveys and discovered several reserves.

Mongolia is 100% dependent on imports for its fuel supply. About two million tons of petroleum products are imported annually. More than 90% is imported by the Russian state-owned company Rosneft, and the rest is from China and South Korea.

The Petroleum Law of Mongolia regulates matters related to prospecting, exploration, and development of oil and unconventional oil deposits in Mongolia.

The Petroleum Law of Mongolia was adopted in 1991. The law was revised in 2014, providing a clear and transparent legal environment and creating more favorable conditions for investors. The law regulates the activities of Mongolian and foreign legal entities or individuals in the exploration, production, transportation, storage and marketing of petroleum in Mongolia.

MRPAM is the government body that oversees the implementation of the law and relevant regulations.

The term “petroleum exploration” refers to geological, geochemical, geophysical, drilling and production testing operations to be carried out for the purpose of discovering petroleum deposits and establishing petroleum reserves. “Exploitation” refers to development and production operations to exploit petroleum and unconventional petroleum deposits.

Petroleum exploration and production in Mongolia are carried out solely in accordance with production sharing contracts (PSCs) signed for each petroleum block between the investor and the Government of Mongolia.