MP Kh.Narankhuu: There would be a “pretty big revolution”, if I gave Asgat to Polymetal.
MP Kh. Narankhuu shares his opinion and thoughts on recent days of crisis and economy turbulence. At this time of copper commodity price is decreasing and affecting much on our budget and economy, MP Kh.Narankhuu’s opinion is still important, who was the General Director of Erdenet JVC and Minister for Trade and Industry. This discussion was mainly focused on economy.
Q: It is still uncertain about the current development; even the working group on drafting new Mineral Law of Mongolia was established. Being as a part of this group, can you update to us with recent developments?
Kh.Narankhuu: We held meeting only once and agreed on drafting it as soon as possible. We are working on the old draft that was gone through first level of discussion of the State Great Khural. If we renew it, we will lose so much time. But about 70% of total MPs are newly elected ones, so they must reserve the right to comment. Therefore, starting from today, there will be discussion on main content of the old draft.
Q: What will be the achievements of the “new” draft that is merged from the old one?
Kh.Narankhuu: Just within three months after the election, the world economy has changed so much and not only one or two countries, but whole world is shaken by the financial crisis. It led economy and industry crisis and raw material and commodity demand has decreased. It is important that what type of law we need in this situation. If we look at the history of making mineral law, especially in 1996 and 2006, we adjusted our laws and regulations according to the foreign market.
Starting from 1997, market was under recession. But in year 2006, it was out of recession, but it was not peak time. But when we adopted the law in 2006, our approach was same as we were in recession and created so much lagging. It was so free and liberal. Commodity demand increased in the foreign market and it reached its peak. Therefore, investors were active in mining industry and even inexperienced investors who have some money are interested in mining business. It was the disadvantage of this law or the law was good but not for this time. Like this conclusion, we must prepare this draft law after close research and study.
Q: Can you promise that there will be favorable environment for the foreign investors?
Kh.Narankhuu: Regardless the price of commodity, mining industry must be developed in Mongolia. When it develops, the most importantly environmentally responsible companies with experience, technology and human resource must operate in Mongolia with less dependent to the price changes. Such companies are relatively few. Small companies usually halt their operation in such situation; therefore we need medium to large companies.
Q: Asian countries are interested in Mongolian mining industry. So is it risky to partner with them? Do we need to cooperate with Canadians and Australians?
Kh.Narankhuu: If dig into the history, Asian countries don’t have vast experience in mining industry. They developed mostly on agriculture. Of course they had mineral, but professional companies of USA, UK, Australia and Canada developed their projects. Recent years, there are some professional mining companies emerging from Asian countries. Chinese companies can be included in it. But they are experiencing and their focus is different. Therefore, it is important to find professionally developing companies for certain minerals.
Q: Copper price is dropping sharply. What is your opinion towards this current situation?
Kh.Narankhuu: In 2000, when I was appointed as the General Director of Erdenet JVC, it was 1600-1700 US$. In 2001, its price was dropped further and it even hit the lowest price like 1290 US$ in some days. It is high now, if compare with those days. We didn’t even dream about it. The biggest dream was to reach 2000 US$. Current price is good, we can work on it.
Of course, some can’t pay the windfall tax. Such change is expected. Also when price is high there are big differences in price. In that days, increase of 50 US$ was so rare and the jump and drop was so gradual. But now copper price changes by 500SUS$ in same day. It is the peculiarity of the market. It can affect our budget. Erdenet copper price is set at the date of shipment, therefore income is not stable. But tax was planned at one price of a year, therefore it is difficult for the taxpaying company.
Q: When budget modification was adopted, copper price was predicted to be 6800 US$. What will it be?
Kh.Narankhuu: In the first three months, the profit was much higher than planned. Copper price was over 7000 US$. It will be balanced in the remaining months; even price cannot reach the predicted amount.
Q: People are interested in whether these two big parties can reach its election promise. It is much related to the copper price, so I think they fear is justified. How would it be calculated?
Kh.Narankhuu: The most importantly, Oyu Tolgoi and Tavan Tolgoi must be in economic realization. Therefore, the price of copper and coking coal price was important. It was the main sample point. But there are other commodities, such as gold and others. Therefore, if we look at the prognosis of copper price, it is not that worrisome.
Q: What was it, in average?
Kh.Narankhuu: In average of many banks prediction, it is around 6000 US$.
Q: Some MPs such as MP Batj.Batbayar that are related to the strategic deposits are included in the working group. He said that he sold his share, but it was not proven by evidence. So, this working group comprises people who are in conflict of interest? Would you agree with it?
Kh.Narankhuu: Almost everyone is included in this group, who made request. Not all of us included in one working group. It is same to other working groups also. 16 MPs divided their work evenly and started their work on it. Like me and MP Kh.Badamsuren, there are professionals in this industry, but there are others such as MP E.Bat-Uul, included in the group. Therefore, the working group has representation from all the levels and background of society.
Q: I agree with your words as to adopt the law when necessary. So when the new draft law will be adopted?
Kh.Narankhuu: According to the first initiative of the Government, the secondary reading will be made in addition to the previously made discussion and to adopt the law.
Q: Will the Government involvement portion be changed?
Kh.Narankhuu: It was said that it will be not less than 51%, but it is for the strategic deposits. It might remain the same. Mongolia proposes principal proposal of holding 51%, but it is discussed to be flexible in implementing it, like those who took loan would pay the loan or investors gain its ROI etc. Otherwise, investors will lose so much money in first 3-5 years without any income.
Q: Are investors really interested in the Mongolian mining industry when copper price is decreasing or we Mongolians blowing our own horn and hardening our conditions and chasing investors?
Kh.Narankhuu: Yes. If the price is changing so much, then investors’ interest is the same. We never care of investors and we think that investors will remain the same. Therefore, tactically, it can be adjusted for special arrangements when needed.
Q: You were leading a huge entity that contributes budget enormously. You can feel the expenditure of the budget. Do you criticize the current expenses?
Kh.Narankhuu: It is good when big income is pouring into Mongolia. But it is important how to spend it. Recently, due to the political reasons, we are focusing on the daily issues instead of long term investment. It is necessary for poor people, but the Government focuses only on daily issues, the development of the country will be in risk next years. Therefore, we should discuss and find the golden medium of budget spending harmony.
Q: What is position towards windfall tax? In what expenses we shall use it?
Kh.Narankhuu: It is the issue of taxing extra on basic tax, especially if talk in details, this law breaks our principle. This money must be used in huge or major investment. Today we must make investment to create future taxpayers by developing industry. We shall increase our variety of mining products. It can bring stable income. Many commodities can compensate each other if one price is decreased. Each aimag must have evenly distributed mining projects. Erdent, Darkhan, Sukhbaatar and Umnugobi aimags are supporting itself. Politically, each aimag must have a mining project that can develop on. If each aimag has a factory, then it can develop itself like Erdenet and Darkhan. Also it will create workplaces.
Q: We talked much about copper. How is the production of it now and How many tons of copper it produce?
Kh.Narankhuu: Mining industry is stable if it is not artisan mining. It operates 24/7 basis. Only one day it stops for maintenance purpose. Therefore, such factories must be multiplied. Otherwise it is no good to wash gold in three months of summer and jobless in rest 9 months. Oyu Tolgoi, Tavan Tolgoi and Boroo Gold are the same. They are modern and primary mines.
Mining industry is not “ninja”s job. I would not call to excavate and export as mining. It is very primitive and simple operation and has very little effect on economy. Even it is coal or gold or whatever mineral, we shall add value and produce value added products. Copper is being produced only by Erdenet. In metal value, it exports 125-130 thousand tons of copper ore a year. Molybdenum is also extracted and enriched and exported.
Q: Asgat has copper also. It is quite recently.
Kh.Narankhuu: Asgat is not operating. If we gave it to the right investor when it was in high demand, then it operates now. Investors will wait us forever. Russian “Polymetal” is specialized company in this sector. It is well about 5 years work to develop Asgat size mine and to prepare it ready for mining. But we shall realize it and start its operation.
Q: Geographically, “Polymetal” had advantage?
Kh.Narankhuu: Yes. It is important for the west aimags of Mongolia to have workplace, road building and power station. It can bring a “pretty big revolution” in that region.
Q: How about Tsagaan Suvarga?
Kh.Narankhuu: It has about 10 times smaller deposit than Erdenet, but this copper project is being ready for the mining. The preparation work is done to start its operation in next 3-5 years.
Q: Some economists and politicians say that countries will not become rich or wealthy, relying only on mineral. What is your opinion and do you agree with it for the Mongolian case?
Kh.Narankhuu: I don’t want to say no country. There are few countries, Australia and Canada, developing and becoming wealthy relied on their mineral resource. But they were undergoing lots of hardship and making mistakes in order to reach this level. As for us, we should avoid their mistakes and develop in right way. Want or not, we must develop infrastructure. We have few people and huge land and it means these few people have huge responsibility and pressure. Therefore, we need that huge or big investment. I am confident that to gain income from mining industry to convert Mongolia into Australia and Canada.
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One Response to “MP Kh.Narankhuu: There would be a “pretty big revolution”, if I gave Asgat to Polymetal.”
By copper on Oct 22, 2008 | Reply
The mongolian government needs to do the right thing for its own people. The right thing is to pass a fair mining agreement that will benefit both investors and the mongolian people. They also need to do it right away before investors starts pulling out. The world economy is collapsing. Commodity prices are plunging! Time is running out. If the government does not act right away, they may not have anyone to negotiate with. Mining companies are cutting capital expenditures due to the current environment. Just look at Ivanhoe’s stock price. It’s down to less than $2 from $17. IVN’s market cap is almost the same as its cash balance. Investors are assigning zero value to Oyu Tolgoi. The reason for this is they have been waiting five years for this mining agreement. Despite the Mongolian government’s statements that they want to get an agreement done as soon as possible, investors does not believe it until it actually has an agreement.