U.Ganzorig, the President of Financial Market Association: Made risk management calculation on Erdenet copper production.
U.Ganzorig, the President of Financial Market Association, has his word in the time of copper price prediction dilemma that can severely affect in the Mongolian budget.
Q: Copper prediction price in the budget of year 2009 was approved at 3400 US4 after long lasting discussion. If this price goes down this target, the budget will suffer deficit. What is your opinion in this regard?
A: Price rate surges. It is under the permanent changes. I remember that in year 2002, the copper price was 1570 US$ PER M/T. At that time Erdenet’s production cost was 1500 US$ per m/t. As for last year’s statistics, 45% of total export of Mongolia and 22% of GDP was formed by the copper concentrate. Therefore, it is obvious that what damage can current copper price fall bring in Mongolia.
Q: Your association was talking about the risk management o copper price fall when the price was around 7000 US$ per m/t. How is it possible for Mongolia to prevent such a risk?
A: There are several risk management tools in the international financial practice. If one of them was taken during the period when the price was high, then Mongolia could have less loss in this situation. It can be fully solved for such a country which its economy is fully dependant to the copper price and has copper production capacity is not influential to the world demand. It is well known to everyone. Everybody can see about it from the websites of BHP Billiton and Rio Tinto. Most major companies made an agreement on its production in advance when the price was 7000-8000 US$. Now they are happy that some of their risk in the future is solved through advanced agreement of their product sales.