Mining in Mongolia: ASX stocks with boots on the ground in the mineral-rich country on China’s doorstep
Mongolia is not only the homeland of Genghis Khan and nomadic tribes who hunt with eagles. The country is fast becoming a mining powerhouse, as global players seek resources in the stable jurisdiction with access to Europe and China.
You might as well call it Mine-golia. Ha!
(Ed: She’s here all week…)
More seriously, the country’s mineral wealth includes copper, coal, gold, silver, iron ore, and zinc, to name a few.
Mining accounts for 20% of the country’s GDP, which has grown at an average rate of 7.2% per year since the advent of large-scale mining in 2004.
And mining accounts for about 80-90% of exports, which are mainly destined for China. This means that companies operating there have a strategic advantage when targeting this market.
China is the target market for most exports
Although it sells around 90% of its gold exports to Switzerland, China remains the main market for Mongolian minerals.
From February 4 to 10, the country exported a total of 806,700 tons of coal, 124,500 tons of copper concentrate, as well as 165,200 tons of iron ore and concentrate since the beginning of the year.
Bituminous coal and copper concentrates accounted for 36.6% and 48.1% of total exports to China, respectively, and in January alone, trade with China reached $520.4 million, or about 47 .5% of Mongolia’s total trade revenue for the month.
Coal remains a major export for now
Despite China’s ambitious goal to reduce its consumption, it still imports a lot of coal from Mongolia today.
Before the pandemic, Mongolia exported more than 30 million tons of coal a year, but last year it exported 16,138,000 tons.
It looks like it is coming to an end, but even with the decline in mineral export volume, export income in 2021 was equal to those of previous years due to high raw material prices.
For example, the country exported 36.2 million tons of coal and earned $2,803 million in 2018, exported 36.6 million tons of coal and earned $3,079 million in 2019, and exported $28.6 million. tons and earned $2,127 million in 2020.
But in 2021, it exported 16,138,000 tons of coal and still earned $2,779 million.
But copper is the main competitor
The same goes for copper prices and demand: Mongolia exported 1,447,000 tonnes of copper concentrate and ore in 2017 and earned US$1,613 million from it. Last year, the country sold 1,283,000 tons and earned $2,900 million.
Additionally, China is the world leader in lithium battery manufacturing and continues to overtake the world in demand for electric vehicles.
It also dominates mega-factories, with 89 of the world’s 123 mega-factories in the works.
And then there’s the general ESG shift in investing that some experts believe will drive the shift from coal to copper.
The government is building new rail infrastructure
The Mongolian Ministry of Mines is working to attract explorers to the country by digitizing the issuance of mining exploration licenses to allow companies to apply electronically and receive responses within a month.
It therefore makes sense that the government is gearing up to facilitate exports, with plans to build a railway separate from the massive Tavan Tolgoi Coil Mine to speed up coal deliveries through the South Gobi Corridor.
The 416 km long Zuunbayan-Tavan Tolgoi railway is scheduled to be commissioned in March 2022, and the 281 km Zuunbayan to Khangi Mandal railway is expected to be completed in 2023 – and will remove a bottleneck important which now exists in the railway from Sainshand to Zamyn-UudErlian.
Additionally, Chinese railway authorities intend to expand the Erlian border checkpoint after the 2022 Lunar New Year celebrations, increasing Mongolian export capacity through Zamyn-Uud.
And the Tavan Tolgoi – Gashuua Sukhait railway will be completed in July 2022, with the construction of the much shorter Gashuua Sukhait railway in Grants Mod, which will deliver Mongolian coal directly to China from May 2022.
Who are the ASX-listed players in Mongolia?
Rio Tinto (ASX:RIO)
Last month, the Mongolian government and the mining giant settled a long-running dispute over the proposed $6.93 billion expansion of the Oyu Tolgoi copper and gold mining project.
The Oyu Tolgoi mine is expected to be among the top five copper mines in the world by 2030.
Operations will soon start on the underground part, with initial production scheduled for the first half of 2023.
It is expected to produce around 500,000 tonnes of copper per year on average from 2028 to 2036 from the open pit and underground mine, and an average of around 350,000 tonnes for another five years, up from 163,000 tonnes in 2021.
And it could represent up to 30% of Mongolia’s GDP, with the government owning 34% of the project.
Rio controls the rest through its 51% stake in Toronto-listed Turquoise Hill Resources (NYSE:TRQ) and operates the mine.
As part of the deal, Turquoise Hill will forgive $2.4 billion in debt owed to it by the Mongolian government.
Interestingly, the original deal called for the construction of a new coal-fired power plant to supply electricity to the mine, but that was in 2009 before the ESG boom we see today. Rio says the plan is now to provide wind power for the project.
Kincora Copper (ASX:KCC)
Earlier this month, the $15 million market cap company presented an update to its Mongolian portfolio which highlighted several positive aspects of recent exploration in the country’s world-class porphyry region – just outside China.
CEO Sam Spring said 2021 activities had identified a new intrusive system, Shuteen North, with initial work generating three new porphyry targets and an epithermal gold-based metal target with “significant scaling potential. “.
Kincora’s portfolio covers a total of three large-scale and under-explored porphyry systems, and is located in the South Gobi copper-gold belt.
At the most advanced project – the Bronze Fox Mining License – an independently defined copper metal equivalent exploration target of 1.3 to 1.5 Mt has been set with plans to convert it into a resource JORC.
spring says Stockhead that Oyu Tolgoi was a good demonstration of the largely untested geological potential of the belt, but also of the various significant advantages that the South Gobi offers from an exploration and development perspective.
“For example, it took Oyu Tolgoi only five years to go from discovery to initial open pit production, which is quite remarkable, especially compared to many other copper jurisdictions,” he said. -he explains.
“This helps demonstrate many of the favorable attributes of the sparsely populated South Gobi Desert, which is one of the fastest growing mining and infrastructure regions in the world, noting that more than 27 million tons of coal were exported to China in 2020.”
He also said that despite relatively limited modern systematic exploration in the southern Gobi, the discovery of Oyu Tolgoi, together with the partial development of Tsagaan Suvarga and the exploration success at Kharmagtai, help illustrate geological prospectivity. of the belt.
“It is estimated to already contain over 85 million ounces of gold and over 50 million tonnes of copper,” he said.
Going forward, the company plans to grow its Mongolian portfolio, with a larger IPO of $7.5-10 million (up from $5 million) and a subsequent listing on the ASX from Resilience Mining Mongolia (ASX:RM1).
Xanadu Mines (ASX:XAM)
In December last year, the $34 million market capitalization explorer announced that it had developed its “Kharmagtai” porphyry resource to a massive 3 million tons of copper and 8Moz of gold.
This covers only about 30% of the 8km-long mineralized complex and positions Kharmagtai as one of the largest undeveloped copper assets held by a listed junior in the world, according to XAM.
There are a few other things that set the project apart.
“High-grade zones (>0.8% CuEq) have dropped from around 58 Mt in the previous estimate to just 100 Mt with this update,” said CEO Dr. Andrew Stewart.
“This could be a game-changer for the economics of the project, with better defined and larger high-grade zones distinguishing the project from similarly sized deposits, the higher-grade component potentially unlocking project scenarios that could open up the way to put Kharmagtai into production. »
“A significant increase in gold to copper ratios has resulted in an over 80% increase in contained gold, which means higher by-product credits which will result in lower all-in sustaining costs.”
Stewart also welcomed the resolution between the government and Rio and Turquoise Hill.
“This demonstrates Mongolia’s commitment to being a stable and business-friendly mining jurisdiction, and it significantly reduces uncertainty for future mining projects,” he said.
Aspire Mining (ASX:AKM)
The Coal Explorer is seeking to develop the Ovoot Coking Coal Deposit which contains a total coal reserve meeting the JORC 2012 standard of 255 Mt of high quality Coking (Bold) Coal.
And Aspire welcomed the recent resolution of the Oyu Tolgoi agreement and the approval of the underground development.
The company said the circumstances of Aspire and its OCCP are very different from those of Rio and Turquoise.
“Nevertheless, Aspire sees this as a turning point in revitalizing Mongolia’s attractiveness as a top destination for foreign investment, combined with its excellent geological prospectivity and strategic location in Asia,” the company said.
The plan is to truck the coal to a company-owned terminal in Erdenet and then deliver it to customers in China and Russia via the existing Mongolian rail network.
The $42 million market capitalization company is also quite pleased with recent developments in Mongolia’s rail network plans, which it says will “dramatically improve Mongolia’s ability to export to China.”
“Chinese border authorities have recently encouraged Mongolian iron ore and coal exporters to use containers across the Zamyn -UudErlian border which we believe will also be extended to the KhangiMandal border once the rail connection is completed. over,” Aspire said.
The company also plans to export coking coal to accessible markets via the Russian rail system to the north.