Mongolia: Emerging Mineral Giant

- June 23rd, 2010

The search for new mineral wealth is pushing to the far reaches of the globe. Mongolia, the neighbor to two of the world’s largest economies, Russia and China, is on track to have the largest copper mine outside of Chile. International mining companies are taking up increased interest in Mongolia, which suffers from poverty and a lack of modern infrastructure.

By Michael Montgomery—Exclusive to Moly Investing News

mongolia1As the search for new mineral deposits sends companies to the far reaches of the globe, emerging economies play a vital role. The lack of exploration and development in these economies has kept vast mineral wealth largely untapped. This is evident in the new reports of Afghanistan’s mineral wealth, which should come as no surprise.

It’s also the case in Mongolia where Ivanhoe Mines, in partnership with Rio Tinto, is in the process of developing the largest copper mine outside of Chile. Mongolia is  a great source of uranium as well, and coking coal, which is attracting the attention of large mining companies. There are obvious drawbacks to investment in countries with undeveloped infrastructure and unstable governments. However, as companies search for untapped mining areas these problems will become will become a standard in the future.

Canada’s Ivanhoe Mines Ltd. [NYSE:IVN][TSE:IVN] is currently developing its Oyu Tolgoi Project in Mongolia. Rio Tinto also holds a 22.4 per cent stake in the project with the option to increase to 44 per cent. The Mongolian government owns a 34 per cent stake in the project.

The size of the deposit is undoubtedly massive, however, there is a discrepancy to the actual size between Rio Tinto and Ivanhoe executives. In a report last month, Ivanhoe claiemd the average per year production would be 670,000 ounces of gold and 540,000 tonnes of copper annually from 2013, totaling US $5.3 billion. Rio executives dispute the increase in production and total the resource at US $4.6billion.

“In a presentation in the capital, Ulaanbaatar, Rio copper chief executive Kay Priestly said the company expected the mine to produce an average of 450,000 tonnes of copper a year and just 330,000 ounces of gold…. She did not give a start date,” reported Matt Chambers for The Australian.

There are some political risks associated with mining in Mongolia, mainly Mongolia’s powerful neighbors, Russia to the north and China to the south. China relinquished its claim to Mongolia in the 1950s, but there are still doubts amongst the Mongolian people that China won’t seek to reclaim the territory. In 2002, in a dispute concerning the Dali Lama, “Beijing opposed the visit of the man they regard as a separatist and shut down the country’s only rail link for two days, stranding 500 passengers,” according to David Stanway for Reuters.

Russia has also been accused of exerting pressure over the projects of foreign companies in Mongolia. “Canadian miner Khan Resources has accused Moscow of working behind the scenes to force it out of a deposit in the northeast,” stated Stanway.

Mongolia does plan to privatize some of its state-owned assets. “Dulam Sugar, chairman of the Government of Mongolia’s State Property Committee, said even though the procedure of equity listings hasn’t been confirmed, the Mongolian government has decided to sell shares in both local and international stock markets,” reported Hanny Wan, for Bloomberg. The country is considering listing in either London, home to some of the world’s largest mining firms, or in Hong Kong ,the center of emerging Asian economies.

This new development goes against some of the nationalistic and populist rhetoric. In April, Mongolia’s President ceased the issuance and transfer of mineral exploitation licenses until a new and stricter law on mining investments could be passed.

Ivanhoe’s Molybdenum Holdings

Ivanhoe Australia [ASX:IVA] ,a subsidiary of Ivanhoe Mines, operates the Merlin molybdenum and rhenium project, which is considered one of the world’s highest grade moly and rhenium deposits. The company has another large moly and rhenium project located close to the Merlin project, called ‘Little Wizard.’

Recently the company acquired the Osborne copper-gold project from Barrick Australia Ltd for $17.5million, in addition to royalties on minerals produced. The acquisition included developed mines, a concentrator valued at $300 million, and related infrastructure. “The acquisition meant the company saved about $100 million on the upfront capital cost for its large Merlin molybdenum and rhenium project… The really big thing is it fast tracks Merlin to production,” stated Ivanhoe Chief Peter Reeve. The two projects should provide the company with a substantial revenue stream for the life of the mines.

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