Oyu Tolgoi
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[edit] Brief overview
Oyu Tolgoi, also known as Turquoise Hill, gold and copper project is located in the south Gobi region of Mongolia. The property ranges in elevation from 1,140 m to 1,215 m above sea level and has a relatively flat undulating topography with less than 50 m of relief. It is located on a desert steppe with desert vegetation and consists of gravel covered plains, with low hills along its northern and eastern borders.[1]
[edit] Location
In the south Gobi region of Mongolia, approximately 550 km due south of Ulaanbaatar and 80 km north of the Chinese-Mongolian border.[2]
[edit] Ownership
Ivanhoe Mines owns the world's largest copper-gold porphyry development project[3]
[edit] Production per annum
Oyu Tolgoi Mine will be capable of average annual production in excess of one billion pounds of copper and 330,000 ounces of gold for at least 35 years. Peak annual production in excess of 1.6 billion pounds of copper and 900,000 ounces of gold is projected to be reached six years after initial production begins (Year 6). [4]
[edit] Production Start Date
Oyu Tolgoi could commence commercial production in the first half of 2010. [5] l
[edit] Deposit size
Property is reported as follows: The estimate includes indicated resources of 117,000,000 tonnes grading 1.8% copper and 0.61 g/t gold and inferred resources of 95,500,000 tonnes grading 1.15% copper and 0.31 g/t gold at a 0.6% cut-off grade on the Hugo North Extension[6]
[edit] Operating cost per pound
Cash costs at the mine gate (excluding realization costs) are estimated at $0.26/lb. [7] The engineering assessment of initial capital required to fund the open-pit mine $1.15 billion
[edit] External Analysis
[edit] Political Segment
the Mongolian Parliament has earned a reputation for occasionally using foreign mining investment and Oyu Tolgoi as political targets. Earlier this year Mongolia's Industry and Trade Minister Bazarsad Jargaksuakhan declared that if foreign mining companies are unhappy with government participation in mining projects, they could leave the country. [8]
[edit] Challenges in the Mining Sector
Mongolia’s mining sector has the potential to contribute significantly to economic growth and to provide revenues to help address the poverty alleviation and development challenges noted above. Indeed, Mongolia is on the verge of a major minerals investment boom with final approvals and negotiations presently taking place for investments in excess of US$5 billion. However, this raises the challenges of sound overall macroeconomic management in the face of volatile commodity prices and risks of “Dutch disease”. The existing industry has greatly benefited from the world commodities price boom which is now in its third year, and is likely to be sustained for some time to come. Meanwhile, tax revenues have not increased as anticipated due to a variety of reasons including, significant under-pricing of coal exports for tax avoidance purposes. In fact, some companies are reporting coal sales export prices that are a small fraction of prevailing world market prices while other mining companies are simply holding back from selling their gold production to the Central Bank (which is required by Mongolian law) and borrowing against them as collateral. With the lack of clarity in intergovernmental fiscal arrangements, there is a mis-match of revenue and spending authority at the sub-national levels of Government. As a result, sub-national governments (aimags and soums) lack adequate funds to deal with the increasing pressure for basic service delivery and essential infrastructure as mining developments take place. In addition, there are gaps in environmental protection regulations and no provision for mandatory social impact assessments. The state is planning to take an equity participation in new “strategic” mining projects but lacks a guiding policy.
[edit] Governance Context
According to Transparency International and the World Bank’s Governance Indicators, perceptions of corruption in Mongolia have worsened substantially since 2001, and perceptions of corruption as an obstacle to growth are more widespread in Mongolia than in a number of comparator countries. The 2006 World Bank Investment Climate Survey results suggest that corruption in Mongolia may be a symptom of rising inequalities, stemming from perceptions of lack of transparency and accountability in the public sector. The survey results indicate that unofficial payments required for obtaining exploration and mining licenses were high, and estimated at around 40 percent of the official fees. Twenty-six percent of firms reported being required to pay bribes to obtain access to electricity, water, and/or communications infrastructure. Mongolia’s ranking in the latest World Bank Governance Indicators (2008) has also fallen relative to other countries as compared to 2007 rankings. Mongolia is one of the twenty-six Country Governance and Anti-Corruption (CGAC) pilot countries in the World Bank.
[edit] Potential Macroeconomic Impacts
The pending development of Oyu Tolgoi and Tavan Tolgoi, both world class deposits located in the South Gobi, present the State with particular challenges. These developments will likely increase Mongolia’s mineral exports to over 90 percent of total exports, and tax receipts from the mining industry will likely exceed 50 percent of total tax receipts. In addition, these large new mining exports will also create large balance of payments surpluses which are likely to impact on the value of the Mongolian Tugrug which will need to be carefully managed. Recent engagement with the Government on the potential mining investment boom in Mongolia has primarily been on issues of policy and investment climate, and it is clear that the Government needs urgent assistance to manage the macro economic and physical development impacts of mining and to ensure that economic growth remains stable and the sector is effectively managed and monitored.
Macroeconomic Management, Policy Development and Economic Risk Mitigation:
- Lack of a clear policy framework for managing mining revenues, associated risks from commodity price volatility, and their macroeconomic impacts;
- Lack of instruments to smooth revenue flows to the budget through upswings and downturns of commodity price cycles;
- Lack of effective and transparent process for mineral related revenue sharing between central government, aimags (districts), and soums (local level government);
- Lack of a set of consistent mining sector policies, fiscal framework, and deficiencies in mineral tax legislation;
- Missed opportunities for revenue collection from existing mining operations;
- Risk of companies engaging in speculative rather than productive activities;
- Fragmented and overlapping institutional framework for mining sector management;
- Lack of a State mineral investment policy and model investment agreements.
- Incomplete development of the Government holding company to manage state equity holdings;
- Lack of independent sector policy analysis and civil society consultation and engagement.
Regulation, Control, and Environmental and Social Risk Mitigation:
- Incomplete mining sector regulatory and policy frameworks to ensure that the large scale mining industry can be licensed, administered, and regulated in a fully effective manner;
- Absence of an ASM regulatory framework so that ASM activities can become formalized and the widespread use of unsafe and environmentally damaging ASM mining practices can be reduced through both regulatory requirements and outreach activities;
- Lack of standard procedures and guidelines that would ensure developers in the sector utilize best practices to address the occupational health and safety, environmental and social dimensions of mining;
- Lack of modern company reporting requirements
- Lack of institutional capacities in the area of mining licensing, environmental protection, safety, and technical audit and compliance enforcement;
- Lack of transparency and accountability in the management of mining and exploration licenses;
- Outdated classification of mineral reserve and resource data;
- Underdeveloped digital geological information systems for investors to use, which currently cover a very limited range of information types.
[edit] Strategic Environmental and Social Assessment
The Bank has conducted an overall review of the status of environmental and social issues, and policies in the mining sector to identify institutional and regulatory gaps that should be addressed to strengthen existing compliance monitoring with regulations, and to investigate whether additional resources and standardized procedures might be needed to mitigate any identified risks. Based on the findings of the completed review, in the context of the Project particular attention will be given to (i) institutional strengthening actions to deal with environmental and social impacts associated with the growth and development of the mining sector (including artisanal and small scale mining); (ii) measures to overcome existing and projected policy, institutional and budgetary constraints that result in limited enforcement and implementation capacity; and (iii) ways to improve public participation and monitoring processes. In addition, the Project will benefit from the findings of a Strategic Environmental and Social Assessment (SESA) for the Southern Gobi Region; this exercise will be conducted to help frame a vision for a sustainable natural resources management in the context of the planned mining developments in the region. During Project implementation further consultation will take place with NGOs, landowners, and industry representatives regarding mining sector environmental and social issues.
[edit] List of Factual Technical Documents
Millennium Development Goals-Based Comprehensive National Development Strategy of Mongolia Mongolia Minerals Law 2006 & 1997 Mongolia: The Fiscal Regime for the Mining Sector and the Development Fund (IMF) Fraser Institute Annual Survey of Mining Companies 2005/2006 (Fraser Institute) Mongolia Mining Sector: Managing the Future (World Bank) Mongolia: Sources of Growth - Country Economic Memorandum (World Bank)[9]
Outlook: Robust growth expected to continue through 2008
Growth in Emerging East Asia is expected to reach 8.4 percent in 2007, slightly up from 2006. This is about a percentage point higher than our projection last April, an 6 Exports include Hong Kong, Korea, Malaysia, Philippines, Singapore, Taiwan (China) and Thailand. Production includes the the course of the decade in most of the larger East Asian economies, thanks to fiscal consolidation efforts and sustained economic growth since 2001. Except for the Philippines, central government debt levels are now generally less than 50 percent of GDP, leaving room for greater public spending, should circumstances require. [10]
[edit] Notes
Open-pit mine.[12]
Road access to the property follows a well-defined track directly south from Ulaanbaatar requiring 12 hours of travel time. An airstrip capable of accommodating small aircrafts is located on site. The Trans-Mongolian Railway that links Mongolia to Russia and China lies 360 km east of the property. The Trans-China Rail line following the Yellow River is approximately 160 km south of the border. [13]
[edit] External References
- ↑ http://www.ivanhoe-mines.com/s/OyuTolgoi.asp
- ↑ http://www.ivanhoe-mines.com/s/OyuTolgoi.asp
- ↑ http://www.ivanhoe-mines.com/s/FactSheet.asp
- ↑ http://www.ivanhoe-mines.com/s/OyuTolgoi.asp
- ↑ http://www.mineweb.com/mineweb/view/mineweb/en/page36?oid=22737&sn=Detai
- ↑ http://www.ivanhoe-mines.com/i/pdf/Oyu_Tolgoi_Mineral_Reserves_March_2007.pdf
- ↑ http://www.ivanhoe-mines.com/s/OyuTolgoi.asp
- ↑ http://www.mineweb.com/mineweb/view/mineweb/en/page36?oid=22737&sn=Detai
- ↑ http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2008/05/04/000076092_20080505163739/Original/Project0Inform1Appraisal0Stage1ab12.doc
- ↑ http://www.eapirf.org/MenuItems/Resources/Papers/General/Full-Report-EAP-Update-Nov2007.pdf
- ↑ http://www.eapirf.org/MenuItems/Resources/Papers/General/Full-Report-EAP-Update-Nov2007.pdf
- ↑ http://www.ivanhoe-mines.com/s/OyuTolgoi.asp
- ↑ http://www.ivanhoe-mines.com/s/OyuTolgoi.asp
