Serbia, Future with non-metals
How and in what way can the economy and economy of Serbia get out of the crisis the fastest and in the long term? This question was asked several times in the recent and distant past, but also in the previous days, during the formation of the new government.
For this reason, in Niš, the largest urban and industrial center, but also in the entire south and southeast of the country, the story of the inexhaustible and, by all accounts, the greatest mineral wealth of our country was initiated again. In the Regional Chamber of Commerce, Slobodan Milosavljević, secretary of the Committee for Chemistry, Pharmacy, Rubber Industry, Mines and Non-Metal Industry, told Politika:
– Our chamber is preparing a big meeting for the beginning of June, with the working title “Non-metals – materials of the future of Serbia”, at which we plan to present the huge wealth that this part of our country has, which has already been proven by numerous studies. A lot is known about this wealth, but, unfortunately, so far, not even a fraction has been used, although it can bring prosperity not only to this part of our country, but also to the whole of Serbia.
Decades ago, Milosavljević points out, scientific workers from our country and abroad pointed to the wealth that Serbia has in non-metals. Even so, it didn’t start from a standstill:
– At the end of the 1960s, researches irrefutably confirmed the existence of one large string of pure and finest calcite on Suva mountain. The reasons why the exploitation never started are not known, but it is known that it is not only about that one wire, but also that the whole Suva mountain is in calcite, which is also used in the pharmaceutical, rubber and, especially, in the paper industry. This was recently said by the well-known expert for non-metals, prof. Dr. Siniša Milošević, head of the Institute for Non-Metal Technology IDNMS. The country of Serbia would have an annual income of more than half a billion euros only in the first level of processing, in packaging and transport to industrial plants. If, with the provision of the right and necessary infrastructure, a second level of processing for the exploitation of calcite would be organized, the benefit would be measured in billions of euros on an annual basis.
The situation is similar with the wealth of Stara Planina and other parts of southeast Serbia, says Slobodan Milosavljević:
– There are inexhaustible reserves and priceless values of granite on Stara planina. Although three decades ago there was an attempt to exploit granite on the route between Knjaževac and Pirot, which is why a sample of extremely high-quality stone from this mountain was sent for expertise to Italy, from where the results of the top quality of the granite arrived, nothing was done after that. Just as Serbia’s great wealth in phosphorus, not far from Bosilegrad, is not being used either. For years, as far as is known, the well-known “Viktoria Group” has been looking for a strategic partner, but nothing is being done. In the simplest process of micronization of phosphorus, phosphorus fertilizer can be obtained in this part of our country, and with further organized processing – phosphoric acid.
At the upcoming meeting in Niš, as planned, the Regional Chamber of Commerce will also present the wealth of Serbia in its south and southeast, such as basalt in Kopaonik, zeolite in the vicinity of Vranje or bentonite in the Svrlji mountains. It is a great natural resource, the like of which is not found anywhere in the vicinity, but which is not used at all or is used only sporadically and little.
A major Chinese construction and engineering company agrees to help develop Russia’s largest titanium deposit located in the Arctic
Expansion of an Arctic deepwater port and a new railroad to the port are also part of the development plans.
Chinese investment and interest in Russia’s Arctic natural resources continues unabated. In addition to receiving regular shipments of LNG and crude oil, one of China’s major engineering and construction companies is partnering with Russian Titanium Resources to develop a massive mineral deposit in the Russian Arctic.
Russian Titanium Resources (Rustitan) and China Communications and Construction Company signed an agreement for the development of the Pizhemskoye mining project in the Komi Republic.
The cooperation extends beyond the mining of titanium and includes a host of related infrastructure development including expansion of the Arctic deep water port of Indiga and construction of the Sosnogorsk-Indiga railway connection. The region’s mining cluster extends beyond titanium into other minerals, including zircon, iron ore, and gold.
A key aspect of the project is the transport component allowing for the export of materials through Urals and Siberia and funneling cargo onto the Northern Sea Route (NSR).
Rustitan was founded in 2007 focusing primarily on the mining of titanium and quartz raw materials. The company discovered the Pizhemskoye deposit, located in the Ust-Tsilemsky district of the Komi Republic, in 2021. The field is home to Russia’s and the world’s largest titanium ore reserves. Pizhemskoye contains more than 80 percent of the country’s titanium ore reserves.
China Communications and Construction Company has been involved in a number of the country’s Belt and Road Initiative projects, though it has repeatedly faced scrutiny for its financial practices and has been subject to U.S. sanctions for more than a decade.
More cargo for the NSR
The Pizhemskoye project is a key component of the Kremlin’s official 2020 Arctic investment plan, also called “Strategy of Development of the Arctic Zone of the Russian Federation for the period to 2035.”
An expanded deep-water ice-free seaport of Indiga would become an additional point of cargo volume for the Northern Sea Route. Similarly the Sosnogorsk-India railway is a strategic transport lane to increase the flow of mineral resources toward the NSR.
According to the Northern Sea Route administration it expects Indiga to handle up to 30m tons of cargo before the end of the decade with up to 80m tons in the 2030s.
In addition to the meeting between Rustitan and China Communications and Construction Company, a second meeting took place with the China Railway Construction Corporation, the second largest state-owned construction company in China.
“We have reached an agreement with our Chinese partners on the establishment of a joint company, and today such an Agreement is at the development stage. Combining the accumulated competencies of our organizations, both in construction and in financing infrastructure projects, will have a significant synergistic effect for the domestic market,” a company representative explained.
In additional news related to the project, Rustitan announced last week that it had been granted a patent related to the beneficiation, or processing, of titanium ores from the Pizhemskoye deposit specific to the metallurgy present at the deposit.
World’s largest titanium exporter
China is the world’s largest producer and exporter of titanium and as a result is also one of the leading importers of titanium ore required to produce the alloy.
Lightweight titanium alloys are used extensively in the aerospace and defense industry during the production of jet engines, missiles and spacecraft.
Prior to western sanctions Russia’s largest producer VSMPO-Avisma supplied around 30 percent of titanium needs for the global aerospace industry, with US’ Boeing receiving 40 percent of its titanium from Russia and its European rival Airbus procuring up to 60 percent from Russia, High North News writes.
More investments are needed to unlock Mongolia’s ‘huge potential
Resource-rich Mongolia is positioning itself as an alternative to China in supplying minerals used in the renewable energy sector but needs help from foreign investors to develop the necessary mining infrastructure, its deputy prime minster says.
“We will be one of the main players [in critical minerals], I’m sure, but it will take time,” Amarsaikhan Sainbuyan told Nikkei Asia while in London to celebrate 60 years of U.K.-Mongolian diplomatic relations. “The Mongolian government is open for all kinds of investments and partnerships.”
Minerals such as copper, nickel, lithium and cobalt are crucial for manufacturing battery-powered electric vehicles, as are rare-earth metals that largely come from China.
The National Geological Office of Mongolia had registered reserves of 61.4 million tons of copper and 3.1 million tons of rare-earth minerals as of July 2022. Last year, Southern Mongolia’s Oyu Tolgoi mine — one of the world’s largest known copper reserves — received approval to begin underground operations.
Sainbuyan said unlocking Mongolia’s “huge potential” to supply minerals crucial for the green transition would require help from foreign investors in developing environmentally friendly and energy-efficient mining technology.
“A country like Germany, or European or Western producers, they are interested in securing the raw materials, especially in critical mineral and rare-elements metals,” as they seek to reduce their dependence on China, he said. “We have to capitalize” on this interest.
Several high-level German visits have been planned to discuss cooperation on such matters, he said. Germany, a leading vehicle maker, has been eyeing Mongolia’s potential for over a decade, co-founding the German-Mongolian Institute for Resources and Technology.
When German Chancellor Olaf Scholz welcomed Mongolian Prime Minister Oyun-Erdene Luvsannamsrai to Berlin last October, he said Mongolia would be “an important partner” for “many raw materials” in Germany’s diversification strategy but emphasized that concrete projects need to be identified.
Mining accounted for roughly a quarter of Mongolian GDP in 2021 and 29.6% of budget revenues, according to the Extractive Industries Transparency Initiative. The pandemic slowed activity, but now is the time to “pick up,” Sainbuyan said.
Corruption allegations over coal exports to China by a state-owned enterprise led to demonstrations in December. Investigations are ongoing and several people have been arrested.
Sainbuyan said the government is committed to fighting corruption. “This is the main concern of the government, to reduce poverty and stop corruption,” he said.
Wedged between Russia to the north and China to the south, landlocked Mongolia faces limitations on export routes for coal — a factor that could also affect its ability to ship strategic minerals. Despite strong interest for coking coal from the likes of India, South Korea, Japan and Europe, China will remain its main coal market because of “limited access,” Sainbuyan said.
The government has been building and upgrading infrastructure to better connect the country, mainly through industrial railway links to China and Russia.
“Unfortunately, because of the geographical location, we have limited access and exit — either we have to go to Russia or to China and export,” Sainbuyan said, Nikkei reports.
Mining equipment and mining industry spare parts fabrication in Serbia
* Biggest supplier of mining equipment spare parts which remained in European market, competitive and capable to deliver specialised equipment with on time delivery.
* Maintenance and production of spare parts and complete material handling system and mining exploration equipment.
Expensive electricity in EU is shifting energy intensive industries to south east sourcing in order to maintain competitiveness. In the same time wise first movers are relocating to Serbia with their production facilities and aiming markets with covered free trade agreements.
NearSource instead of Outsource, secure available production capacities of Serbian Steel Association companies, reexports to third markets under free trade agreements.
Serbian steel/metal/aluminum production companies with available capacities and proven track record references on EU markets already are replacing distant outsource companies from Asia, even more many EU companies are relocating their fabrication to Serbia.
Our business association gathers the niche companies, mechanical and electrical design companies together with fabrication/manufacturing companies, with available capacities and proven track record in sourcing and exports for third markets.
Steel/aluminum and metal fabrication companies experienced with most complexed mining/energy projects and related elements fabrication.
Explore the potentials at serbiansteel.eu
European mining eyes uncertain future
Russia’s invasion of Ukraine has forced Europe to look at weaning itself off Russian dominance in its mining industry.
Russia’s invasion of Ukraine has provided Europe with the opportunity to conduct a much needed re-appraisal of its raw materials supply chain and its vulnerabilities, the EU has been forced to take a similar look at the parlous state of its own metals mining industry.
There is widespread agreement that if Europe is to have any chance of achieving its clean energy goals, renewable energy is an obvious prerequisite. However, this requires metals such as lithium, a metal in which Europe remains far from self sufficient. Recognising this urgency, President of the European Commission Ursula von der Leyen in her September 14 state of the union address announced a new European Critical Raw Materials Act.
“Never before has this parliament debated the state of our union with war raging on European soil,” she began. “Lithium and rare earths will soon be more important than oil and gas. Our demand for rare earths alone will increase fivefold by 2030. We must avoid becoming dependent again, as we did with oil and gas,” she continued.
The act will update the 30 raw materials that the EU has already classified as critical, and could provide a framework for a new balance of power in European mining, if the continent can overcome challenges to expanding its internal mineral production.
Setting targets for European metals
Commenting on the address, Thierry Breton, the European commissioner for the internal market, said that the EU Critical Raw Materials Act will help by: focusing on strategic applications including setting the criteria for identifying raw materials relevant for transition and defence needs; creating a true European network of raw materials agencies to anticipate risks; and building and strengthening a more resilient supply chain.
“For example, a target could be set that at least 30% of the EU’s demand for refined lithium should originate from the EU by 2030, or to recover at least 20% of the rare earth elements present in relevant waste streams by 2030,” Breton said.
Demand for all battery materials is skyrocketing with demand for graphite and rare earths predicted to jump 14 and five times respectively by 2030. This is expected to create enormous supply problems. Indeed, so dire is Europe’s raw materials plight that Bernd Schäfer, CEO and managing director of EIT Raw Materials told Euractiv, “With the recent energy crisis, it’s become difficult to prioritise. This is because ALL critical raw materials are becoming super critical now.”
But observers caution that serious hurdles stand in the way of the EU achieving an adequate level of raw materials self sufficiency. At a think tank held last year organised by Ghent University, Prof Dr Jonathan Holslag, a lecturer on international politics at the Free University Brussels warned that there is a huge gulf between China’s economic nationalism and determination to control the global raw materials supply chain and the EU’s lukewarm attitude to supporting its own raw materials industry.
“China does not consider its basic industries as backward,” said Holslag. He noted that despite 16 years of EU policies on mining and the mineral supply chain in place, production volumes in Europe, “have decreased and mining in the EU is currently almost absent.” In September a joint Franco-German paper, supported by Denmark, Ireland, Poland, Greece, Portugal, Finland, Belgium and Romania, called for greater financing for raw material production within the bloc.
The role of recycling
One aspect of the Commission’s critical raw materials plan that might hold more promise, according to Julie Klinger, a geologist, is recycling. Interviewed in Politico Klinger said that while the EU may need to open new mines, this should only be a “distant third choice behind reprocessing waste and behind recycling.” Earlier this year, the European Parliament voted to impose mandatory recycled content targets for the lithium, cobalt, nickel and lead in lithium-ion batteries.
A number of recycling ventures are now underway. The EU-funded Susmagpro project that is running to November 2023 is looking to kick start the recycling of rare-earth magnets. These magnets are applied in electronics, wind turbines, electric car motors and others.
“The aim of the project is to develop a recycling supply chain for rare earth magnets in the EU and to demonstrate these new materials on a pilot scale within a range of application sectors,” said the European Commission. “The EU imports far more neodymium-iron-boron magnets than it manufactures.”
Considering that the EU imports less than 1,000 tonnes of such magnets a year, and up to three times that volume are currently available for recycling, the reuse of these batteries presents a significant opportunity.
Acceptance versus apathy
But while EU governments largely accept the need for greater raw materials self sufficiency, within the European population at large there is substantial apathy, if not downright hostility, towards the metals resource industry. Serbia, the Czech Republic, Spain and Portugal host world class lithium deposits, but there is considerable opposition to their development.
In Spain, local residents are battling to defeat Infinity Lithium’s proposed lithium mine in the Valdeflores Valley. Campaigning under the banner of the citizen group ‘Save the Mountain’ they have resisted the company’s plans and taken Infinity to court. This is despite an amended proposal for an underground, rather than open pit mine.
Also in the region, Lithium Iberia has proposed another large lithium mine, known as Las Navas. But it too, has faced steep opposition from locals on the grounds that it is an area traditionally dedicated to common pastures for ranchers and cork harvesting.
Similar opposition is on display to the EU’s most notable deposit of heavy rare earth metals zirconium, hafnium and niobium in Sweden. Three years ago, Canadian company Leading Edge Materials presented a plan to the Swedish Mining Inspectorate for an open cast pit development of the Norra Kärr rare earth element deposit located in Jönköping County. Mark Saxon, interim company CEO stated, “Norra Kärr is a strategic project that has a unique ability to dramatically reduce European reliance on China for critical raw materials.”
However, the company’s plan was vigorously opposed by environmental campaigners at the time. They now appear to have had some success when a subsequent ruling by the Supreme Administrative Court of Sweden ruled that a Natura 2000 permit was required, prior to the evaluation of the mining lease. Natura 2000 is a network of nature protection areas in the territory of the EU. The project is now in limbo and the company is carrying out maintenance activities to protect its tenure over the project. With the mining lease application valid until August 2026, the dispute could continue for a number of years.
The opposition by local activists to mining projects is creating something of a dilemma for the EU’s goal of increasing its raw materials self sufficiency. A similar dilemma is being faced by the energy industry. The lesson that is having to be hard learned by that industry is there is quite often a ‘disconnect’ between the need for more renewable energy and opposition at the local level to the building of any new wind and solar farms.
How the metals mining sector squares this sort of circle is uncertain. But if European industry is to wean itself off Russian and Chinese metals then a solution needs to be found, and quickly, Mining Technology writes.
Finland’s government plans to introduce a new tax on minerals extracted by the mining industry
Finland’s government plans to introduce a new tax on minerals extracted by the mining industry, the Nordic country’s finance ministry said on Tuesday.
Some of the European Union’s greatest known reserves of minerals used for batteries and other products are located in Finland where there are around 40 operational mines producing nickel, zinc, lithium, cobalt and gold among others.
Finland has thus far not collected taxes on minerals but the government now proposes introducing a royalty of 0.6% on the taxable value of metallic minerals and of 0.2 euros per extracted tonne for other minerals, the ministry said.
With the new tax, the government calculates it could collect annually some 25 million euros ($24.1 million), with 60% of it to be directed to the municipalities where mines are located and 40% to the central government.
“The aim of the tax is to take into account the nature of mining minerals… as non-renewable natural resources and to direct a reasonable compensation for their use to the society,” the ministry said in a statement.
The new tax, pending approval in Finland’s parliament, is planned to take effect from the beginning of 2024, Euronews writes.
Adriatic confirmed it has signed a term sheet with Orion Resource Partners for a US$ 142.5 million debt
Aspiring miner Adriatic Metals has sealed a US$245 million finance package to fund the construction of its flagship Vares silver project in Bosnia and Herzegovina. The deal signals a major step in the advancement of the project which is still subject to delivery of a definitive feasibility study.
Adriatic confirmed it has signed a term sheet with Orion Resource Partners for a US$142.5 million debt financing package comprising a US$120 million senior secured debt and a US$22.5 million copper stream, which Orion proposes with Eastern Mining. The finance is subject to due diligence and documentation which is expected to be completed in the final quarter of 2021.
In addition, the London-based multi-listed Adriatic plans an equity raising of up to about US$102 million which will consist of US$52 million through an accelerated bookbuild process and a US$50 million conditional equity subscription by Orion.
What happened to a decadelong mining boom
Located just steps from downtown London landmarks like Harrods department store and Hyde Park, The Knightsbridge Apartments, a luxury residential building in the eponymous upscale central London neighborhood, advertises itself as “private homes enjoying levels of service and facilities to rival any five-star hotel.”
Boasting white limestone floors, hardwood timber features, a pool, spa and a feng shui garden, two-bedroom flats sell for between $4 million and $8 million, according to London estate agents. Residents, meanwhile, like their privacy. Many of the residences are owned by corporations aimed at camouflaging the ultimate owner.
Keeping such secrets is getting harder, however, and earlier in October the Pandora Papers, a massive data leak on offshore finance published by the International Consortium of Investigative Journalists, revealed the existence of two flats purchased in 2006 by a company operating on behalf of Batbold Sukhbaatar, a former prime minister of Mongolia.
They appear to be the same flats in The Knightsbridge Apartments that were the subject of an injunction in November 2020 by a U.K. high court pending legal proceedings in Mongolia against Batbold. One flat was sold in an apparent arms-length transaction in 2017, while in 2018 the remaining flat was transferred to a corporation controlled by individuals. In granting the freezing injunction, the U.K. high court judge said he was “satisfied” that the evidence established that these individuals were “proxies for Mr. Batbold.”
A lawyer for Batbold, however, said the former prime minister bought the flats legally when he was a private businessman, before holding high office, and has since sold them. “Now he doesn’t own the property in question or, indeed, any assets in the U.K.,” he said. The legal proceedings in Mongolia, referenced by the U.K. high court ruling, were opened in October 2020 by the Metropolitan Prosecutor’s Office accusing Batbold of using proxies to siphon hundreds of millions of dollars from local mining companies.
Batbold’s lawyer said that there is no truth to the accusations and the cases against him are inspired by political enemies in Mongolia. Furthermore, he said, Mongolia’s prosecutor does not have the authority to bring the case on behalf of the government agencies and entities named in the suit. “Mr. Batbold was an object of coordinated media and legal attacks orchestrated by his political opponent through shady figures,” he said.
While Mongolian politicians agree that the accusations against Batbold may be politically motivated, they also agree that the case raises questions about what has become of billions of dollars in mineral wealth generated over the past decade and a half by a mining boom, as Australian, Canadian and Chinese companies have moved in to develop lucrative deposits of coal, silver, gold and copper.
The Pandora Papers made headlines throughout Mongolia, with the revelations going viral on social media. The country’s two major political parties, the ruling Mongolian People’s Party and the opposing Democratic Party, however, have thus far remained silent on the issue.
According to a report by the World Bank, Mongolia has produced $28 billion worth of mineral outputs since 2004. Of this, taxes and royalties amounted to nearly $9 billion in the past 15 years, while the government has borrowed $8.7 billion, mostly by leveraging its mineral revenue. Of that amount, as of 2019, $200 million remained saved as deposits in the Stabilization Fund and the Future Heritage Fund.
“Mongolia has not only consumed almost all its mineral outputs, but has also borrowed heavily against them, bequeathing negative wealth to the next generation,” the report says. “Mongolia risks resembling a ‘resource curse’ economy in a few years.”
The term “resource curse” was first used by economist Richard Auty to describe how an abundance of natural resources can lead to underdevelopment. It is an all-too- familiar story: A country strikes it rich, but the new avalanche of wealth poisons the political process, corrupts its institutions, distorts the economy and even creates pressures for secession.
For every Botswana, which after the discovery of diamonds has one of Africa’s highest per capita incomes, or Qatar, where the discovery of gas in 1995 has helped to boost gross domestic product to $175 billion from $8 billion, there is a Nigeria or a Sierra Leone, where mineral reserves have been directly linked to dysfunction and even conflict.
Mongolia’s mining boom was the lucky — or unlucky — result of events far beyond its borders. In 2010, Australia’s coal mines suffered their worst floods in decades, halting coal exports to China. Chinese iron ore smelters began to increase coal imports from their northern neighbor. In 2011, Mongolia’s GDP surged 17% in 12 months, primarily due to a coal deposit at Tavan Tolgoi, located 240 km from the Chinese border, and a nearby copper deposit at Oyu Tolgoi.
Today, mining accounts for nearly one-quarter of GDP, and mineral exports represent 26% of fiscal revenue, up from 10% in the early 2000s. Surveys have revealed deposits of coal, copper, gold, rare-earth minerals and uranium worth an estimated $2.75 trillion. For a country with a population of 3.3 million, that is enough to make everyone a near millionaire.
But due to unequal access to opportunities, the boom-bust cycle, and corruption, most Mongolians have been unable to benefit. The country’s poverty rate of 28% and wealth gap remain unchanged from early 2012.
Paul Collier, who studies resource economics at Oxford University’s Blavatnik School of Government, says that governance is the key to avoiding the “resource curse.” Countries that already have strong governance in place when they strike it rich tend to use any windfall wisely, such as what happened with Norway after the discovery of offshore oil. But an influx of resource wealth can be particularly toxic for countries without strong established governance, like Nigeria.
“The real tragedy, however, is countries where the government looks to be strong but can’t handle the stress of all the money,” Collier said. “This is a real tragedy because it can bring an otherwise healthy country down.”
Mongolians are acutely aware that their resource patrimony is in the process of being squandered. What to do about it remains elusive, and the anger has been manipulated into an effective political instrument by some of the most egregious offenders.
The country’s new president, Khurelsukh Ukhnaa, was elected in June after he ran on the slogan, “Mongolia is the owner of its resources,” and showered pensioners with cash from the state budget that he insisted was not an attempt to buy votes.
Beginning last year, when he was prime minister, Khurelsukh paid off 695 billion tugrik ($244 million) worth of pensioners’ debts by selling bonds backed by state-owned silver deposits. Then, a month before the election, the cabinet, under the control of Khurelsukh’s party, transferred 216 billion tugrik to debt-free pensioners. Again the money came from bonds backed by state silver deposits.
Patronage politics have become routine in Mongolia, where elections have turned into cash giveaways and the country has very little to show for the fire hose of wealth that has been largely consumed by political handouts and corruption.
Pensioners, as aptly demonstrated by the 2021 election, are the key to political power. Of Mongolia’s retirees, 75% vote, compared to 50% of 18- to 25-year-olds. In June, Khurelsukh won 68% of the vote.
“The political parties don’t need smart voters who are equipped with critical thinking,” said Gerelt-Od Erdenebileg, a political scientist at Mongolian National University of Education. “They need poor voters that are easily manipulated [with cash] when they need to be.”
Andrei Mikhnev, country manager at the World Bank, cites the bank’s estimate that for every dollar of mineral wealth that has been generated during the past 20 years, Mongolia has consumed 99 cents and saved a mere 1 cent.
Buying elections wholesale began in 2008, when the MPP made a campaign promise to pay $700 to each citizen from mining revenues. The following day, its opponents, the Democratic Party, pledged $1,000. The amount would have totaled 60% of the country’s entire GDP at the time.
The MPP won and as a result in 2011 the government borrowed $350 million from the Aluminum Corp. of China, better known as Chalco, with the aim of fulfilling its election promise, and repaying the loan with coal. But when the world price of coal subsequently fell by nearly 50%, Erdenes Tavan Tolgoi, a state-owned enterprise that owns the coal deposit, struggled to repay the loan, taking six years to make good on it.
“Mongolia didn’t spend mining revenue that was already gained,” said Dorjdari Namkhaijantsan, country coordinator of the advocacy group Natural Resource Governance Institute. “The country borrowed money based on the belief that it would gain that revenue from mining in the future.”
The spending got so outrageous that in 2012, parliament amended the election law, prohibiting political parties from directly paying voters and promising cash. But there was a loophole: The law only prohibited promising cash, it did not prohibit promises to repay loans or offer dividends from mining companies. In 2017, presidential election winner Battulga Khaltmaa, whose term expired in June 2021, vowed to pay off all citizens’ debts with revenues from the Tavan Tolgoi coal mine.
This was followed three years later by Khurelsukh’s bid to pay pensioners’ debts when he was prime minister. In addition to winning the presidency this year, the pledge aided Khurelsukh and his Mongolian People’s Party to a landslide parliamentary victory in 2020, winning 62 of the body’s 76 seats.
A month before that election, Erdenes Tavan Tolgoi paid 70,000 to 100,000 tugrik to each citizen, calling it a “dividend.” The payments have left the company unable to make basic investments, and it has had to borrow to complete an unfinished railway line, power plant and coal washing plant.
Off the grid
While Mongolia’s GDP has increased at a rapid clip — averaging a 6.5% increase per year between 2010 and 2020, according to World Bank statistics — most residents do not feel like they are experiencing an economic boom. Instead, they are struggling to keep up with an endless cycle of price increases.
“In Ulaanbaatar, you can’t live unless you have a side income from your full-time job,” said Sansartuya Bazarsad, a mother of two and a botanist at a National Park. She and her husband have a monthly salary of 1.3 million tugrik. Thanks to their herder parents, they do not have to worry about meat or wood to burn.
Such rapid economic growth initially led to a sharp decline in poverty from 38.7% in 2010 to 27.4% in 2012, though the rate remains at 28.4%, according to the latest survey by the World Bank, in 2018.
In the past 10 years, lifestyles in the capital have greatly changed. Coffee shops, Pilates studios, shopping malls, high-end international hotels and specialty shops targeting the environmentally conscious and vegans have sprung up.
The Bazarsads moved to Ulaanbaatar nine years ago and bought their house and land for roughly $16,000 in the ger district, where residents live in traditional yurts surrounded by wooden fences, and where homes are not connected to the city’s central heating and sewer systems. Residents get water from wells and burn wood and coal to heat their homes. Some 1.5 million people in Mongolia, roughly half the population, still live in these tents.
Her family spends $385 of their monthly earnings repaying loans, leaving $70 for necessities at the end of the month. Saruultuya, their daughter, was born with a cardiac condition, so they receive 190,000 tugrik a month for her treatment. Sansartuya also sells Russian beauty products on the side.
With a total monthly income of 1.6 million tugrik, the family is in the top 25% in terms of household income.
Mongolians characterize their middle class as having a mortgage and a 10-year-old secondhand Prius from Japan but no savings. If a family member is diagnosed with cancer or a similarly serious disease, they say they must sell everything to pay for medical care. According to national statistics from 2018, only 23.7% of the population had a savings account.
“I write down every expense in a notebook to make our finances wise,” Sansartuya said. She and her husband bought a 10-year-old Prius a few years back but needed to use the car as collateral for a loan to pay for their daughter’s cardiac surgery.
The only thing Sansartuya wishes is that banks could give her lower interest rates. “Almost 40% of my loan payments only cover interest,” she said. “It would be such a big support for us if the credit interest rate were to drop.”
Jargal Lodoi, 51, is a herder who has moved from the steppes to the outskirts of Ulaanbaatar. The resource boom has raised the costs of traditional herding, which used to be the occupation of the majority of Mongolians. He is also a climate-change migrant, saying the pastureland his goats used to flourish on has dried up. He used to have almost 1,000 goats but last fall sold 550 as meat. He now keeps only 300.
Cashmere is Mongolia’s third-largest export, after copper and gold. Its 30 million goats in 2020 produced 215 tons of dehaired cashmere, and the country provides 40% of the world’s luxury cashmere. The industry employs over 100,000 people, far more than the mining industry.
Jargal moved near the city because there is no more grass for animals to feed on in his native Bayan-Undur, 200 km from Ulaanbaatar. Jargal and his wife, Delgermaa, have two sons, both of whom live in Ulaanbaatar. They bought a two-bedroom apartment in the capital for their sons, using their cashmere revenue.
“Thanks to cashmere, we are able to live a decent life,” Jargal said. “However, it is better for us herders to have fewer but more profitable animals. But I have no idea where to find such extremely productive animals. I have no such knowledge in my veterinary livestock in Bayan-Undur.”
Chronicle of a bust foretold
What is remarkable is how aware Mongolia’s leaders were of the literature on avoiding the resource curse and how anxious they were not to repeat the past mistakes of previous resource-cursed countries.
“Mongolia cannot be Qatar but it will be Niger if we fail to implement vice revenue management,” current Prime Minister Oyun-Erdene Luvsannamsrai said in 2015. “At this moment Mongolia seems to be Niger.”
In the early 2010s, the government established a revenue management strategy and national development plans, along with a budget stability fund meant to smooth budget volatility due to seesawing commodity prices. In 2011 the government started to save some of the revenue in stabilization and heritage funds.
However, funds and plans were not enforced, and the budget continued to be used mainly for politically popular spending. The plans have largely failed. “Although it is natural to see some volatility in resource-dependent countries, macroeconomic volatility in Mongolia is higher compared to other commodity exporters,” World Bank country manager Mikhnev told Nikkei Asia.
The root of the problem may not be economic but rather political. Difficult decisions come up against opposition from an entrenched political class that has done uniquely well during the boom, and few Mongolian politicians are untouched by some sort of scandal.
The best-known is the case against Batbold. Mongolia’s Metropolitan Prosecutor’s Office, along with two state companies and a government agency, launched a civil case in October 2020 that accuses the former prime minister of using several offshore shell companies to siphon hundreds of million dollars from mining operations. The Mongolian government, according to a filing in New York State Supreme Court last November, sought “to recover losses suffered as a result of illegal and fraudulent acts in connection with two of Mongolia’s most prized natural resources, the Erdenet copper mine and the Oyu Tolgoi copper-gold mine.” The latter is 66% owned by Turquoise Hill Resources (formerly Ivanhoe Mines), whose largest investor currently is Anglo-Australian mining giant Rio Tinto.
Using a team of international lawyers, the Mongolian prosecutors have secured injunctions from courts in England, Hong Kong, Jersey and Singapore against Batbold and people named as his proxies in court documents for assets in excess of $70 million, according to the claimant’s attorneys. In addition, they sought an injunction in a New York State Supreme Court filing last November, withdrawing it in January after the defendants agreed not to sell or transfer two condominiums without notifying the plaintiffs.
In written comments sent to Nikkei, the lawyer representing Batbold insisted the accusations were “groundless and false,” part of an organized operation designed to “damage the reputation of Mongolian People’s Party, its leadership, and especially against S.Batbold.”
The lawyer said some state companies named as claimants in the original civil suit have denied they gave consent to their involvement in the case, adding that Metropolitan Prosecutor’s Office “violated the law and exceeded his authority” in launching the suit. A spokesperson for the prosecutor’s office contacted on Oct 12 said the case “is still under investigation” but declined to give further details.
Batbold’s representative added that the New York court declined to freeze Batbold’s assets in the U.S., implying the case lacked sufficient merit. Lawyers working for the Mongolian prosecutor’s office said that the agreement by defendants not to sell or transfer the property pending resolution of the case in Mongolian courts made an injunction unnecessary.
Opposition politicians say the case against Batbold may indeed be politically inspired but that the information the case has brought to light offers a sobering view of Mongolia’s political class. Munkhdul Badral, secretary of the National Labor Party, a third force in parliament, asserted that the legal efforts against Batbold were championed by Battulga Khaltmaa, the former president and Batbold’s political rival. “I have no doubt that Mongolian politicians use tax havens and proxies to hide their illicit assets abroad,” Munkhdul said. “But this might be the first instance where the Mongolian government has used foreign experts and courts to pursue such a case.
“I doubt, though, that the current government and ruling party has the enthusiasm to push through this case” as Battulga is now out of office, he said.
Said Rio Tinto: “We operate in line with local and international laws and regulations, and our values. There is no claim or court case in New York in relation to Oyu Tolgoi’s Investment Agreement or Underground Development Plan (UDP). Neither Rio Tinto nor Oyu Tolgoi LLC have been named as parties in the case and these claims do not allege any improper conduct by Rio Tinto or Oyu Tolgoi LLC.”
Mongolian lawmakers in 2018 sought to close some loopholes for corruption by establishing a beneficial ownership disclosure law. It requires mining companies to register their beneficial owners with the National Registration Authority and the National Intelligence Authority.
However, the law has been criticized for lacking teeth. “There is no punishment if companies do not register their beneficial owner,” Erdenechimeg Dashdorj, extractive sector program manager of Open Society Forum in Ulaanbaatar, told Nikkei. She said that since approval in 2018, only 37% of mining companies have registered their beneficial owners. “The law enforcement still has room for improvement,” she added.
Taking action against abuses has met with political pushback from established interests in government. For example, when then-Prime Minister Altankhuyag Norov resolved in 2013 to investigate cost overruns at Oyu Tolgoi, his own party’s members in parliament suddenly voted to dismiss him.
“Altankhuyag’s cabinet was an obstacle for senior officials whose interests were to benefit from several mining deals,” said Temuujin Khishigdemberel, a former parliament member who was minister of justice in Altankhuyag’s cabinet. “The cabinet didn’t make decisions as the officials asked. I can’t deny that there was a corrupt and powerful system that emerged from mining money, and that it is powerful enough to change the fate of the entire government,” Temuujin said.
The next prime minister, Saikhanbileg Chimed, forgave the cost overrun and signed an additional contract financing the second stage of the project, which is an underground mining construction development for $5.3 billion.
“The Oyu Tolgoi Underground Development and Financing Plan, signed in 2015, contained strict clauses requiring the Mongolian government to accept the excess costs incurred in the initial open-pit mine. The government also had to accept that there were no outstanding issues related to these costs, effectively shutting down any discussions about accountability. Sadly, there was no language in the agreement regarding the prevention of further cost overruns, or how to deal with them if they did occur,” said Bayasgalan Enkhbaatar, a member of the board of directors at Oyu Tolgoi since November 2020. Ms. Bayasgalan represents the government’s interests in the Oyu Tolgoi project, of which it owns 34%.
That episode was followed by another, ongoing, confrontation with Rio Tinto. Last December, the company notified the government that the underground mine development project will overshoot original cost estimates by $1.5 billion and be delayed by two years.
The cost overruns represent substantial damage to the government’s interest in the project. Bayasgalan cited calculations showing that the government cannot expect to start receiving dividends from its 34% ownership of the mine in 2032 as originally expected. Rather, due to the delay and the jump in costs, the government is concerned it may not receive any dividend before the mine’s reserves are depleted.
Rio Tinto has solely financed the construction and operation of the mine, and has provided Mongolia with a loan to finance its 34% ownership of the mine. The loan specifies that it needs to be repaid in full before Mongolia can receive any dividend from the Oyu Tolgoi mine. The annual interest rate of the loan is Libor plus 6.5%.
Seven years after Oyu Tolgoi started production, the balance of the outstanding loan payment showed that Mongolia owes $2.2 billion to Rio. Any increase in fixed costs will make it harder for Mongolia to receive any dividends.
Rio argues that the Oyu Tolgoi project pays annually around $300 million in taxes to the Mongolian government from its $1 billion sales income.
In April 2018, Mongolia’s Independent Authority Against Corruption arrested two former prime ministers as part of an investigation into suspected misuse of power related to negotiations over the Oyu Tolgoi mine. Bayar Sanj, prime minister when the original 2009 investment deal was signed, and Saikhanbileg Chimed, prime minister when the expansion agreement was inked in 2015, were both detained. Saikhanbileg was later released from detention for medical reasons but flew to the U.S., where he remains. Bayar was sentenced in 2020 to five years in prison.
Said Rio Tinto, “As with all of the Oyu Tolgoi agreements, we negotiated the UDP in good faith and always acted in accordance with Mongolian and international laws and standards.”
A new dawn?
The scandals have emboldened a new generation of Mongolian politicians who think the situation can be salvaged by getting rid of the previous generation.
Bulgantuya Khurelbaatar, former vice finance minister before she was elected to parliament in 2020, is the face of this bright young generation that says it is fed up with the patronage politics of previous administrations. With her reputation as a corruption fighter, she says Mongolia needs better regulations and better laws to impose transparency, budget discipline and improve the governance of state-owned companies.
“We must not repeat past mistakes, such as increasing spending instead of being optimistic about the next [commodity] supercycle. We also need much more public accountability. I want to encourage people to at least monitor the policies and budgets of the sector they work in” said Bulgantuya.
“We have learned a lot from the growth and depreciation of the mining sector over the years, but we are also aware of the risks. If we get involved in too many giant mining projects, like Erdenes Tavan Tolgoi, and do not learn lessons from the early days, such as the importance of reducing our dependence on mining, we will face much more hardship than we already have,” she added.
Bulgantuya explained that the Future Heritage Fund, established in 2017, was approved to ensure some savings for future generations. The laws surrounding the fund prohibit any withdrawals, apart from management fees, until 2030. For Bulgantuya’s generation, the fund acts as a small but significant symbol of hope for the future.
Armenia Zangezur Copper Molybdenum Combine co-owner: This is first step in broader investment vision
“Industrial Company” and the Government of Armenia (GOA) are happy to announce that the Company has granted Armenia and the GOA has accepted a 25% share of the Company, Armenian News-NEWS.am has learned from the Prime Minister’s Office.
“Industrial Company” holds 60% of the shares of the Zangezur Copper Molybdenum Combine (ZCMC). The granted 25% shares constitute 15% of the equity of ZCMC that will consequently belong to the Armenia.
“Industrial Company” is a fully owned subsidiary of “Georpromining Armenia.” The company has acquired 60% of ZCMC on 30 September 2021.
Roman Trotsenko, Geopromining Board of Directors Member, commented on the transaction. “Geopromining has been operating in Armenia for many years, and we have been a reliable partner for the Republic of Armenia and Armenians for almost 2 decades. We have gladly embraced the opportunity to further expand our business in Armenia and acquire majority share at ZCMC, while offering the Republic of Armenia 15% equity participation. We intend to expand cooperation with the Government of Armenia and this is the first step in a broader investment vision. The Republic of Armenia, the people and our shareholders will benefit from all this, as well as new opportunities will open up for the Armenian economy. We also have a goal to start the construction of a new copper smelter in Armenia in the coming years.” Suren Papikyan, Deputy Prime Minister of Armenia commented: “We would like to thank “Industrial Company” for offering the people of Armenia an opportunity to own a share in one of the largest industrial assets of the country. This practice that is common in mining worldwide can be a demonstration for the people of Armenia of how the notion of stakeholder capitalism and shared values work in practice. We are confident that this joint project will be a start for a better governed, more inclusive and sustainable mining sector in Armenia, that will benefit the country and its investors”.
Zinc junior making headway in Spain
Variscan Mines’ underground drilling within the historical San Jose mine in Spain has confirmed the discovery of multiple stacked lenses of high-grade zinc mineralisation in the South West Zone and Los Caracoles Trend, separate from previously reported results