By Ch.Batpurev
We talked with Ganzorig Ulziibayar, President of the Association of the Mongolian Financial Market.
The number of mining projects in Mongolia is growing, how do they get funded?
There are two different types of mining project activities. Firstly, exploration, this requires a great deal of knowledge and understanding of what minerals are located where and in what quantities. Exploration also requires a great deal of capital investment. If nothing is found, the capital investment goes down the drain. Secondly, exploration, but only upon discovering a deposit. In order to explore, it is important that you have enrichment plant. Look at the Oyu Tolgoi project, the deposit is deep under the ground and therefore there are two different mines: underground and open pit. In terms of gold, the are two types placer and fields. The coal mines active in our country hardly require that much capital investment during the exploration stage. However, gold-copper mines like Oyu Tolgoi, require additional investment. There are many new gold and copper deposits that have been discovered deep underground. These are the two main things to distinguish between when we work with mining projects. Financial issues arise from the two fundamental types of activities. At the exploration level, there are two types of funding. Firstly, either government or transnational corporations contribute the investment and conduct exploration or issue IPO for small scale exploration companies at the international stock exchanges. Then investment firms or individual sponsors buy the securities. However, it all becomes clear at the exploration stage and companies go to the bond markets as their businesses develop in accordance with their feasibility study. The exploration level requires a proper fleet and very specialised knowledge in the area. Certainly companies should be experienced in international mining or be in a joint venture with the government. Buyers of shares or bonds in large mining companies tend to be insurance companies, investment funds, social insurance funds, or wealthy individuals. We should understand that in the case of Oyu Tolgoi often the investor is a ordinary person, a teacher or a diligent young man who honestly pays taxes. The main point of the international financial market is to connect people who want to increase their capital accumulation by investing in promising and profitable projects.
What do you think about the Oyu Tolgoi Investment Agreement, is it designed to be profitable for us?
I worked as a dealer many years. Economic deals can only be realistically evaluated after some time. Certainly negotiation is beneficial for both parties. I was not part of discussion about the Oyu Tolgoi agreement, but as an economist I consider that sooner the agreement is made and project starts, the more beneficial to us. Firstly, Mongolia has a high rate of cancer derived mortality. Secondly, our specialised workforce systems have been left behind, mining companies have hard time finding a skilled force locally. Thirdly, and the most frustrating point is that the vocational training system has been neglected. Besides education and health issues, we also have high levels of unemployment which can be resolved by developing the mining sector appropriately, creating many jobs. To resolve all of these issues we need money. After the Oyu Tolgoi deposit was discovered, there were big discussions in 2004 and 2005. Then I had only one thought – the deposit must be developed as soon as possible. I believe the ones who are holding the power of the State, hopefully, are having discussions to come to the best possible deal that service the interests of the people of Mongolia. Oyu Tolgoi is only one of the mining projects in Mongolia, I believe there must be more than ten other mining deposits of its kind. I wish for the fast development of the Oyu Tolgoi project, Ukhaa khudag project of Energy Resources, Tavantolgoi deposit exploration, because these projects will create many jobs.
Mining is new to Mongolia and many Mongolians have started working in mining areas, providing for their families. Some Mongolians have started supplying goods and services. Aren't Mongolians benefitting?
I have noticed one thing lately and wonder why when the whole world is in favour of foreign investment while Mongolia talks against it. The country should welcome foreign investment and multi-stakeholders for the sake of maintaining national security and the development of the people of Mongolia. On the other hand, foreign investment and cooperation does not only bring money, but also chemical, electronic and advanced technologies and best management practices.
What economic benefit and outcomes are expected from Oyu Tolgoi?
Mongolia is not the Oyu Tolgoi project and vice versa. We are expecting too much economic benefit from Oyu Tolgoi and that is not right. If mining projects eventuate, the economy of Mongolia will increase 3 times within 4-5 years. Oyu Tolgoi will train people through vocational courses, the people will not only work for Oyu Tolgoi, they will be able to find jobs in other mining companies. The trained workforce will be able to practice what they have learned from Oyu Tolgoi with other national companies and international companies. Mongolians will be managing the Oyu Tolgoi project. Oyu Tolgoi is indeed doing the job that our State would have had to do, preparing a skilled workforce. Mining is a finite business, we should be thinking of transferring into knowledge based economic development for Mongolia over the next 20 years. In other words, we must strive for a transition from being skilled workers into specialist and scientists.
This is an unprecedentedly large project for Mongolia. Is it going to be a profitable deal or not?
In order to keep up with international development, we must prepare ourselves. That requires funding and capital investment. If we had waited five more years, we probably could have had 50 per cent of Oyu Tolgoi, but as an economist I would never have chosen this way. Mongolia cannot wait five more years, because of the increase in cancer mortality, the lack of education, increase in poverty levels. Arguing about 30 per cent or 50 per cent by waiting for five more years is a big mistake. Investors can give up and move forward 50 years while we still sit and argue over this issue. In economics, a good deal means making the trade at the right time, considering all risks, and targeting the most lucrative business at the time. The process of the Oyu Tolgoi Investment Agreement has already taken 8 years, even that was too long. Ideally, the agreement should have started in 2008, this would have made a big difference to the livelihood of our people.
What does your association do?
The Association of the International Financial Market has representatives in 64 countries, Mongolia is the 62nd member country. The Association of the Mongolian Financial Market was founded in 2004. We have continuously run training for the public and journalists to improve their understanding of finance and economics. We are not a tertiary education school or institute. We are the largest organisation for educating the public and providing information on the four indicators of macro-economics; the ‘Customer Expectation Index’ is issued in cooperation with the Open Society Institute. We conduct a survey of 1,000 people quarterly and analyse the findings to define the expectation of citizens. We also define indicator – interest of daily inter-bank transfers and since 2008 we have been posting our professional articles in the daily newspaper, Today. We also contribute our findings and knowledge to working groups and consultation crews for the government and government agencies.
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