D.Galsandorj: Although copper export revenue doubled, coal export revenue dropped considerably

Trans. by B.DULGUUN

 The following is an interview with the President of the Mongolian Exporters’ Association, state consultant, mining engineer and professor D.Galsandorj about the recently released customs report.

The customs report for the first half of 2014 was released. Did export revenue increase or decrease?

Compared to last year, export revenue for the first half of 2014 increased by 450 million USD, specifically by 22 percent. Some 83 percent of total export revenue consists of mining products. Exportation for mineral products, cashmere and wool products also increased. Foreign trade had a deficit of 157 million USD. Experts are saying that the deficit, which was measured in billions of USD in previous years, has decreased. This is connected to the decrease in importation. Equipment, material and fuel imports dropped due to the closing down of many factories, especially in the mining sector. Some have even started operating with smaller work capacity.

Overall, Mongolian mining industries are trying to operate without terminating completely. Fluorite, coal and iron mining operations are shrinking down. Even Energy Resource LLC isn’t doing exploration and instead, selling coal from their warehouse. MAK company is exporting small amounts of coal. On the other hand, Erdenes Tavan Tolgoi state-owned company is operating well.

You just mentioned that export revenue increased by 22 percent. Reports showed that export goods and raw material volume doubled. Is this true?

Both copper exportation volume and price doubled. People must have understood this as export revenue doubling. Total export revenue became 2.4 billion USD and the volume increased by 25 percent. In terms of volume, compared to 2013, copper concentrate exports increased by 300 thousand tons, coal exports by 1.8 million tons, and oil exports by 1.1 million barrels. As for revenue, copper concentrate export revenue increased by 500 million USD and oil export by 117 million USD. Although coal exportation volume increased, the revenue dropped due to price decreases. The average price of a ton of coal exports in the first half of 2013 was 72 USD. The average price of a ton of coal exports in 2014 decreased by 30 percent and became 47 USD, meaning that coal revenue decreased by 97 million USD compared to the first half of 2013.

In general, how are Mongolia’s mineral product prices?

Apart from coal price decrease, iron export prices decreased by some 20 percent. Copper and zinc prices are rising in international markets. Compared to 2013, copper concentrate price increase by some 18 percent and zinc prices by 10 percent. Industries that use these minerals should be supported. The price of a ton of copper was set at 6,800 USD in the 2014 state budget. At the moment, the price has reached approximately 7,100 USD. Budget revenue will increase accordingly.

Can it be concluded that copper concentrate exports of Oyu Tolgoi led to this take-off?

Yes. Within the first six months of 2014, Mongolia exported 580 thousand tons of copper concentrate, specifically Erdenet Mining Corporation exported 260 thousand tons of copper concentrate and Oyu Tolgoi exported 320 thousand tons. Some 660 million USD came from copper concentrate exports of Oyu Tolgoi. Mongolia gets 100 percent of Erdenet Mining Corporation’s currency income. Unfortunately, only 20 to 30 percent of Oyu Tolgoi goes to Mongolia. In Oyu Tolgoi’s investment agreement, it was agreed that currency income would be transferred directly to the parent company so it doesn’t come into Mongolia. This is a major mistake in the agreement. At least 34 percent of its share revenue should go through Mongolian commercial banks. Australia and Chile requires revenues of foreign investors to be circulated through the nation’s commercial banks.

In addition, 5.4 tons of gold was exported from Oyu Tolgoi mine in the first half of 2014. Customs officers are including this revenue into copper concentrate export revenue. They need to improve customs statistics by specifically reporting how much USD revenue they get from gold and how much from copper concentrate.

Many are saying that mines are ceasing operations. Yet, why are mineral and raw material exportation amounts of Mongolia increasing? For example, coal export volume increased.

Until April, coal taxes were imposed in relations to a reference price, but now, we started imposing them on prices dictated by the contract. It’s beneficial for coal mines when taxes are paid from contracted prices. This is why mines exported large amounts of coals for some time and increased exportation. However, mines started closing up their work since June and some even stopped operations.

In terms of revenue, copper makes up 40 percent of total export, coal makes up 18 percent, and oil makes up 13 percent. Furthermore, iron ore makes up eight percent and zinc makes up two percent of total export revenue. For exports, copper and oil is covering revenues for products with reduced prices and offset overall export value.

It seems that Mongolia will get majority of its revenue from copper concentrate exports in the future. What do you think awaits the coal industry in the future?

It’s certain that copper concentrate will continue to be the leading export product of Mongolia for the next four to five years. If Tsagaan Suvarga copper mine is commissioned in 2016, copper export amounts will increase considerably. The time when coal made up 40 percent of export revenue has passed. I think it’s unnecessary to transport coal with trucks in an environment that’s initiating responsible mining and protection of the environment. Mongolia doesn’t have management for establishing coal export agreements. Therefore, it’s selling coal at low prices. One-ton of refined coal of Energy Resource Company is sold at an average price of 37 USD. The amount of valuable refined coal should be increased. Energy Resource Company is only utilizing 30 percent of its concentrator’s capacity. The concentrator can process up to 15 million tons of coal. Other companies can use the remaining capacity to process coal.

There are talks that Erdenes Tavan Tolgoi Company is negotiating to process coal at Energy Resource’s plant. Can you comment on this?

It’s correct. Our association sees that it’s required for the three corporations operating at Tavan Tolgoi mine to partner in coal production, transportation and logistics, and work with integrated policy and export agreement.

Is there hope for reviving coal and iron prices?

Iron prices may revive. Bargilt iron ore deposit of Mongolrostsvetmet is selling iron concentrate for 70 USD per ton. Bayangol mine is selling it for around 50 USD and AltainKhuder  for 40 USD. Since iron demand in the Chinese market is increasing, it’s likely for iron prices to increase. Coal prices dropped and made situations difficult because Mongolia didn’t have an integrated policy. We need price regulation. The Ministry of Mining is actively working to establish a Mineral Exchange. This work should be hastened. If an exchange is established, Mongolia will be able to sell coal at standard integrated price and quality. Mongolia gets price cuts because we’re unable to negotiate with big Chinese corporations. We only negotiate with smaller corporations.

If raw materials are processed, they can be sold for higher prices. What are your thoughts on this?

Actually, the government is talking about increasing the quantity of value added export products. Although they said that they’d give funds from government bonds to iron concentrator plants, they still haven’t given them. They were supposed to give funds to major projects of Erdenet, Tsagaan Suvarga, and Bor-Undur concentrator plants. They’re wasting time. They even said that they’ll build a plant to produce final products at Sainshand in Dornogobi Province. However, there’s no finalized technical and economic feasibility study or investment. It’s a good dream. They talk so well on television. Even if Mongolia produces final products, will China purchase them? Chinese exportation tax increases as products are refined. Many things need to be considered. It’s enough to utilize our capacity and sell 15 million tons of refined coal a year. Yet, people are talking nonsense by saying that they’ll export 31 to 50 million tons. It’s useless to build a railway if we can’t supply competitive products consistent with Chinese standards. I’m not sure if Mongolia can benefit from constructing a railway with a huge amount of money. If Mongolian coal isn’t going to be sold, what’s the point of constructing a railway?

Do you think that it’s better to establish at least a steel mill?

Mongolia will probably export iron from 2015 to 2030. MPs are saying that two to three plants will be built in the next two years, and then, steel will be exported. This is a lie. Before talking about exporting, Mongolia needs to be able to domestically produce 600 thousand tons of steel bars that it imports from foreign countries. Mongolians love to talk about exportation when they aren’t even able to supply their own domestic demands. There are people who even talk about increasing oil exports when the country isn’t producing a drop of petroleum fuel. People also mentioned exportation of energy. But Mongolia is buying energy from Russia and China. Instead, they should be talking about supplying Mongolia with domestic energy.


Source: Unuudur news http://mongolnews.mn/w/53624


Short URL: http://ubpost.mongolnews.mn/?p=10979

Posted by on Aug 1 2014. Filed under Топ мэдээ. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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