Potential and challenges of the Mongolian mining industry

Mongolian Mining Industry

The Mongolian mineral sector produces coal, copper concentrate, iron ore, zinc concentrate, fluorspar, molybdenum concentrate, crude oil, gold, silver, copper, and some alloys. Because of the small local market, most mineral products are exported. By the end of 2022, the mineral products cover 93.7% of export income.

In 2022, Mongolia exported 31.8 million tons of coal, 1.4 million tons of copper concentrate, 4,7 million tons of iron ore, 387 thousand tons of fluorspar,141 thousand tons of zinc concentrate, 6.4 thousand tons of molybdenum concentrate, 19.6 tons of gold and 2.6 million barrels of crude oil.

Coal Mining

Coal is the largest mining product in terms of amount and monetary value. Currently, all coal is produced by open pit mines and there is no underground coal mine currently. The strip ratio of open pit mines increased from an average of 3 to 5 in the last decade. As a result, major coal mines are planning to enter underground stages in the coming years. Open pit mine allows to production of coal at a cheaper cost, which makes Mongolian coal very competitive to the market.

The fast expansion of open-cast coal mines in recent years has caused serious concern about slop stability in open pits and overburden dumps. There is a need for capacity building of local engineers for planning and monitoring mining operations in terms of engineering geology.

As the open pits are deepening down, the cost of mining tends to increase. Therefore electrification & automation of mining and material handling operations are in demand.

Coal seams with multiple thin layers of rocks will be mined in larger volumes in the coming years. New coal preparation plants have been built in recent years and their number is going to increase. The main reasons are the strengthened requirement for coal quality in the international market and the higher price of the washed coal. Large coal mining companies have either already built or planning to build coal-washing plants. Smaller companies face financial difficulties in investing in coal-washing plants. Most coal and copper deposits are in the Gobi Desert, so water supply is a key challenge for the mineral process plants. There is an increasing need for highly efficient dry preparation technology.

Copper mining

The second largest product of the mineral sector of Mongolia is copper concentrate. Currently, there are two operating copper concentration plants, one is the state-owned Erdenet cooperation and another large-scale project Oyu Tolgoi is jointly owned by Rio Tinto and the Government of Mongolia. The country has huge potential for further copper development and several new projects are waiting to be realized. The closest projects are Tsagaan Suvarga, owned by Mongolian investor MAK, Kharmagtai listed in Australia Erdene Mongol project listed in Canada.

Licenses

Exploration licenses for new potential areas have not been issued by the Government of Mongolia for years. A new amendment to Mineral Law, which has been initiated by Parliament and is being discussed among the industrial stakeholders, is expected to solve this issue and promote foreign investment in geological exploration. The draft amendment considers improvement in VAT regulations in favor of processing the raw minerals and ease of relations with local communities, which has been one of the key challenges for getting approval for new mining projects.

Labor Law

Over 60 thousand people are directly involved in the mining industry and many more in business activities for supply chain and sub-contracting services. The quick development of the mining industry requires more skilled labor and engineering staff. In 2022, the Parliament of Mongolia approved an amendment to Labor Law applying the “14 days in 14 days off” rule. This change improved the working conditions of miners but brought certain challenges in the labor market.