N. Ariuntuya
Producers and sellers find today’s mineral commodity market dismal, with prices falling all the time. This started back in 2012, and no respite seems in sight. Some studies and analysts predict a recovery in mid-2016, but not many companies share their optimism and most are looking for a viable survival strategy. The going is tough, with conditions actually worse than they were last year.
Location and size of companies make no difference, so widespread and irreversible the malaise is. Small localised miners, as well as giant transnational corporations, seemingly impregnable because of their reach and range, are seeing their share prices go down, eroding financial institutions’ trust in them. Companies have had to review their targets, and accordingly change the strategies of their corporate management. Assets of uncertain immediate profitability are no longer being retained because of their likely long-term worth. Mergers and acquisitions have always been there, especially in coal and iron ore sectors, but now there seems to be no buyer for the rising number of sellers.
Just a few years after riding high on the global mining boom, Rio Tinto is finally changing strategy, after absorbing many of the shocks that hit commodity markets, and its prolonged show of confidence under difficulties gave hope to others. But finally the strength of the downturn has exceeded all its expectations. “The whole world has been surprised at the volatility,” CEO Sam Walsh has said. “Prices dropped from nowhere.” Justifying the company’s switch to belt-tightening management, he has warned, “This situation is not temporary and our industry is now moving into the new normal, which means we must continue to be one step ahead.”
Large mining companies starting with Rio Tinto have decided to sell their mines, cut dividends and reduce costs. Inside this issue, readers will find more details of the survival strategy undertaken by international companies.
The same situation is seen in Mongolia. Here, too, companies are restricting operations – some have even declared total closure and freezing projects, reducing costs, cutting workplaces, and announcing layoffs. Apart from the impact of the market, Mongolia is feeling the effects of policy mistakes. The days of high growth spawned a large number of mining companies, but how many of them have survived or can survive now? There are no official data on how many companies have downed shutters in the past few years, but the time has come to formulate a long-term action plan, not just a knee-jerk survival strategy.
The super cycle was seen as a golden period providing great opportunities to the developing countries, but unfortunately, some of them, including Mongolia, could not utilise the opportunity. We must now analyse the mistakes we made, and decide on how best to prepare ourselves to ride the next mining boom, when it comes, as it must. A term ‘mining governance’ has appeared as a recipe to a better understanding of issues surrounding natural resources, and to their stable management, leading to sustainable development. A strong and viable natural resource economy cannot come without social equality and inclusive growth, and this is possible only when a fair share of mining revenues goes to local communities. An article in our Mongolian pages on a newly established research organization named Natural Resource Governance Institute, will give readers a better understanding of the related issues.
Development of the Oyu Tolgoi underground mine would go quite some way in lessening the difficulties in store for Mongolia in 2016. In an interview published in the Mongolian pages in this issue, S. Bold-Erdene learns from Munkhsukh Sukhbaatar, Rio Tinto’s country director in Mongolia, how he expects the construction of the mine to impact both the economy and the politics of the country.
Another article is on the copper smelting plant which, the Minister of Industry has announced, will be built in 2016. G. Iderkhangai gives salient details of the planned plant, including how the thorny issue of the sulphuric acid is to be realistically resolved. Doubts will persist on whether the project will be really taken up or if it is just an election promise. The Mongolian Mining Journal will continue to report on how the project progresses, and the views of industry specialists on features of the plan, especially on the choke of technology.
We have always stood for a stable legal environment as essential for the mineral sector to grow. Our January issue gave detailed information on planned amendments to the Minerals Law towards that goal, and now that the amendments have become law, we cover other aspects of this topic in our present issue. The Ministry of Industry has submitted to the Parliament draft amendments to the Minerals Law which would facilitate setting up processing plants for secondary mineral resources. There is an expectation that the drafts will be discussed during the Spring session of the Parliament, along with another set of draft amendments currently being prepared by a working group under the Ministry of Mining.
The proposed changes will make it mandatory to ascertain the views of a local community on granting a special licence in its area before the State begins its own review. The group will also identify other anomalies and recommend amendments to iron them out. Another pending discussion is on the draft law initiated by S. Ganbaatar, MP, which seeks to remove the provisions on receiving a special royalty payment in place of surrendering to investors state ownership in the strategically important deposits. Efforts are on to coordinate the contents of this draft with what the working group under the Ministry wants. It is not yet clear how this can be done, as an article in our last issue showed, and maybe the priority now is to pass just the amendments which will lift the present embargo on accepting exploration licence applications. Both mining companies and the local communities are waiting for the resumption to get back on the road to development.