J. GANBAT:  ERDENES TAVANTOLGOI WILL ESTABLISH A STABLE AND TRANSPARENT SYSTEM

The Mongolian Mining Journal /Feb.2024/

MMJ journalist B. Ariunaa interviewed the Special Plenipotentiary Representative of the Government, J. Ganbat, about the activities of Erdenes Tavantolgoi JSC, the best investor in the mining industry, and the developments and problems faced by the company in recent years.

Erdenes Tavantolgoi JSC successfully traded Erdenes bonds to raise 2 trillion MNT on the domestic capital market. The raised funds are used to implement large-scale infrastructure projects in accordance with the Mining-Infrastructure-Industry-Development model. Please tell us more about these projects.  

Compared to gold, copper and other minerals, trade in coal, Mongolia’s main export commodity, is carried out with strict coordination of transportation, logistics and infrastructure arrangements.

The bonds were issued in three phases and the first round of trading raised 800 billion MNT in the domestic market.

Starting from 2019, Erdenes Tavantolgoi JSC finances and invests in projects aimed at infrastructure development, cost reduction and production of final value-added products in accordance with the relevant decisions of  Parliament and  Government.   

Specifically, the company invested in the construction of Tavantolgoi-Gashuunsukhait and Tavantolgoi-Zuunbayan railways. The company has also financed projects with full feasibility studies and environmental impact assessments, such as the Tavantolgoi power plant and coal concentration plant. In addition, these projects included infrastructure projects such as the container terminal, a logistics center for loading and unloading coal, and water supply at the Gashuunsukhait border crossing.

Since 2020, due to the Covid pandemic, exports have been disrupted, sales revenues have plummeted, and the company’s financial position has been strained. But strategically important projects have continued without interruption. 

The company was selected as the best investor of the year at the “Miner’s Awards 2023” event. In addition to the above projects, what other areas have you invested in?

We believe that our company was selected as the Best Investor because we have stepped up the financing of strategic projects and programs in Mongolia and created conditions for successful development.

A total of approximately $2 billion has now been invested. With the completion of the Tavantolgoi-Gashuunsukhait railway project, other cross-border railway projects will be realized in a short period of time, and we are working to resolve the financing issue.

Energy plays an important role in the reliable operation of any project. Therefore, we plan to finance the Tavantolgoi thermal power plant (TTP) project, which will generate energy continuously, and start construction work.

What did your company pay attention to in order to successfully implement projects with approved funding? How does your company monitor its investments?

In general, for the successful implementation of large-scale projects, it is important that stakeholders such as contractors, clients and financiers fulfill their contractual obligations responsibly and work in coordination with each other. u

In particular, financing is provided on the basis that the contractor fulfills well the obligations stipulated in the contract and the customer controls the performance. Following this principle, we can say that conditions for successful implementation of investment projects have been created.
Depending on the specifics of the investment project, Erdenes Tavantolgoi JSC may conclude financing contracts, own shares and monitor project implementation.

During the hearings on coal, there was criticism that the investment budget for some projects is too high. Can you clarify this?

Erdenes Tavantolgoi JSC provides only financing for some projects implemented by the decision of the Parliament and the Government. There are other organizations with special functions that implement and oversee some projects. Our company is not an authorized organization to determine whether the budgeted cost is high or low. Therefore, this question must be answered by a professional independent organization.

Last year coal was successfully traded on the Mineral Commodity Exchange for the first time. To what  should we pay attention  in the future?

The first few trades on the exchange were not easy. However, we managed to successfully organize and stabilize trading. Selling coal on the exchange at the border price means taking on a great responsibility. Therefore, special attention should be paid to the organization of transportation and timely delivery of coal sold at the exchange to the buyer.

The government will support open and transparent trading activities of the exchange and will ensure the  timely delivery of coal sold at the auction through a special gateway to the buyer. Erdenes Tavantolgoi JSC supports the proposal for prompt delivery of coal sold at the exchange to buyers using the special gateway.

Our company pays particular attention to the transportation of coal sold at the exchange to the buyer and coordinates our activities with relevant government organizations, buyers and transportation companies.

Most of the coal traded on the exchange is sold by your company. Currently, the physical volume of coal exports has reached 67 million tons. During his visit to China, the Prime Minister announced that trade turnover between Mongolia and China will reach $20 billion. Will China continue to buy coal at the same level in 2024?

In 2019, the year before the pandemic, the physical volume of coal exports from Mongolia reached 36.7 million tons, and it was the largest coal export volume in the country’s history. But in 2023, Mongolia exported 69.6 million tons of coal, up by 32.9 million tons or 1.9 times from 2019.

Erdenes Tavantolgoi JSC has made a solid contribution to this significant growth in coal exports. Thus, in 2023, our company alone sold about 34.4 million tons of coal, of which 9.8 million tons were sold on the exchange.

In other words, between February 9 and December 31, 2023, $1.2 billion worth of coal was successfully sold on the exchange in 65 trades. This means that Erdenes Tavantolgoi JSC alone sold about 70% of the total 14 million tons of coal traded on the exchange last year.
To increase trade between Mongolia and China, it is necessary to accelerate the export of all mining products, including coal. 

If the mineral market is stable, the volume of coal purchased by China is not expected to decline. Erdenes Tavantolgoi JSC plans to increase production and sales in 2024 compared to the level of 2023.  

The special regime imposed on Erdenes Tavantolgoi JSC has had a positive impact on the Mongolian economy. Please tell us about the measures taken by the company and your plans for the future.
During the special regime period, average monthly production and other economic indicators improved significantly compared to the previous period: the amount of coal sold increased by 4.1 times, transportation by 3.9 times, exports doubled, revenue was up by 3.9 times, and production by 2.7 times. We have paid 3.3 trillion MNT in taxes and fees to the budget. 

For more than a year now, we have had the highest production, sales and profits in our history.

It is very important for Erdenes Tavantolgoi JSC to establish a system that allows it to sustainably operate regardless of whether a special regime is imposed or not. We seek to develop an electronic system and make the company’s operations open and transparent and dispel the doubts of the public. We have uploaded information on production, transportation, and export to the official website of the organization. In the future, we will improve this system and adhere to the principle of public transparency.

How does Erdenes Tavantolgoi JSC set the price of coal for sale on the market?

On October 5, 2022, the Mongolian government approved Resolution No. 362 and stopped signing new contracts to sell coal at the mine mouth price, instructing companies to sell at the border price.

In accordance with this instruction, Erdenes Tavantolgoi JSC has successfully sold coal through the exchange from February 9, 2023. Consequently, the price of coal sold by Erdenes Tavantolgoi JSC is set through open and transparent bidding at auctions.

The purchasing decision is based on laboratory analysis of the minerals being traded. I believe that the customs lab test results are issued first. How do you assess the coordination between border, customs, coal transportation and exchange operations?

In accordance with the Mining Products Trade and Payment Regulations approved by the Mongolian Stock Exchange, Erdenes Tavantolgoi JSC prepares a brief report on the results of accredited laboratory tests and quality indicators of the coal to be traded on the exchange and provides open and transparent information to buyers as reflected in the auction order.

After a successful auction, the Mongolian Stock Exchange delivers information about the winner of the auction to Erdenes Tavantolgoi JSC. Subsequently, our company signs a coal export contract with the auction winner, registers the contract in the unified tax information system and sends the information to the Mongolian Stock Exchange.

After the tax authority approves the coal export contract, a customs laboratory report is issued. In other words, after the trading information of the Mongolian Stock Exchange is finalized and approved by the tax and customs authorities, the contract for export of coal can be realized.

In order to ensure the quality of coal sold on the exchange, Erdenes Tavantolgoi JSC provides the seller and the buyer with the opportunity to conduct laboratory analysis of coal samples in accordance with the terms of the contract. If necessary, the samples can be analyzed by a third-party independent laboratory.

Complex export operations, such as trading coal on the exchange, signing contracts, delivering them to the Mongolian Stock Exchange, and registering in the unified tax and customs information system, are carried out in a coordinated manner.

Thank you for the interview.