Эрдсийг эрдэнэст
Ирээдүйг өндөр хөгжилд
Ирээдүйг өндөр хөгжилд
Mining The Resources
Minding the future
Minding the future
As part of the Industrial and Technology Park construction project outlined in the medium-term strategic plan of the Erdenes Mongolia group, the decision was made to establish a copper concentrate processing plant utilizing Erdenet Mining Corporation as its base. Journalist B. Ariunaa from the Mongolian Mining Journal interviewed Mr. G. Yondon, the General Director of Erdenet Mining Corporation SOE, discussing this initiative and the outcomes of ongoing geological explorations assessing mineral reserves at the Erdenet Ovoo deposit.
THE RESIDENTS OF ERDENET HAVE HARBORED THE DREAM OF A SMELTER FOR 37 YEARS
We need to first mention the foundational concept known as the ‘Four Tree Structure’ which initiated the establishment of manufacturing and processing plants. As part of the 2020-2024 Government Action Program, construction of heavy industry plants in various locations with developed infrastructure and proximity to population centers was endorsed by the Parliament on August 28, 2020. These decisions were made at the policy level.
These plants encompass:
Despite our Ministry being named the Ministry of Mining and Heavy Industry, there has been neglect towards the processing industry, final product manufacturing, and the metallurgy sector. There is a pressing need for the government to formulate policies aimed at establishing processing plants, producing high-quality final products with added value, and ensuring economic growth.
The first step to correct this situation was government decrees and decisions aimed at improving the processing of the four aforementioned types of minerals and building advanced processing plants. Following this, relevant government organizations, scientists, researchers, and economists discussed the location, planning, and operations of the Industrial and Technology Parks. This culminated in the decision to establish heavy industry complexes in six locations.
Research findings from socialist era and modern eras demonstrate that establishing a copper concentrate smelting plant based on the Erdenet plant is economically beneficial and represents the most suitable location.
In addition to bringing substantial benefits to the country’s economy, the mining sector needs to introduce new, advanced technologies and innovations that are environmentally friendly. Compared to other sectors, working conditions in the mining industry are difficult, the risks are high, and the workload is heavy. However, it offers good pay and numerous incentives and perks, which can help create a middle class.
On the other hand, if our goal is to maximize the value of minerals rather than simply exporting raw materials, create additional employment opportunities, and bolster the working middle class, then it is imperative to invest in heavy industry and focus on producing finished goods.
It means that this topic has been under discussion for quite some time. Since the era of the Mongolian- Russian joint venture, various stakeholders have expressed the opinion that constructing a metallurgical plant would be advantageous.
The first president of Mongolia, Mr. P. Ochirbat, and the Labor Hero, D. Renchinkhand, along with other senior engineers, have voiced their opinions on this matter. Since the 1970s, when the feasibility study and technical design for the Erdenet plant commenced, numerous industry experts advocated for the establishment of a metallurgical plant rather than a mineral concentration plant. However, their viewpoint did not prevail at that time.
During Mr. Sh. Otgonbileg’s tenure as CEO of Erdenet Corporation from 1989 to 1998, there was a push to establish a copper concentrate processing plant in Erdenet. In 1987, a comprehensive study was conducted by the Soviet “Giprotsvetmet” Institute of Non-Ferrous Metallurgy, which had previously developed the technical design for Erdenet.
Over the past 37 years, the citizens of Erdenet, along with Mongolian miners, have harbored the dream of establishing a copper smelter. What’s truly remarkable is the relentless dedication displayed by generations of engineers and managers from Erdenet who have tirelessly advanced the construction of the smelter, one step at a time, instead of merely dreaming about it.
Throughout this period, they diligently studied all methods and technologies employed in the global copper smelting industry. Collaborating with countries, patent holders, and technology owners, they explored the adoption and implementation of these technologies at Erdenet Corporation.
The initial study was carried out by the “Giprotsvetmet” Institute. In 1989, the Ministry of Fuel, Energy, Geology, and Mining Industry made the decision to construct a copper smelter in Erdenet, as reflected in an issued protocol. The feasibility study and plant design recommended the construction of a rolling mill and a molybdenum workshop as integral components of the copper smelter.
The ministry’s decision in 1989 stemmed from the robust findings of the 1987 research conducted by “Giprotsvetmet.” However, disagreements persisted regarding the plant’s location, extending the debate to the present day. I maintain that constructing a copper smelter in Erdenet remains the optimal choice. Even during my tenure as the Minister of Mines and Heavy Industries, I steadfastly held this stance. Director H. Badamsuren, leading the Copper Subcommittee of the National Industrialization Committee, reaffirmed this position during the subcommittee meeting convened in 2023.
Why was the Chinese SKS technology chosen among the various options for copper smelting technologies?
Over 120 copper concentrate smelters worldwide utilize a range of established technologies for their production processes. Notable among these are the Vanyukov process, Noranda, Ausmelt, KFP technology, Flash Smelt, HydroCopper, Galvanox, and SKS technology, all renowned for their effectiveness in copper smelting and refining.
However, Erdenet Corporation has conducted collaborative research with the patentholder companies from various countries for all the aforementioned technologies. Upon my appointment as the General Director of Erdenet Corporation, I gained a deeper professional insight into the meticulous, tireless, and methodical nature of the smelter’s technology research efforts over many years.
I had the opportunity to converse with an engineer who joined the Erdenet plant after completing studies abroad in metallurgy. He was involved in this research from its inception, gaining expertise in the aforementioned technologies from various countries. Sadly, he retired before the metallurgical plant could be constructed.
Erdenet Corporation researched various technologies for smelting copper, lead, nickel, and zinc, including the Vanyukov furnace from the Soviet Union (1987), Noranda from Canada (1995), Ausmelt from Australia (1997), Flash Smelt from Finland (2001), HydroCopper from Finland (2006), and Galvanox from Australia (2008).
In 2014, under Director Ts.Davaatseren’s leadership (2013-2016), the decision was made to employ Chinese SKS technology for our plant, which has a capacity of producing about 560,000 tons of copper concentrate. This choice was driven by its lower investment and operational costs. Industry experts endorsed this decision based on the years of study.
Numerous experienced scientists and metallurgical engineers, who had been with Erdenet Corporation from 1987 to 2014, played a pivotal role in reaching the above decision. Their extensive research and findings led to the selection and validation of SKS technology. The decision regarding processing of elemental sulfur or sulfuric acid from sulfur dioxide are well documented in research reports and meeting minutes.
The Investment Agreement between the Government of Mongolia and Rio Tinto LLC includes a provision for researching the construction of a copper concentrate smelter based on the Oyu Tolgoi deposit. Under this clause, Canada’s Hatch LLC conducted a study for the construction of an Oyu Tolgoi copper smelter and identified several suitable locations. Remarkably, their research concluded that “the most realistic and appropriate location is Erdenet.”
When Kh.Director Badamsuren assumed leadership of Erdenet Corporation (2016- 2022), he signed an agreement with the state-owned “ENFI engineering” company to develop a feasibility study for Erdenet’s copper concentrate smelter. ENFI engineering is a leader in China’s non-ferrous metal industry and holder of the SKS technology patent.
The feasibility study prepared by the ENFI engineering underwent discussion and approval by the Mineral Resources Professional Council (MRPC) under Mongolia’s Ministry of Mining and Heavy Industry in 2019. The MRPC certified the SKS technology. As the technology of producing elemental sulfur from sulfur dioxide generated in smelting plants has never been used before, it was recommended to conduct mandatory tests at the plant and evaluate the results for further discussion by the MRPC “ENFI engineering” corporation has successfully completed laboratory and semi-industrial tests for the production of elemental sulfur from sulfur dioxide using Erdenet’s concentrate.
The MRPC instructed to clarify the coal quantity and quality needed for production, and the expected elemental sulfur output. In response, Erdenet Mining Corporation, in collaboration with “ENFI engineering,” erected a pilot plant at the Kalatongke copper and nickel plant in Fuyun City, Xinjiang Province, China, and initiated production trials this May. Although construction of the pilot plant commenced in 2021, it was indefinitely halted due to the Covid-19 pandemic and associated restrictions.
Given that it will be Mongolia’s first copper smelting plant, we have approached this matter with utmost seriousness from the start. The facility will yield elemental sulfur, presenting as a yellow powder. Notably, China annually imports 8 million tons of elemental sulfur, indicative of a viable market. It’s worth mentioning, however, that China does not purchase sulfuric acid.
Sulfur coating plants are prevalent worldwide, featuring a straightforward and well-understood technology.
We anticipate supplying elemental sulfur and sulfuric acid to Badrakh Energy LLC as its operations stabilize. Currently, our country imports sulfuric acid, primarily for use in oxidized ore heaps, constituting a relatively small market. However, with the advent of larger ventures like Badrakh Energy LLC, there may arise a need to explore sulfuric acid production to meet the demands of a broader market.
Investments are urgently required for the construction of a copper smelter. You said that the feasibility study has been completed. Have you identified the company that will undertake the construction of the plant?
The feasibility study for the construction of the copper concentrate processing plant was approved by MRPC in both 2019 and 2022. Amendments are scheduled to be made this May. The melting technology to be used is SKS technology, the intellectual property of “ENFI engineering”. The location has been identified, and infrastructure works are currently underway and progressing successfully.
Erdenet Corporation is keen on collaborating with ENFI Engineering, which holds a technology patent and boasts experience in plant construction. Therefore, within the framework of the Law on the procurement of goods, works, and services with state and local funds, we are engaging with government agencies to explore the feasibility of collaboration with this corporation.
Along with the construction of the plant, securing financing and favorable conditions is a top priority. In 2021, a government decree was issued, mandating Erdenet Corporation to provide financing.
Last March, during the PDAC-2024 International Investor Conference in Toronto, I delivered a speech, introduced the Copper Concentrate Smelter and Industrial Technology Park project to investors, and announced Mongolia’s and Erdenet Corporation’s plans to construct a copper smelter.
You were there, you heard it too. Presently, a number of foreign companies and investors have visited Erdenet Mining Corporation to engage in discussions, sign confidentiality agreements, review project materials, and express their interest in the initiative.
Canada’s Hatch LLC has shown keen interest in collaborating with us and has proposed to conduct external performance monitoring.
Which company, for instance, expressed interest in cooperation and investment?
In Toronto, we had a meeting with the Canadian company “Dundee Sustainable Technologies,” which owns the patent for the leading technology to detoxify and purify waste elements in the natural environment, as outlined in our feasibility study. They said, “We have reviewed your feasibility study. Our patent effectively neutralizes the arsenic generated during the process, ensuring that it remains inert. With our expertise in this area, we are keen on introducing environmentally friendly technology and are interested in collaborating with Erdenet Corporation.”
Representatives from the Japanese company “Mitsui,” the “IRH” Investment Fund of the UAE, and the “Samsung S&T” company from the Republic of Korea have visited us in recent days to discuss potential collaborations regarding investment.
Two prominent Chinese companies have also expressed interest in meeting regarding this matter. The Nordcoper company, which operates two copper smelting plants in Shanxi province, visited our plant and conveyed their interest in investment. Additionally, this company took part in the discussion titled “Trading Copper Concentrate on the Exchange,” organized by the Ministry of Mining and Heavy Industry on March ENFI Engineering Corporation’s MCC-22 Group from China, a prominent construction and manufacturing conglomerate, has shown keen interest in investing. Several other companies have also expressed their desire to make strategic investments in our project. Notably, the renowned Polish copper plant “KGHM”, which is ranked among the top ten globally, is among them.
Investors have shown interest. What are the requirements of the Erdenet Corporation?
We have specific requirements for companies interested in collaborating on the Copper Smelter and Industrial Technology Park. Firstly, they must have prior experience in implementing similar projects. Secondly, they need to possess proprietary know-how and intellectual property patents related to the foundational technology. Lastly, they should be keen on participating as strategic investors and acquiring shares.
While ‘turn-key’ conditions may be advantageous when purchasing a residential apartment, they may not be suitable for acquiring a production line equipped with technology, know-how, and patents.
It’s not an ideal situation. Imagine having the key to your apartment, only to find that the interior design, paint, plaster, and wallpaper are incomplete or pose health risks.
In such a scenario, you’d anticipate investing further to renovate your living space. Similarly, with a plant, if a contractor utilizes substandard equipment and materials during the construction of a copper smelter, resulting in breakdowns within a year, you will inevitably need to repair or replace faulty components. However, this process would necessitate obtaining permission from the technology owner and incurring management fees.
In our case, turn-key conditions are suboptimal. The contractor should demonstrate a vested interest in investing in and reaping the benefits of the plant’s long-term, reliable, continuous, and stable operation. Our plant is projected to operate for another 60- 70 years, with the possibility of increasing copper reserves.
If a state-owned enterprise requires a specific ownership stake in the plant, should it consider transitioning to a joint-stock company?
Here we are talking about Erdenet Corporation acquiring the maximum possible stake in the new project on behalf of Mongolia. Regarding the joint-stock company, the matter of Erdenet Corporation’s 49% ownership must be addressed initially, with further discussions to follow. The Prime Minister, along with the Cabinet Office and the management of the parent company, are in favor of establishing an open joint-stock company, a position I also support personally.
With a copper smelter expected to operate reliably for many years, those seeking profit and returns on investment have incentives to build a high-quality plant. Therefore, our stance is to select a company with a track record in constructing such plants, capable of developing comprehensive technical designs, and proficient in executing construction according to the specifications
How healthy is Erdenet Corporation financially? A feasibility study has been funded internally, and infrastructure projects are currently in progress.
The financial health of Erdenet Mining Corporation SOE is robust. From 2021 to 2023, a tender was issued for an audit by one of the four largest and most reputable international audit firms, with KPMG selected and successfully completing the audit. Additionally, the National Audit Office conducted an audit of production and economic activities in 2023, resulting in the Erdenet plant receiving an “unqualified” or standard opinion for the first time in its history.
Due to its financial transparency, openness, and health, securing financing and loans for the project is feasible. However, our primary focus is not on funding acquisition; rather, we have set a different goal.
The construction of a copper smelter has been featured in the last three Government Agendas. However, progress has stagnated, as discussions have mainly focused on the visible aspects of the Copper Smelting Plant.
However, the initial priority lies in establishing the necessary infrastructure. When evaluating participation in a project, foreign investors typically inquire about connections to water, electricity, roads, and railways, as well as the proximity of these resources and the associated construction costs.
When there is uncertainty about addressing these issues, negotiations often encounter delays or come to a halt.
Erdenet Mining Corporation has proactively addressed these infrastructure challenges by investing its own funds, thereby gaining proximity to essential resources. This initiative instills confidence in potential investors to participate in the project. We are confident in our ability to secure partners willing to invest more than $40 million and collaborate effectively to achieve the project’s objectives. Several modernization projects are currently underway, Including upgrades to ore processing lines, implementation of tailings thickening technology, and the detailed design and construction of a new tailings pond.
THE MINE THAT SUSTAINS THE CITY ALLOCATES REGULAR FUNDS FOR EXPLORING AND DETERMINING RESERVES
With the ore content of the Erdenet Ovoo deposit gradually declining year by year, how much confidence does this issue instill in investors?
Among all the smelting technologies considered, the SKS technology we’ve chosen stands out for its ability to melt relatively low-grade copper concentrates, which is a significant advantage for us. Originally, the concentrate produced by the Erdenet plant had a copper content of over 30%. However, today it has decreased to 22.3%.
As the ore grade declines in the future, whether we like it or not, the concentrate grade will decline to maintain our intake of metal. Optimizing metal intake not only reduces waste but also lowers investment and running costs. Furthermore, the potential to decrease meltable concentrate content by up to 15% further underscores the advantages of selecting SKS technology Typically, mine operations prioritize the most profitable sections initially. However, over years of operation, the metal content diminishes while the ore hardness increases. The introduction of this technology enables the efficient utilization resources at Erdenet Corporation in the future, minimizing waste.
Erdenet allocates 15-20 billion MNT annually to exploration and research aimed at expanding its geological reserves. What outcomes do you anticipate from these efforts?
In recent years, our efforts have been focused on intensifying geological exploration of the Erdenet Ovoo deposit and incrementally increasing ore reserve estimates. Recalculation of the geological and operational resources of the deposit has been conducted, resulting in the Professional Council of Mineral Resources affirming its viability with geological reserves sufficient for the next 60-70 years.
In 1973, it was confirmed that the open mine had over 500 million tons of geological reserves. The initial approved feasibility study estimated that the proven ore reserves could sustain mining operations for 34 years. Subsequently, the Concentration Plant, capable of processing 4 million tons of ore, commenced operations on December 14, 1978, marking the production of the first concentrate.
By 2025, our goal is to increase the capacity of the concentration plant to 40 million tons. In 2021, for the fourth time since 1978, we re-evaluated the geological reserves, confirming that Erdenet has 2.9 billion tons of geological reserves.
The Erdenet plant serves as a crucial mine supporting the city of Erdenet. The potential impact on the city’s future is uncertain should mining resources be depleted and the plant’s operations cease. Erdenet Corporation intends to allocate a certain amount for geological exploration investment annually to address this concern.
During my tenure as the Minister of Mining and Heavy Industry, I proposed the granting of six exploration licenses to Erdenet Mining Corporation at a Cabinet meeting, which received approval from 13 ministries. Minister J. Ganbaatar secured approval from the 14th Ministry and subsequently transferred all aforementioned special licenses to Erdenet Corporation.
Since spring 2023, we have commenced detailed exploration at the Oyut deposit. Currently, the estimated reserves have doubled, with projections indicating that the Oyut deposit alone holds more than 200 million tons of reserves.
We plan to further invest in exploration across the remaining 5 license areas and the Erdenet Ovoo strategic deposit to increase our reserve estimates.
We anticipate a steady increase in copper prices starting from the second half of 2025. Under these favorable conditions, we will have the capability to efficiently process even the lowest grade copper ore. Additionally, for our mine, we remain committed to ongoing strategic planning and investments in geological exploration and mineral resource expansion.
ERDENET CORPORATION PROMOTES OPEN TRADING
While serving as the Minister of Mining and Heavy Industry, I presented the draft Law on Mining Product Exchange to Speaker of the Parliament G. Zandanshatar in January 2022. It’s important to conduct an impact assessment before submitting any bill. During that period, selling coal and iron ore on the exchange proved highly profitable, although the situation for copper presented a slightly different perspective. Firstly, due to Erdenet Corporation’s long-term copper trade agreements, there is no surplus copper available for sale on the exchange. All existing copper concentrate contracts have been secured until 2026.
Secondly, in the contract, the price of copper concentrate was determined based on the London Metal Exchange price. Consequently, the Ministry of Finance expressed concerns that if the price of copper sold on the Mongolian exchange was lower than the London price, the country might incur financial losses due to this disparity.
Thirdly, there were two instances of copper concentrate trading globally, both of which were unsuccessful, prompting the need for further examination of this situation.
On April 29, the Mongolian Stock Exchange JSC successfully organized the first copper concentrate trading, and Erdenet Corporation sold a total of 3000 tons (wet weight) of copper concentrate with a copper content of 22.35%.
Firstly, it’s crucial to acknowledge the significant contributions of various organizations, including the Ministry of Mining and Heavy Industry, Erdenet Corporation, Mongolian Stock Exchange, Financial Regulatory Commission, General Department of Customs, and Ulaanbaatar Railway. Comprehensive discussions were held to anticipate and address potential complications in trading from all perspectives. Provisional procedures and pricing methodologies for copper concentrate trading on the exchange were duly approved.
Following extensive deliberations on setting the threshold price, the Erdenet plant opted to implement temporary regulations. It’s possible that further discussions will be necessary to clarify future actions and considerations.
The primary focus for Erdenet Corporation is on promoting transparent and open trading. The enactment of the Law on Mining Products Exchange has led to the expansion of tradable products on the exchange, resulting in numerous advantages. These include establishing foundational conditions for Mongolia’s economic growth and enhancing the competitiveness of our mineral products.
As Mongolians, we now have the opportunity to access all information about mineral trading openly and transparently through the electronic system of the mining products exchange.
Thank you for the interview!