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  • Writer's pictureHenry Avis-Vieira

MONGOLIA: A New Global Metals Giant in the Making?

14th July 2021 - Approximate reading time, 8 minutes.


A New Global Metals Giant in the Making?

Mongolia, a vast Asian land with an economy that ranks as underdeveloped may soon blossom into the world's next big industrial and precious metals producer.  Often referred to as the last frontier in extensive mining ventures, Mongolia holds a wealth of mineral resources that is helping to create a pathway for brisk, extended economic growth and social advancement.  The country, beginning in the last decade, has largely moved away from an agriculturally based economy (nearly seven decades in duration) to one which has focused increasingly on mining; with copper and gold production prioritized.

One prime example of this effort is the Oyu Tolgoi Underground Project (OTUP), deemed to be a top-tier mining producer and among the largest copper and gold deposits globally.  By all  professional mining industry accounts, the operation has been decidedly successful thus far.  According to long-term scenario analyses, when fully operational, Oyu Tolgoi is projected to generate approximately 30 percent of Mongolia's GDP.

Faith in the long-term promise of the Oyu Tolgoi project was recently bolstered by the announcement of a AUS dollar 2.3 billion funding agreement between Rio Tinto and Turquoise Hill Resources (TRQ), expanding and replacing their original Memorandum of Understanding (MOU) executed in September of 2020 ( - Rio Tinto Concludes Agreement with TRQ - 13th April 2021).  Both are major participants in Mongolia's industrial metals arena and, together with Erdenet Mining Corporation (a Mongolian Russian joint venture), account for the largest percentage of mining production in the country.

Over the past few years, the Mongolian government through cross-border partnership pacts has made significant progress in protecting and promoting its emerging mining industries.  The China-Mongolia-Russia Economic Corridor (CMREC), for instance, is structured to boost trade between Mongolia and its immediate neighbors - stressing mineral transactions - while accelerating infrastructural synergies and building integrative, efficient economic strategies.  Once wholly agreed, CMREC will result in Mongolia becoming the principal link in reinforced east / west trade networks, reducing freight delivery times and establishing additional exportation routes.

As recently as the early 1990s, industrialized mining in Mongolia was very minimal.  However, following the loss of economic support from the former Soviet Union the country transitioned to a market economy and, in 1997, passed the Minerals Law, principally for purposes of drawing in private investment.  Mining sector growth transformed the nation in rapid fashion and at the start of 2011 Mongolia was measured as the world's fastest expanding economy, manifesting impressive production gains in copper, coal, uranium, gold, silver and a number of other minerals.  The government agency that has been most responsible for managing the mining sector's exceptional development is the Mineral Resource Authority of Mongolia (MRAM).

Mineral extraction corporations are well-aware of Mongolia's precious metals potential (chiefly gold and silver) and the government through its long-term Gold 2 program has initiated strategies geared to pursuing sustainable gold / silver sector mining.  This ambitious undertaking is supported by several government agencies which includes the Ministry of Finance, the Central Bank of Mongolia, the Ministry of Mining and Heavy Industry, and the Ministry of Environment and Tourism. 

The company that currently appears to have the largest precious mining presence in Mongolia is Stepp Gold, being the first organization to venture into that domain.  As of mid-2020 Stepp Gold had recorded gold production figures exceeding 15,300 ounces.  Silver output came in at approximately 5,500 ounces (Investing News Network - Mongolia:  A Fast-growing Economy with Unique Mining Opportunities - 15th March 2021).  These totals are but a small indicator of the country's extraordinary precious metals potential.

All signs point to Mongolia having a highly promising future in metals extraction, but there are a number of serious issues that may compromise its near-to-medium-term prospects.  One major concern is lack of economic diversification, making it similar to most other natural resource rich lesser developed countries.  Outside of mining, the only other industry of note that contributes appreciably to GDP and generates a reasonable level of foreign exchange is cashmere wool manufacturing - Mongolia is currently close to being the world's biggest producer of cashmere.  Secondly, budgetary difficulties have intensified with the revised 2020 deficit figure projected to reach 3 percent of GDP.  The rise stems essentially from a decline in exports, impacting growth and tax revenues.  Critically, the Covid-19 pandemic markedly hurt exports and foreign direct investment (FDI), with the former decreasing by USD 2.1 billion and the latter dropping USD 300 million.  Finally, Mongolia's external debt burden is problematic, registering at USD 30.7 billion for year-end 2019, which equates to about 221 percent of GDP (IMF Country Report No. 20/205 - Mongolia - Request for Purchase Under the Rapid Finance Instrument - Press Release; Staff Report; and Statement of the Executive Director for Mongolia - June 2020).  However, in fairness, these figures merit some qualification; nearly one half of the nation's external debt total is comprised of FDI and a quarter pertains to general government long-term liabilities.

Mongolia has some other notable base vulnerabilities, in large part because of its limited economic capacity and inadequate foreign exchange levels.  This makes the country susceptible to any extended degrading in external economic and financial environments, potentially affecting proposed new bond issuances - this past June Fitch assigned a B rating to near-future Mongolian bond issues - purposed for the repurchasing of a considerable portion of external repayment obligations that are scheduled to mature during the next few years.  Additionally, the banking system lacks adequate capital supports and the deficiency may eventually lead to difficulties in effectively navigating the effects of Covid-19.

Although developing country analysts generally categorize Mongolia's external debt as higher risk, it is considered sustainable under current and planned administrative frameworks.  Ongoing efforts to preserve debt sustainability are concentrated on the re-prioritization of capital expenditures.  Stronger evaluation and selection criteria will serve as the predominate template for the central government's capital expenditure objectives going forward.  The primary macroeconomic motivations are: acceleration of economic growth and expansion of export streams while avoiding new imbalances and boosting foreign direct investment inflows significantly.

Mongolia has several USD high-yielding medium and long-term bond / note issues (final maturities range from 2022 to 2026), all trading at modest volumes and frequencies.  Basic information on such is a follows:


medium-term notes, final maturity in 2022, coupon: 9.750%.


medium-term notes, final maturity in 2022, coupon 5.125%.


medium-term notes. final maturity in 2023, coupon 5.6250%.


long-term notes, final maturity in 2026, coupon 5.125%.

As alluded to earlier in this presentation, the expectation is that a portion of the above bonds / notes maturing in 2022 and 2023 will be repurchased through a new USD bond issue currently in negotiation.  A cash tender offer is planned (Fitch Ratings - Fitch Assigns Mongolia's Proposed USD Bond a 'B' Rating - 21st June 2021).

Additionally, a small number of old impaired supplier credits (loans) - some may be in dispute due to exporter performance matters - are owed by quasi-sovereign entities.  Ostensibly, Chinese and Japanese trading companies hold the bulk of this debt.  Speculated totals fall in the range of USD 20 to 50 million.  These loans have occasionally been offered for sale (not over the last twelve quarters, given accumulated distressed debt market trading intelligence) in specialized secondary markets that deal regularly in various forms of exotic sovereign debt.

WesBruin Capital

14th July 2021

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