In 2017, Mongolia’s coal deposits helped the country move to recovery. Often associated with toxic emissions- and in Mongolia’s case, chronic air pollution- it was instrumental in the delivery of growth exceeding 5%. The reasons are well documented and understandable. Even with more muted industrialisation, China is a key steel producer and relies on coal to power its mills. Xi Jingping and others are genuinely making green overtures, and this led to the closure of hundreds of mines in Inner Mongolia last year. Combined with a ban on North Korean imports, this placed Mongolia as a key exporter.
Aspire Mining is listed on the Australian Stock Exchange (ASX) and is a major explorer in Mongolia. It has recently announced ‘outstanding’ findings at its Nuurstei coking coal project, on the basis of a sample of 300kg. Billed as representative of the coal that will eventually come out of the ground, after repeated testing it revealed a Coke Strength Reactivity (CSR) of 78. In context, reports suggest prime coal projects have readings of typically between 68 and 72, with the higher the number denoting the higher quality of the product. If Ovoot is a roaring success, what could this mean for Mongolian coal? Here we identify three positive potential consequences.
The explosive economic growth that led to Mongolia growing over 17% in 2011 was driven by massive FDI, and favourable commodity pricing. In the midterm it is indisputable that for Mongolia to attain 9% sustained growth in line with emerging Asia, copper will be the main contributor, not least when Oyu Tolgoi comes on line. But however much we may wish to mitigate climate change, coal will continue to have an important role in industrialization. It was only last year that the government of Mongolia doubled the amount of land available for exploration, to now 20% of its landmass. With as much as US$2.5 trillion estimated to be under the ground, it seems unlikely there are no more coal projects to be found. If Ovoot is lucrative and deliverable, it may drive other prospectors and investors to Mongolia.
We reported what we believed to be the world’s largest traffic jam at the Mongolia-China border last year. Rows and rows of trucks, laden with coal, trying to traverse subpar infrastructure to satisfy China’s growing appetite. The characterisation is this serves only to supply one market. What is interesting about Ovoot is these latest findings suggest it may widen Mongolia’s coal market beyond China, and toward industries in South Korea and Japan. In 2017, nearly 90% of Mongolia’s exports went across the Chinese border, and so anything that can widen this is to be welcomed. As ever, infrastructure will be crucial to pursuing this, but with finite resources becoming by definition less plentiful, the economic argument could grow.
On 21st June, the Mongolian government announced plans to list part of the state owned company that holds the Tavan Tolgoi mine. Discussing a potential 30% listing, the Mining Minister Sumiyabazar Dolgorsuren, also announced his intention to hasten the construction of a US$1bn power plant near the mine. Given Tavan Tolgoi is thought to be one of the largest coal reserves in the world, this movement – and proactivity- is a pleasant backdrop to Aspire’s own aspirations at Ovoot. And this is not the only recent announcement relevant to coal in Mongolia over the last month. TerraCom, also listed on the ASX, has found a thick coal deposit near its Baruun Noyon Uul mine. With multiple coal intersections, it is reported to be ‘by far the thickest’ discovered on any of InterCom’s licenses.
Mining is complex, as any geologist will attest. Nothing is guaranteed, and promising findings do not always result in economic activity. What is clear, though, is the party is not over for coal. In Mongolia’s case, it may have only just begun.