Mongolia’s gold industry is expected to see a major boost in 2018, with the Oyu Tolgoi mine set to double its output to between 240,000 to 280,000 ounces. As Oyu Tolgoi enters its later phases, higher grades and increased recovery will significantly enhance the projects capacity. This will further propel the recovery of the Mongolian economy.

Located in the southern Gobi, Oyu Tolgoi is Mongolia’s flagship mining operation. The megaproject is being developed in collaboration between the multinational mining giant Rio Tinto and the Mongolian government. The country enjoys abundant mineral wealth, and the OT project is projected to be the world’s third largest copper operation by 2025. Alongside copper and coal, gold extraction is an important and growing industry in Mongolia, with the government aiming to hit 25 tonnes in annual production by 2020.

The industry has gathered steam in recent years, as an improving legal environment has renewed FDI inflows into the country’s extractive industries. Steady progress at Oyu Tolgoi will continue to push it forward. The operation is growing more efficient, with gold recovery rates rising from 47.7% in Q2 2017 to 59.8% in the same period this year.

Mongolian gold’s success is not limited to Oyu Tolgoi. The recent IPO of Steppe Gold, which has operations across the country, and the strong exploration results presented by Xanadu mines both indicate substantial foreign investor interest outside OT. The Mongolian government has acted in step. It recently increased the amount of land available for prospecting to 20.9% of the country.

This is a good omen for Mongolia and its investors, and strengthens the case that its economy is back on track. Whilst the government has launched an ambitious diversification initiative, it remains overwhelmingly an extraction-export based economy. China is by far Mongolia’s biggest customer, and the Mongolian economy is strongly influenced by developments in its southern neighbour.

The country enjoyed explosive growth off the back of its mining sector in the early 2010s, before entering rough waters as global commodity prices slumped. After several years of anaemic growth, a combination of rebounding prices, prudent economic management and geopolitical good fortune have seen the economy regain strength. Coal performed particularly strongly in 2017 off the back of environmental restrictions in Northern China and sanctions against North Korea. However, as Xi Jinping seeks to wean China off coal, Mongolia’s copper and gold industries will become increasingly important. Both industries have strong long-run prospects, and will support the country’s development in an increasingly post-coal world.

Whilst it was coal and copper that put Mongolia on the map, gold has the potential to contribute greatly to the country’s growth. The current administration is reform-minded and cognizant of the integral role that foreign investors will play in developing the country’s extractive capacity and wider economy. The industry presents exciting opportunities Mongolian and foreign investors alike.