N. ARIUNTUYA
ariun#mininginsight.mn
In 2024, Mongolia's mining sector aims to generate MNT 8 trillion, marking a year where the largest portion of mining revenue will be concentrated in the state budget. As revenue grows, so should the benefits to the people. Specifically, MNT 1.2 trillion of the MNT 8 trillion will be accumulated in the Sovereign Wealth Fund, meaning 15 per cent of mining income will be allocated to the people. This will demonstrate that the Wealth Fund Law, passed before the election, is being actively implemented. This milestone coincides with a new cycle in Mongolia's mineral resources sector, accompanied by the renaming of the ministry and the appointment of a minister with a medical background. The primary task of the minister, Ts.Tuvaan, is to increase mining revenue. In Mongolia, the mining sector bears the responsibility of generating and concentrating national funds more than any other ministry, including the Ministry of Finance or the Ministry of Economy and Development. Ts. Tuvaan has accepted the challenge of maintaining a robust Sovereign Wealth Fund. His first objective is to accumulate MNT 1.2 trillion in the fund in 2024.
Achieving this, however, will not mark the end of his work. In the coming years, the amount to be contributed to the Wealth Fund will continue to rise. Thus, the new minister faces considerable tasks and challenges in generating substantial revenue. His greatest advantage is that he was appointed Minister of Industry during a highly favourable market period. Coal, copper, and gold markets are all performing well, and this positive trend is expected to continue into the next year. The commodities market, especially coal, presents an opportunity to boast about generating MNT 8 trillion. However, this income is not guaranteed. Overreliance on coal is one factor that makes the Sovereign Wealth Fund vulnerable. This could also weaken the Democratic Party (DP)'s standing in the coalition government and destabilize the minister’s position. Since receiving his seal on July 10, 2024, the Minister of Industry and Mineral Resources has spent the last two months in a series of meetings and appointments, familiarizing himself with the sector’s activities. Perhaps, in the history of the ministry, Ts.Tuvaan is the minister who has dedicated the most time to understanding the sector. His medical background may play a role in this approach, as diagnosing how to open revenue channels by observing, analyzing, and listening may be the right way to begin. His words and decisions reflect this diagnostic process. However, the coming days will reveal whether his diagnosis is accurate and if it will effectively "stabilize" the industry. The reader can glimpse Minister Ts. Tuvaan's initial assessments are in the following statements.
These are the words frequently spoken by the minister during his visits to state-owned mines, factories, affiliated agencies, and professional organisations:
• Accumulation must be built in the sovereign wealth fund.
• Geological exploration must be increased.
• New projects must be supported and brought into operation quickly.
• Industrial and technology parks must be established.
According to Minister Ts. Tuvaan, the Ministry of Industry and Mineral Resources (MIMR) will prioritise geological exploration. However, the current state of Mongolia's geological exploration sector is stagnant, having already peaked in the past. While there is frequent talk of the potential for significant global discoveries in Mongolia's relatively unexplored regions, the reality is different. The available area for exploration is limited, new exploration licenses are scarce, and many geologists remain unemployed. To advance geological exploration, the barriers and limitations hindering progress must first be addressed. Increasing promotional efforts is also essential. Furthermore, creating a favourable investment and tax environment to remain globally competitive is critical. From making changes in the legal framework to negotiating with the Ministry of Environment and Climate Change (MECC) and the Ministry of Finance, numerous challenges will need to be overcome. First and foremost, the issue of license transfers and royalties will need to be discussed with the Ministry of Finance. Financial resources must be secured to initiate these negotiations, and the wealth fund may hold leverage by offering the "right" to discuss tax reductions. The optimization of protected areas will need to be negotiated with the MECC. Currently, nearly 70 percent of Mongolia's total land area is restricted under special protection. As Minister Ts. Tuvaan and S. Odontuya are from the same party, coordination between them is likely. Member of Parliament S. Odontuya played a key role in shaping the government’s mineral resources policy, leading the working group with a deep understanding of mining issues and establishing a balanced yet progressive policy.
This alignment may facilitate cooperation with the MECC, enabling step-by-step progress in resolving the accumulated challenges in geological exploration. Minister Ts. Tuvaan also met with the National Geological Service and the Geological Research and Analysis Center, among other affiliated agencies and professional organisations. However, what drew the most attention was his visit to the "Xanadu Mines" project site-the only private sector project he has visited so far. There are a few projects in Mongolia, including the Kharmagtai gold and copper project, that have undergone extensive exploration, reported positive results, and generated high expectations but have seen little movement. By including Kharmagtai in his initial itinerary, the minister sent a clear message to the industry: the project should move forward. This has raised anticipation for what kind of policy support will be offered to large-scale exploration projects in their next stages.
This expectation was further reinforced by the first decision made by the new minister. Minister Ts. Tuvaan decided to allow Achit Ikht LLC to resume operations, which had been previously halted. Despite concerns about a serious issue involving sulfuric acid leakage into the environment, Minister Ts. Tuvaan explained that the decision was made due to the government's obligation to take urgent action. He clarified, "The company's ongoing legal dispute and the 34 per cent ownership issue are unrelated and continue separately." However, this decision can be seen as an effort to create multiple avenues for advancing mining projects and boosting revenue. Yet... since the beginning of September, two cabinet meetings have addressed the issuance of special mineral permits and updates to the list of strategic deposits, assigning specific responsibilities to the Minister of Industry and Mineral Resources. At the first meeting, on September 11, 2024, the head of the Cabinet Secretariat, N. Uchral, made a cryptic statement, noting that "the government has decided to address the issue of licenses in a unified manner." He explained, "If the exploration license is not decided alongside land, one agency should not resolve the matter without informing the government." This explanation left many puzzled. From this meeting, the Minister of Industry and Mineral Resources was tasked with presenting a plan to the government regarding mineral licenses.
At the next Cabinet meeting on September 25, 2024, the government approved a resolution on certain measures to implement the Law on the Sovereign Wealth Fund. While specific details were published in the magazine and not repeated here, what is relevant to the sector minister is the instruction to draft a proposal determining the boundaries of 16 strategically important deposits for further discussion at a Cabinet meeting. Although there are many uncertainties in these government decisions, one thing is clear: the state's involvement in the mining sector is on the rise. In this situation, it is doubtful whether Minister Ts. Tuvaan will have sufficient power to boost geological exploration, initiate new projects, and establish industrial and technological parks. It is a well-known fact that the government alone cannot achieve these objectives of increasing mining revenue and securing regular, diversified income streams without the involvement of foreign investment and the private sector. Historically, the relevant ministries have mostly been led by MPP ministers, except for the period from 2012 to 2016, during the DP’s rule. When the DP won the parliamentary elections in 2012, DP ministers D. Gankhuyag and R. Jigjid headed the Ministry of Mining. If you recall, during that time, there were significant decisions and discussions. The government approved policies for the mineral resources sector, resolved the deadlock on financing for the Oyu Tolgoi underground mine, decided against holding government shares in certain strategic deposits, added some deposits to the strategic category at investors' requests, and implemented special royalty arrangements that opened the door to new projects. However, this was also when the raw materials market experienced a sharp downturn. Now, the second cycle of the DP's leadership in the mining sector has begun with Minister Ts. Tuvaan.
Unlike the previous period, however, he has assumed office during a highly favourable market cycle, with the mining industry generating substantial profits. Minister Ts. Tuvaan appears to be adopting a humble approach, avoiding empty promises and listening quietly. However, if he takes an overly cautious or standard approach or gets caught up in immediate domestic issues, like some previous ministers, time may pass without any substantial achievements. That said, if the DP shows the same boldness it demonstrated between 2012 and 2016, there could be meaningful reforms and changes. On the other hand, Ts. Tuvaan is not working in isolation. One reason for this is the presence of S. Ganbaatar, who chairs the Standing Committee on Industrialization Policy in Parliament. Throughout his political career, Ganbaatar has made a name for himself through populism in mining, often expressing strong skepticism about foreign investors and acting as though he has an "allergy" to Oyu Tolgoi. He is now in charge of the Standing Committee on Industrialization Policy. Notably, Ganbaatar is also leading the working group tasked with revising the Law on Minerals, alongside former President Kh. Battulga, J. Munkhbayasgalan, and D. Jargalsaikhan, under the order of the Speaker of Parliament on September 5.
Will the DP advance the mineral sector during this cycle? Can it reform the legal environment, establish industrial technology parks as a foundation for industrial development, reverse the flow of capital investments, and bring the uranium project into economic circulation? If Minister Ts. Tuvaan follows the philosophy and values of the DP, and bravely implements his diagnosis for the industry-standing firm against the policies of the ruling party and the Prime Minister when necessary-he has opportunities. If he can make the Government, the Prime Minister, and the President understand and accept his approach, it will become easier to address the challenges in the mining sector across all areas and to resist political interference from all sides. It cannot be denied that Ts. Tuvaan has the potential to make bold changes and enact radical reforms in a sector that is constantly at the center of political contention, burdened with significant problems, and tainted with a negative reputation despite its vital role in the economy. Why, then, was the Ministry of Mining transformed into the MIMR? Why was this ministry handed to the DP, and why was Ts. Tuvaan chosen as its minister? The answers to these questions will become clear depending on whether any significant progress is made. If no progress is achieved, the answer will remain the same. Since 2010, Mongolia has implemented policies to ensure that the benefits from its mining resources reach the people, as can be seen from the chart. Over the past 15 years, MNT 12.245 trillion of wealth returns from the mining sector have been concentrated in various funds intended for citizens. However, the profitability and effectiveness of this spending is another matter. The key point is that with the new Sovereign Wealth Fund Law, this figure will continue to grow. As the mining sector develops, the Wealth Fund will be further enriched. It is now up to the mineral resources sector to create this opportunity. What the new minister does over the next four years will determine the outcome.
Mining Insight Magazine, September 2024, №09 (034)
