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Industry Overview: Mongolia Gold Mining

Mongolia is a landlocked country squashed in between two giants, China and Russia and is among the fastest growing economy in the world. With the presence of huge mineral resources such as Gold, Coal, Copper, Molybdenum, Tin, Tungsten and Uranium Mongolia has successfully attracted  a significant amount of foreign investments. Some of the deposits of Coal and Gold have been recently discovered and are just beginning to get into early phases of production. After the discovery of these minerals, the Mongolian economy has been compounding at almost 20% in real terms for the past few years.  In 2011, the GDP of Mongolia grew by 17.3 percent and is expected to grow more than 25 percent in 2012, with Oyu Tolgoi gold mine starting production.

One of the most important sectors in mining has been Gold mining and exploration. Some of the biggest reserves of gold have been found in Mongolia and have a huge impact on the national economy. There are over 75 major gold mines in the country. The oldest gold mine in this country was the Boroo Gold Mine which was operated by Centerra Gold and had a 100% equity interest in it. It was the first significant foreign investment for industrial development in Mongolia since 1979. From March 2004 through to December 2011, the Boroo mine has produced approximately 1.5 million ounces of gold and reported net earnings of $136.6 million for the year 2011. The Boroo operation continues to mill lower grade stockpiled ore while the company waits for the final approvals for another Gold mining project called the Gatsuurt project.
 
Another major discovery in Mongolia was the Oyu Tolgoi Gold mine which is the largest undeveloped porphyry-copper-gold resource in the world. Oyu Tolgoi has an estimated mine life of 40 years  and is estimated in excess of $200 billion. It is also the largest development project and foreign investment in the history of the country and  upon completion to account for more than 30% of the country's gross domestic product.  The mine is set to produce more than 1.2 billion pounds of copper, 650,000 ounces of gold and 3 million ounces of silver each year with commercial production starting in the first half of 2013.
 
Oyu Tolgoi is a Joint venture between  Ivanhoe Mines which owns 66%  and the Mongolian government which owns 34%. Ivanhoe has already spent over $5 billion on Oyu Tolgoi with final overall costs estimated at as much as $13 billion. Looking at the future prospects in Mongolia, Rio Tinto through its subsidiary Rio Tinto International Holdings Ltd, invested approximately $ 4 billion between October 2006 and September 2011 to acquire approximately 49% of Ivanhoe Mines. Singapore's sovereign wealth fund Temasek Holdings has also taken up a 5.5% stake in Canada's Ivanhoe Mines  valued at roughly $420 million. The proceeds of the offer will be used for the completion Ivanhoe's Oyu Tolgoi copper-gold mine.
 
Mongolia's mining sector is dominated by Ivanhoe Mines and state-owned players such as Erdenes MGL and Erdenet. Small companies such as Centerra Gold and Erdene Resource Development also have a stake in the country and have substantial exploration projects.
 
Although the Mongolian government has always encouraged foreign investment. The government rescinded the 68% windfall tax in early 2011, which had been a significant impediment to foreign investment into the country. The repeal of the tax led to a wave of investment including the completion of the Oyu Tolgoi agreement. But over the past few months there has been growing voices of dissent on the over-exploitation of natural resources and hardly any benefit reaching the native people as almost 40% of the total population of 3 million is still very poor, despite having such rich resources.
 
Mongolia is rich in copper, coal and gold, and it's in the midst of a mineral boom. This marks a profound change for a country where two out of every five people make their living herding livestock.  Mongolia is expected to be one of the key global mining stories for the next 20 years. With the increase in global prices of metals like gold and silver, the value of these mines will increase exponentially. Thus one can conclude  that Mongolia is an investment destination is too good to be overlooked.
 
(Source: Insight Alpha)
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