Ts. Tumentsogt: There is a necessity for copper concentrate and power plants

Ts. Tumentsogt, tCEO of Erdenes Oyu Tolgoi LLC, spoke with Mongolian Economy Magazine about the Oyu Tolgoi Project.

-Due to the COVID-19 outbreak, the global economy is facing tough challenges. Has the pandemic affected the implementation of the Oyu Tolgoi Project? Also, could you tell us about the recent progress made on the project?
-All businesses around the world have been affected by the COVID-19 pandemic, as has Erdenes Oyu Tolgoi LLC. Even though the copper exports dropped in the first quarter of 2020, the prices of copper and gold began to gradually rise from the second quarter. Thus, in the third quarter, Erdenes Oyu Tolgoi LLC exceeded its copper sales target. To maintain and accelerate the export levels further, the company has been taking measures to mitigate potential sales risks and strengthen the monitoring process.

-In the first half of 2020, how much investment have you received for the Oyu Tolgoi Project? Currently, the company is discussing additional investments needed to ensure operational continuity amid the pandemic. What measures have been taken to attract further investments?
-Since 2010, the Oyu Tolgoi Project received 11 billion USD total in investments. On September 10, 2020, Rio Tinto and Turquoise Hill Resources (TRQ) signed a memorandum of understanding concerning the funding of the Oyu Tolgoi Project. The parties agreed on the following: pursue a re-profiling of existing project debt in line with the revised mine plan, project timing and cash flows; and seek to raise up to 500 million USD in additional lending under the existing project financing arrangements from international financial institutions. Thereafter, Rio Tinto gave their suggestion on the funding pathway for the Oyu Tolgoi Project.

The chief executive of Copper and Diamonds at Rio Tinto Arnaud Soirat, said “The MOU agreed today that TRQ provides a clear funding pathway for the completion of the Oyu Tolgoi Underground Project. We will continue working with TRQ and the Government of Mongolia to progress the underground project, which has the potential to unlock the most valuable part of the mine for the benefit of all stakeholders.”

-What plans does Erdenes Oyu Tolgoi LLC have on extending the benefits of the Oyu Tolgoi Project to Mongolia?
-Every year since 2010, Oyu Tolgoi LLC has generated 1.7 billion USD in government and local revenue. The total VATs and social insurance premium payments amount to around one billion USD each year. In addition, Oyu Tolgoi LLC entered into supply agreements with roughly 400 businesses which helped to create nearly 3,000 new jobs. Within the scope of a cooperation agreement made between Umnugovi Aimag, Khanbogd, Manlai, Bayan-Ovoo, Dalanzadgad soums and Oyu Tolgoi LLC, we have been funding various projects around infrastructure and sustainability as well as assisting local businesses since 2016. Oyu Tolgoi LLC makes an annual investment of five million USD to local projects through the Gobi Oyu Development Support Fund.

A few projects which we have completed are the Khanbogd Secondary School No.2 for 640 secondary children and 200 kindergarten children, hospitals and animal health care centres all of which have been endorsed by local residents. To extend the contribution, Erdenes Oyu Tolgoi LLC made significant efforts on tightening our budget monitoring, cutting costs and exploring possibilities of an interest rate reduction with the Government of Mongolia.

-What policy and support are needed to boost local procurement? How can we increase the competitiveness of our national suppliers?
-Local procurement which amounted to 114 million USD in 2010 reached 3.4 billion USD by the second half of 2020. In relation to the Oyu Tolgoi Project, we have closely cooperated with around 400 national companies and purchased goods and services amounting to 608 million USD from companies incorporated in Umnugovi Aimag.

To further facilitate local procurement, Oyu Tolgoi LLC has adopted a “Made in Mongolia” initiative. We hope it will improve the competitiveness of local suppliers and help to create a diversified economy in Mongolia. Owing to the Made in Mongolia initiative, local companies began manufacturing not only bulk bags, protective clothing and safety equipment but also grinding steel ball and power distribution systems. It is a significant achievement for local businesses.

– Only a tiny part of the energy consumption of the Oyu Tolgoi Project is supplied domestically. What steps can be taken to increase domestic energy supply?
– Mongolia does not store energy, at the moment. Thus, for the Oyu Tolgoi Project, we spend nearly 650 million USD on energy imported from electric utility companies in Inner Mongolia each year.

Promisingly, issues concerning the government investment to Tavan Tolgoi Power Plant Project and domestic energy supply were addressed and resolved by Government Resolution No.124 of 2020. According to the Power Source Framework Agreement which has been amended recently, Oyu Tolgoi LLC must prioritise the development of the state owned power plants and has the right to extend the contract on the power purchase with electric utilities companies in Inner Mongolia or enter into contact with state owned power plants.

The construction of Tavan Tolgoi Power Plant is scheduled in July 2021. Within the next four years, we plan to supply secure, safe and stable energy which is generated at Tavan Tolgoi Power Plant to the Oyu Tolgoi Project.
The Tavan Tolgoi Power Plant, a state owned limited liability company, has been established following the Government Resolution No.124 of 2020. Erdenes Tavan Tolgoi LLC might undertake thirty percent of investments to Tavan Tolgoi Power Plant Project and the rest by Development Bank which is subject to further discussion.

-How do you see the short and long term development of the Oyu Tolgoi Project?
-The mining companies around the world attach special importance on corporate social responsibility so should our company. The following can be given as examples of such measures: establishing and maintaining a good relationship with the locals; promoting economic and social development; creating new jobs; increasing local procurement; and investing in local businesses.

In the long run, it is critical that we put efforts on attracting investors to make the copper concentrate and power plant projects into reality. These projects will create more jobs and help local businesses.

-Do you think that the economy of Mongolia will rely on the Oyu Tolgoi Project after the pandemic?
-After the COVID-19 pandemic, the economic recovery will be mainly driven by the mining sector. In the global market, the prices of copper, gold and coking coal are most likely to remain stable in the upcoming two to three years. If the Oyu Tolgoi underground mine starts exports in 2022, it will certainly accelerate the economic recovery of Mongolia.