The mining sector and Mongolian economy are inextricably linked. The development of the mining sector including the Oyu Tolgoi copper-gold deposit saw Mongolian GDP growth lift to over 17% last year. A similar growth rate is expected this year. Mongolia is one of the most under-explored and under-developed countries for its mineral deposits. However, with its untapped rich geology and proximity to China, the Mongolian mining industry offers exciting upside. Still, this will not be without risks.
The Mongolian Ministry of Mineral Resources and Energy has identified 15 “strategically important deposits”, including the Oyu Tolgoi copper-gold deposit and the Tavan Tolgoi metallurgical coal deposit. With these deposits in operation, AME expects Mongolian producers to account for over 8% of global metallurgical coal exports by 2021, while they constituted a mere 1% back in 2006. With the geographical proximity to China, most of the exports will be transported to China where the consuming power is immense. 
The IMF forecasts Mongolian GDP to increase by approximately 60% over the next five years. Of this growth, the mining sector will be a fundamental driver of growth. Indeed, revenue from these strategically important deposits will account for approximately 34% of the country’s GDP and the mining sector in total will account for around half the economy by 2017. Mongolia offers tremendous exploration upside and the list of promising projects is almost certain to grow.
Whilst relishing the opportunities, we should also be prudent and mindful of the potential risks. Government always play an important role in mining industry, any significant policy changes can affect the industry. Historically, this has not always been positively. Furthermore, an economy’s over-reliance on the mining industry gives it a large exposure to an unexpected fall in commodity prices. Also, it is also by no means certain that all the strategically important deposits will be reach production on schedule, as only 7 of them currently operate. This would crimp growth.
Mongolia, like any investment decision has many deciding factors. Nonetheless, its huge potential to develop will mean it remains a focus to investors for years to come.
For further information, please contact:
Matt Fusarelli, AME Group

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