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Business / Economy / Mining / Mongolia News / October 9, 2015

‘OT loans from international banks will be finalized before 2016’

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The CEO of Erdenes Mongol LLC and board director of Oyu Tolgoi LLC (OT), B.Byambasaikhan, gave an extensive update on OT issues in the following interview. 

Continuing the OT underground mining development is expected to impact positively in attracting investment. Can you tell us the benefits of restarting this operation? 

The OT underground mining development is being executed according to the plan approved in May 2015. Every work is being carried out based on detailed plans. Simply put, the development and construction of the OT underground mine, which was halted two years ago, has been restarted. Positive steps are being made. For example, we’re providing jobs to people who were previously laid off. The OT board had detailed technical plans approved [by Parliament].

 Is it safe to say that the underground mine development is progressing without any problems?

Work at OT is coming along well. Anyone will see how consistently OT is working after visiting the mine once.

The OT mine is an internationally recognized large deposit. It operates in accordance with international standards. It prioritizes safe operations before anything and all of its technology  and operations are ensured in accordance with global standards.

 How is the project to raise financing from international banking and financial organizations progressing? Can this issue be resolved before next year?

Agreements will be established with around 20 international banks before the end of November. Whether we’ll cooperate with 17 or 18 banks will be determined in the near-future.

We announced that 4.2 billion USD would be lent from banks for the financing of OT’s underground mine development. The OT financial cost is decreasing. In other words, this large development is commencing under the most favorable conditions for OT shareholders – the Mongolian government and the public. The financing can be settled before the new year. All that’s left are procedural issues. 

Does the loan agreement with large global banks require certain conditions from both parties? Are there any unfinished issues?

There are no unfinished issues. The government of Mongolia is assuring specific amount of support for continuing the OT underground mine development. It isn’t a direct support though. The government is providing indirect support by communicating with banks and financial organizations about offering guarantees for OT loans. It has expressed its willingness to provide guarantees for financing. In other words, the Mongolian government is fulfilling its obligation in a timely manner. There’s a reason why both sides must carry out their duties on time and that is because both sides are aware that time is money. Saving each moment and executing operations quickly will help acquire quicker economic yield. Depending on that speed, investment will come to OT. If the loan is acquired, the scale of operation will pick up rapidly. Furthermore, it will create new business opportunities for new subcontractor companies and suppliers of OT. Only this way will we see investment benefits in its true sense. The most important thing is that companies partnered with OT start working.

Let me explain why this loan is important in simple terms. Lately, there have been many speculations that it’s risky to invest in Mongolia. This investment will help recover investment credibility. Very soon, international trade and development banks will give a loan package to Mongolia for financing the biggest mining project. This means that these banks are believing in Mongolia’s major project, OT. With Rio Tinto’s additional guarantee, Mongolia is able to get this massive amount of loan, which will give off many advantages such as being able to advance forward the OT project and reduce the company’s operations cost. There are indirect advantages too. 

Can you clarify on these indirect advantages?

In short, Mongolia’s closed market will open along with the OT project. This is a huge opportunity. Banks financing the project are opening Mongolia’s market to themselves. Basically, we’re opening opportunities for other companies to begin negotiations. Through the OT project’s financing, Mongolia will be able to discuss major railway and power station projects with international banks.  When banks from across the world believe in Mongolia’s market and issue a loan, Mongolia’s credibility will rise considerably. Credit rating agencies will start viewing Mongolia differently. 

Have you estimated how much the indirect economic yield would be, provided that international banks provide necessary financing for the OT project before the end of the year? For example, what kind of positive changes await Mongolia’s economy next year?

OT operations are stable right now. As its development work has recovered once again, many new businesses will be established. The number of foreign companies seeking Mongolia is also increasing because business opportunities are opening here. It seems that interesting foreign companies have met their partners in Mongolia and have started negotiating business cooperation. Obviously, this relation can’t be seen by the public. However, there are many countries searching for new business opportunities in relation to the OT underground development. The most basic indication is the fact that I meet with two company representatives on a daily basis.

 A forum has been announced among suppliers and subcontractor companies of the OT underground development. Can people pursuing new business opportunities attend this forum for information?

A relatively large expo will be organized on November 4. Business opportunities related to the OT underground mine development will be introduced to everyone. One of OT’s good traits is that it provides transparency for its company sales and subcontractor selection process. OT will keep its opportunities as open as possible since it operates according to the principles of fair competition and determines its own business prospects. Both former and new businesses will be welcomed.

 The underground development has started to get its initial funding. How much capital is expected to come into the market next year?

Approximately one billion USD will be invested annually in the next six years. This money will come to Mongolia in the form of foreign investment. There is an estimation that OT will bring some 800 million USD to the domestic economy in 2015. This is equivalent to approximately 1.6 trillion MNT. As of September 2015, 75 percent of this target was met.  The money coming to Mongolia as investment is being spent on wages and tax in the Mongolian market. It’s good that OT is maintaining stable operations. Especially during this difficult economic time, it’s essential for our nation to have large companies support themselves and continue operations without interruptions. 

Is the government doing everything in its power for the smooth the advancement of the OT underground mine?

The government is taking every necessary step in a timely manner. The Mineral Council has been put in charge of the feasibility study. Actually, there is one thing we should understand well. OT is a Mongolian company. We’re one of its owners and shareholders. Smooth operations of the project will be beneficial at least to the people working on the project. On the other side, many companies cooperate, provide services and receive income from OT. Therefore, the best solution is to execute everything on time.

Economists have talked plenty of times about the dangers and losses in the case that OT underground mine operations slow down or if this project is ceased. They calculated that Mongolia would face a loss of several billions of USD if the project is stopped. So we have no right to lose time.

 Is OT doing additional explorations?

All mining company continues exploration while mining. Additional exploration is conducted every year based on graphics. Increasing resources of such a large deposit as OT is useful to us, the company and Mongolia. The value of our company will increase as much as its reserves grow. OT shares are traded on international markets. Moreover, this project opens doors to Mongolia for foreign investors. The more resources OT has, the broader our business opportunities will expand. 

Coal price isn’t good at the moment. Some predict that it might continue to drop. Isn’t this unfavorable for OT?

According to predictions of experts, the coal market will remain quite good in the near future. Forecasts show that coal prices will stabilize two or three years from now and it’s likely to rise in the future. The OT underground mine development is commencing at the right time. If we construct the underground mine while market prices are dropping, we will be able to profit when prices rise again. It’s best to seek opportunities to construct and develop during this time when the whole world is facing economic difficulties. That way, when market prices recover, we will be able to profit and quickly recover the economy.

 Many Mongolians and local businesses are interested in benefiting from the OT project. How much attention does this issue get from OT board members?

As a shareholder, the board focuses on this issue within the scope of the company policy. Particularly, it considers making financial and trade decisions that’ll benefit the company. Correspondingly, opportunities will open for Mongolian companies and businessmen.

The OT underground mine development plan also aims to increase domestic sales systematically. In other words, the company will give privileges to local companies when selecting companies to supply OT with goods or services if a Mongolian company can provide OT’s needs.


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