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INVESTMENT GUIDE

heavy Industry

The Law on Technics and Technology was adopted in Mongolia in 1998, the heavy industry sector was established as a subsidiary unit of the central state administrative agency in charge of mining. The government established the stand-alone Ministry of Industry in 2014. As the Ministry of Industry showed its value, the State Great Khural (Parliament) passed the State Policy on Industrial Sector, with emphasis on heavy industry.

Production volume of heavy industry sector

Policy papers on heavy industry development have set the government support, taxation and other types of promotion for export-oriented production. Domestic heavy industry products such as copper, steel and cement must be competitive against imports. Most of Mongolia’s heavy industry is mining and agricultural raw materials, using simple technology. The figure below shows that mining commodities make up 81.9% of exports, of which 97% are low-tech products.

 

Mongolia’s heavy industry sector accounts for 5% of the GDP. Global financial crises, mineral commodity price volatility and a slow-down of the Chinese economy have had adverse impacts on the Mongolian economy. This has hampered GDP growth, while leading industrial countries like Japan, Korea, the US and Taiwan are global top-ranked in terms of innovative production. To work towards comprehensive industrial development, Mongolia must exploit their advantages including abundant resources and opportunities, say experts. 

International studies of Mongolia’s business environment and industrial development show some negative findings; public and private cooperation and engagement would play an important remedial role. A World Economic Forum report ranks Mongolia at 109 of 133 countries for competitiveness. In the case of the processing sector, low-tech production makes up 5.3%, which is roughly 4 times lower than Russia and 8 times lower than China. 

Foreign market conditions for Mongolia’s products

Producers

Key products exported new or added to current line

Monetary Amount

Country

Altayn Khuder, Boldtumur Yeruu Gol LLC

Iron ore, concentrate

220 000 tonnes

US$ 10.0 million

Singapore

Erdenes Tavan Tolgoi LLC

Coking coal

442 000 tonnes

US$ 9.6 million

 

Major Drilling Mongol LLC

Steel tube and drilling tubes

24 tonnes,

US$ 137 000

Indonesia

Achit Ikht LLC

Copper and alloy

99 tonnes

US$ 496 000

 

 

Production volumes for key metallurgical products of Mongolia

Products

Number of plants

Installed capacity (year)

Production volume

Steel grinding balls, steel rods, semi-processed steel, alloy

19

390.1 thousand tonnes

141.0 thousand tonnes

Cathode copper

2

12.0 thousand tonnes

10.8 thousand tons

Cable wire

2

4680.0 thousand tonnes

2574.0 thousand meters

Molybdenum oxide

1

3.6 thousand tonnes

0

Buses and electric cars

1

120 pieces

36 pieces

Car parts

2

1860.0 thousand pieces

1860.0 thousand pieces

Assembly of motorcycles

1

700 pieces

700 pieces

Motorcycle parts, wheels

1

30.0 thousand pieces

9.0 thousand pieces

Equipment and machinery (agricultural, heavy machinery and mini machinery)

3

70 pieces

3 pieces

Trailer

2

40 pieces

4 pieces

Electric motor assembly

1

200 pieces

80 pieces

Engine parts

1

14 pieces

3 pieces

Car glass

1

132.0 thousand meter2

92.4 thousand meter2

Air filter

2

810.0 thousand pieces

81.0 thousand pieces

Stoves and oven

1

1320 pieces

924 pieces

Electric and aluminum buckets

1

27000 pieces

22950 pieces

Catering equipment

1

240 pieces

240 pieces

Metal fence

1

144.0 thousand meters

14.4 thousand meters

Lighting poles

1

1500 pieces

225 ш

Metal wares

3

10.5 thousand tonnes

2.4 thousand tonnes

Concrete rail sleepers

2

368.0 thousand pieces

35.0 thousand pieces

Mongolia annually imports 60-100 types of metalwares including steel, alloy and steel rods, cast items, production equipment and spare machinery parts. With incremental development of the metallurgical sector as a basis of industrial development, it will be possible to supply at least some of these products within the domestic market.

Market supply of metalware (2012-2016, (thousand tonnes/US$ million)

 

Product name

2012

2013

2014

2015

2016

(as of November)

Quantity

Price

Quantity

Price

Quantity

Price

Quantity

Price

Quantity

Price

1

All types of metal rods for construction and other steel products

293.4

271.6

365.4

277.5

388.2

291.2

252.4

164.1

325.8

760.2

2

Reinforced metal structures for construction

87.02

170.75

64.34

121.23

75.2

112.8

43.2

74.0

109.5

543.4

3

Steel for various equipment and alloy parts

11.9

28.6

18.6

33.5

22.5

35.0

19.6

28.45

11.0

25.6

4

Spare parts of alloy and steel for machinery

30.7

55.4

37.2

68.75

40.5

75.0

48.1

65.4

233.4

170.1

5

All types of metal wares

106.67

148.72

99.09

183.26

105.32

173.04

85.4

136.64

88.1

56.3

TOTAL

529.69

675.05

584.6

684.2

631.7

687.04

448.7

468.59

767.8

1555.6

As of today, Mongolia’s installed capacity of metallurgical factories is an aggregate of 180 000 tonnes, but these factories use only 50-60% of capacity because of limited raw materials, different levels of applied technology and lack of skilled workforce and qualified engineers.

Capacity of steel makers, types of products

 

Key products

Number of plants

Capacity, thousand tons/year

1

Construction steel rods

14

180,0

2

Spare parts of equipment and machinery

3

20,0

3

Steel grinding ball and steel rods

8

40,0

4

Steel and alloys

3

5,0

Oil processing industry  

Potential sites for an oil processing plant (refinery) were researched in a feasibility study, including  Choir, Sainshand, Bor-Undur and Choibalsan locations. Factors for choice refinery location included deposit location, infrastructure, logistical considerations for crude oil and final products and market proximity. The Government of Mongolia resolved on an oil refinery in Sainshand soum, Dornogobi aimag. One of the five available refining technologies will be selected, considering the properties of crude oil, output (final product) properties and product standards. 

Building an oil refinery will cost US$ 1 billion, 0.7% for the processing plant and an additional US$ 264.5 million for transmission pipelines. The plant will generate an estimated US$ 1.2 billion revenue annually, with an annual net profit of US$ 160 million, and an investment recoup period of 8-10 years. 

The planned refinery will process 1.5 million tonnes of crude oil annually. It will produce 560 000 tonnes of gasoline of Euro-4 and Euro-5 standards, 670 000 tonnes of diesel, and 107 000 tonnes of liquefied gas as well as other chemical by-products. 

If the price for crude oil (per barrel) stays at around US$ 40-60, the price for the plant’s final products is estimated at MNT 866-1244 per liter. 

Social and economic impacts:

  • Petroleum product imports are predicted to fall by US$ 1.2 billion, thereby improving the trade balance.
  •  A 20% decline in foreign exchange outflow and depreciation of foreign currency by 18-25%. 
  • US$ 150 million in taxes and fees will be paid to the central and local governments. 
  • Creation of over 600 direct new jobs. 
  • An estimated 30 types of other factories will be established, producing paints, cleaning materials, chemicals, perfumes, cosmetics, pharmaceuticals etc. 
  • Finance for the oil refinery will be resolved and provided.

Coal processing plants

Five coal-to-liquid and coal-to-gas projects have had their feasibility study approved and are moving towards implementation. Their locations have been selected according to several criteria, including raw material availability, logistics for delivery of products and potential market proximity. One is at the Aduunchuluun coal mine in Dornod aimag, one at the Tugrug Nuur coal deposit in Tuv aimag, and one at the Baganuur coal mine, in central and eastern Mongolia. 

These plants will have the most suitable technologies (eg the Fischer Tropsch process, the Bergius process, SRC-I and SRC-II), depending on coal properties, output volume and compliance with standards.

These plants will need investment of USD$ 1.1-2.4 billion, and are expected to process 2.5- 3 million tonnes of coal per year. They will produce 0.4-1.2 million tonnes of engine fuel, 50-100 000 tonnes of liquefied gas, 200-300 megawatts of electricity and other by-products. Investment recoupment is estimated between 8 to 15 years. 

Social and economic impacts:

  • Increased GDP by up to 15% and double processing sector output.
  • Decreased imports of petroleum products (gasoline, diesel and gas) worth US$ 1- 1.5 billion, with improved trade balance.
  • Reduced outgoing currency flow by 15- 20%, coupled with a 18-25% depreciation of foreign exchange rates.
  • US$ 150-300 million in taxes and fees will be paid annually to central and local governments. 
  • Creation of 400-1000 direct jobs and 1000-1500 indirect jobs

Ferrous metal industry

The Targeted Program for Development of the Ferrous Metal Industry aims to ensure the implementation of objectives in the State Policy on the Mineral Resources Sector, and to support national exports by developing production of high quality steel and special purpose alloys. This program implementation involves activities in a wide variety of areas, including: search and extraction of steel supplements (chromium and manganese) and fire-resistant materials; beneficiation of these materials to produce various metal wares, alloys (ferrosilicone, ferrochrome, ferrotungsten, ferromolybdenum, ferrotitanium, ferrovanadium); high quality steel production; metallurgical coking coal production; fluorspar, limestone, synthetic gas and oxygen; electricity and water supply; transport; logistics; product marketing and public procurement. 

Six primary objectives and activities have been defined. Program implementation is expected to result in: a conducive environment for production and sales, increased contribution of the metal industry to GDP, a favorable environment for domestic and foreign investment, accelerated trade turnover, expansion of export markets, increasing quantity and type of products compliant with standards, more domestic and foreign investment in certain sectors, improved competitiveness, reduced risks, and a foundation for national exports of high quality steel and alloys. Metal processing and machinery and equipment plants will be established so that production of value-added, highly competitive products will increase and a skilled and professional workforce will have a longer, more stable and better working life in their native country. 

A bid evaluation committee was formed by Resolution 273 of the State Secretary of the Ministry of Industry. This committee is responsible for the selection of consultants to develop a feasibility study for a metallurgical complex and required infrastructure in Darkhan-Selenge region. It has since receieved and evaluated bids. The Canadian company, “HATCH”, was selected as the consultant for developing a feasibility study for a metallurgical complex and required infrastructure in Darkhan-Selenge region. 

A pre-feasibility study for the construction of a metallurgical complex and required infrastructure in Darkhan-Selenge region will be submitted to the Heavy Industry Policy Department, Ministry of Mining and Heavy Industry, in December 2016. 

Non-ferrous metallurgical industry

The Government of Mongolia’s plans appear in a number of documents, such as: the State Great Khural (Parliament) Resolution 247 (Measures to Overcome Economic Crisis, 2015) and its Article Financing the Copper Smelter; State Great Khural (Parliament) Resolution 21 (Establishing a Copper Smelter, 2010); the Objective in the Government of Mongolia Action Plan for 2012-2016 on establishing a copper smelter; Article 14.17 of the Mongolia Industrialization Program, approved by Government Resolution 229 (2009); and Article 3 of the Priority Mega Project to be Implemented by the Government of Mongolia. 

In response to a request from Erdenet Concern LLC, the Chinese Volant Industry and Central Engineering Institute for Nonferrous Metallurgical Industries (ENFI) developed a feasibility study for a copper smelter and refinery. The Technology Council of the Ministry of Industry approved the feasibility study (9 July 2015). 

The Cabinet meeting on the of 15th of June 2015 endorsed Resolution 247 headed On Establishing a Copper Smelter and Refinery in Bor-Undur Soum, Khentii Aimag. The Minister of Industry issued Decree 134 (21 July 2015), establishing a Project Implementation Unit. The Government also approved Resolution 318 (13 June 2016) headed Entitling Selection of Investors for the Copper Smelter and Refinery and Representation of the Government of Mongolia”. 

The Project Implementation Unit was  established by Government Resolution 107 on 29 September 2016. Relevant agencies are now working to resolve financial and operational costs for the Project Implementation Unit. 

The copper smelter and converter (SKS furnace-SKS smelter) is a horizontal cylinder with rotating equipment, and uses Oxygen Bottom-Blown Smelting Technology, feeding hot oxygen-enriched air into the smelter, which is lined with fireproof materials and equipped with a sectional cooling system.   
Project info:

  • Financing: Investor to be selected through open bidding. 
  • Total required investment: US$ 798 million.
  • Capacity: Processing 530 000 tonnes of copper concentrates annually.
  • Key products: 120 000 tonnes of cathode copper per annum.
  • By products: 170 000 tonnes of sulfur and 200 000 tonnes of sulfuric acid.
  • Number of new jobs: 759. 
  • Project period: 2017-2019
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