Current Developments and Future Prospects for the Mongolian Copper Industry

Transcription

1 MINISTRY OF INDUSTRY & TRADE MONGOLIA International Copper Study Group 30th Regular Meeting ICSG Current Developments and Future Prospects for the Mongolian Copper Industry Bold Sandagdorj Ministry of Industry and Trade 1-22 October 2007 Lisbon, Portugal

2 1. Macroeconomic Indicators 2. Foreign Debt 3. ICOR / Investment Efficiency 4. Roles of the Mineral Industry in Mongolian Economy 5. Geological Investigation 6. Strategic Copper Deposits 7. Legal Environment of the Mineral Industry 8. Tax Burden and Elasticity 9. Promised Projects and their Contributions 10. Concluding Remarks Agenda 2

3 Macroeconomic Indicators (1) 3

4 Macroeconomic Indicators (2) 4

5 1. Macroeconomic Indicators 2. Foreign Debt 3. ICOR / Investment Efficiency 4. Roles of the Mineral Industry in Mongolian Economy 5. Geological Investigation 6. Strategic Copper Deposits 7. Legal Environment of the Mineral Industry 8. Tax Burden and Elasticity 9. Promised Projects and their Contributions 10. Concluding Remarks Agenda 5

6 Foreign Debt (1) 105% 90% 75% 60% 45% 30% 15% 0% 95.0% 66.2% 90.3% 83.9% 60.1% 58.0% 99.2% 89.3% 61.2% Threshold 45% FDO / GDP FDO (NPV) / GDP 71.2% 86.1% 52.1% 70.7% 60.9% 60.0% 44.3% 41.9% 41.4% * 2007F 250% 200% 150% 100% 50% 0% 201.4% 189.3% 190.5% 159.4% 159.1% 163.6% 144.7% 126.1% 131.9% 130.5% 101.7% 106.1% 113.0% 96.2% 79.0% 100.0% 69.9% FDO / Exports 68.9% FDO (NPV) / Exports (Threshold 200%) * 2007F Sep 2006 Est. 6

7 Foreign Debt (2) 400% 30% 350% 354.5% 25% 300% 250% 200% 150% 247.0% 265.6% 217.8% 261.6% 232.3% 267.9% 192.2% 150.4% 155.4% 187.9% 176.8% 120.4% 159.2% 162.1% 180.2% 20% 15% 10% Total Loan Payments / Exports (Threshold 25%) 11.4% 100% 50% (Threshold 200%) FDO / Gov. Revenue FDO (NPV) / Gov. Revenue 124.2% 106.8% 5% 5.0% 4.4% 6.4% 6.4% 5.1% 3.6% 3.3% 3.7% 0% * 2007F 0% * 2007F Sep 2006 Est. 7

8 Foreign Debt (3) 35% 30% 30% 25% 25% Total Loan Payments / Gov. Revenue (Threshold 30%) 20% Total Loan Payments / Gov. Expenditure (Threshold 25%) 20% 19.2% 15% 16.8% 15% 10% 5% 9.3% 7.4% 8.5% 7.8% 6.7% 5.5% 5.1% 6.7% 10% 5% 9.2% 8.2% 10.0% 6.7% 6.0% 6.1% 6.6% 5.3% 0% * 2007F 0% * 2007F Sep 2006 Est. 8

9 1. Macroeconomic Indicators 2. Foreign Debt 3. ICOR / Investment Efficiency 4. Roles of the Mineral Industry in Mongolian Economy 5. Geological Investigation 6. Strategic Copper Deposits 7. Legal Environment of the Mineral Industry 8. Tax Burden and Elasticity 9. Promised Projects and their Contributions 10. Concluding Remarks Agenda 9

10 1200 Total Investment ICOR ICOR by Harrod-Domar Model (I) Private Investment ICOR (Bln.Tugriks)) * 2007F * 2007F (Bln.Tugriks)) Sep Est.

11 ICOR by Harrod-Domar Model (II) Public Investment ICOR By Total Investment By Private Investment By Public Investment (Bln.Tugriks)) * F GDP per 1 Tugri k Investment (Tugrik) F 2006* Sep Est. 11

12 ICOR in Selected Economies Investment capacity in 2006 was million USD 12

13 ICOR in the Mining Industry 1,600 Mining & Quarrying (Bln.Tugriks) , ,400 Mining Investments (Mln.USD) 80 (Bln.Tugriks 1,200 1, (Mln.USD) Mining & Quarrying (Mln. USD), Nominal , Mining Quarrying (Mln. USD), Real 2000= Mining Investments (Mln. USD) ICOR in Mining Industry

14 1. Macroeconomic Indicators 2. Foreign Debt 3. ICOR / Investment Efficiency 4. Roles of the Mineral Industry in Mongolian Economy 5. Geological Investigation 6. Strategic Copper Deposits 7. Legal Environment of the Mineral Industry 8. Tax Burden and Elasticity 9. Promised Projects and their Contributions 10. Concluding Remarks Agenda 14

15 3,500 3,000 2,500 2,000 1,500 1, % Share of Mineral Industry in GDP ( ) GDP (Nominal) 36.6% 40% Mining & Quarrying (Nominal) % Share (Using Real Values) 35% 34.4% 30% 25% 20% 15% 10% 5% 0% (Billion Tugriks) (%)

16 2,500 2,000 1,500 1, % Share of Mineral Industry in GIP ( ) GIP (Nominal) Mining & Quarrying (Nominal) % Share (Nominal) % Share (Real) 75% 68.4% 65% 53.2% 55% 45% 35% 25% 15% (Billion Tugriks) (%)

17 Mineral Industry & Exports ( ) Total Exports % Share of Mineral Industry 77.0% 1,800 1,600 (%) , ,400 1,200 1, (Million USD) Cu Conc. % in Total Cu Conc. Exports Exports Exports Amount Growth (Mln. USD) (%) ('000 t.) (%) % % % % % % % %

18 Copper Production ( ) Copper Concentrate (35% Grade) Copper in Concentrate Cathode (99% Grade) ('000 t.) (t.)

19 1. Macroeconomic Indicators 2. Foreign Debt 3. ICOR / Investment Efficiency 4. Roles of the Mineral Industry in Mongolian Economy 5. Geological Investigation 6. Strategic Copper Deposits 7. Legal Environment of the Mineral Industry 8. Tax Burden and Elasticity 9. Promised Projects and their Contributions 10. Concluding Remarks Agenda 19

20 Geological Investigation 24.8% of Mongolian territory is covered by general exploration & geological mapping on a scale of 1:50,000. This figure is expected to increase every year by 0.2 to 0.5 %. 99.1% - geological mapping - 1:200,000 scale 84% - hydro-geological mapping - 1:500,000 scale 22.5% - gravimetric survey - 1:200,000 & 1:100,000 scales 60% - aerial magnetic survey - 1:200,000 scale 32% - aerial multi-spectral survey - 1:50,000 & 1:25,000 scales Sources: MRAM 20

21 2006 Exploration Budgets China 3% Others 31% Peru 5% South Africa, 4% Mexico 6% United States 8% MONGOLIA 4% Source: Metals Economics Group, 2007 Brazil 4% Australia 11% Russia 5% Canada 19%! Top 10 countries budgets account for 69% of 2006 total budgets of 7.13 billion USD.! Continued growth in Mexico, China and Mongolia.! 2006 exploration expenditure for Mongolia million USD. 21

22 1. Macroeconomic Indicators 2. Foreign Debt 3. ICOR / Investment Efficiency 4. Roles of the Mineral Industry in Mongolian Economy 5. Geological Investigation 6. Strategic Copper Deposits 7. Legal Environment of the Mineral Industry 8. Tax Burden and Elasticity 9. Promised Projects and their Contributions 10. Concluding Remarks Agenda 22

23 Strategically Significant 15 Deposits 23

24 Strategically Significant Copper Deposits Annual Production/ Deposit Company Types of Minerals Reserves (B+C1) Expected Capacity Erdenet EMC, JV Cu / Mo Cu: 3.2 mln. t thous. t. Conc.(2006). Mo: 90 thous. t. 70 thous t. Blister (exp.) Erdmin LLC 2,000 t. 8mm Cu wire Oyu Tolgoi Ivanhoe Rio Tinto Cu / Au Cu: 24.0 mln. t. Au: 720 t. See next slide Tsagaan Suvarga Mongol Alt LLC Cu / Mo Cu: 1.3 mln. t. Mo: 48.2 thous. t. Non-ferrous metallurgical complex: " Meet domestic demand " Export value added products 24

25 Description Total ore milled (M dmt) Cu Concentrate Prod. ( 000 dmt) Copper (Cu) in Concentrate (M lb) Gold (Au) in Concentrate ( 000 oz) Expected Capacity of Oyu Tolgoi Project Principal version, as of Aug Years to Project Total , ,162 1,279 10,797 19,895 36, ,083 7,823 12,671 24, ,653 2,047 4,295 10,338 Extended version, as of Aug 05 Description Total ore milled (M dmt) Cu Concentrate Prod. ( 000 dmt) Copper (Cu) in Concentrate (M lb) Gold (Au) in Concentrate ( 000 oz) Years to Project Total , ? 1,260 1,804 17,545 19,374 43, ,006 1,434 12,479 12,248 29, ,919 2,479 3,926 11,653 25

26 1. Macroeconomic Indicators 2. Foreign Debt 3. ICOR / Investment Efficiency 4. Roles of the Mineral Industry in Mongolian Economy 5. Geological Investigation 6. Strategic Copper Deposits 7. Legal Environment of the Mineral Industry 8. Tax Burden and Elasticity 9. Promised Projects and their Contributions 10. Concluding Remarks Agenda 26

27 Taxes & Royalties CIT 15% / 40% 15% / 30% 15% / 25% Threshold: 100 million 100 million 3 billion VAT on Imported Equipments 15% 0% 0% 0% 0% Royalty 2.5% 2.5% / 7.5% 2.5% / 5% Windfall Profits Tax (WPT) % Launched in May 2006 Imposed to copper ore & concentrate as well as gold Predetermined base price (PBP) = $2,600/t for copper = $500/oz for gold Revenues exceed PBP shall be taxed by 68% 27

28 Amendments to the Minerals Law (Jul.06) Strengthened environment protection & rehabilitation issues; More rights to local administrative bodies; Increased license holders duties; Classification of mineral deposits: a) Strategically important deposits; b) Common mineral deposits; c) Conventional mineral deposits State Participation to Strategic deposits: - Up to 50%: Exploration was financed & proven reserves were estimated by public investment; - Up to 34%: of investment shares of a license holder. Exploration license validity: 9 yrs (3+3+3), [used to 7 yrs]. Mining license validity: 70 yrs ( ), [used to 100 yrs]. Investment Agreement: Investment exceeds 50 mln. $US within the first 5 years ( 50 mln. 10yrs.); ( 100 mln. 15yrs); ( 300 mln. 30yrs.) 28

29 1. Macroeconomic Indicators 2. Foreign Debt 3. ICOR / Investment Efficiency 4. Roles of the Mineral Industry in Mongolian Economy 5. Geological Investigation 6. Strategic Copper Deposits 7. Legal Environment of the Mineral Industry 8. Tax Burden and Elasticity 9. Promised Projects and their Contributions 10. Concluding Remarks Agenda 29

30 Tax Burden in Mongolian Economy F 27.2% 21.6% 25.6% 20.8% 19.2% 18.7% 19.7% 18.8% 19.6% 25.6% 29.4% 28.9% 28.8% 30.5% 30.5% 34.1% 32.5% 47.3% 44.6% 0% 10% 20% 30% 40% 50% 30

31 Tax Revenues by Selected Taxes 250,000 Personal income tax CIT 224, ,780.8 ТAX REVENUE (Mln.Tugriks 200, , ,000 50,000 VAT Windfall profits tax 183, , , , , , * 2007F 31

32 T = T = e e ( ) ( ) GDP GDP (1.0856) (1.2193) D ( ) Ch( T ) Tax Elasticity by Main Categories Model 1 Model 2 VAT Elastic Elastic = ( 15.12) (1.89) = 15.41) TVAT Income Taxes Inelastic (0.27) = Excise Taxes Customs/Exports Duties T IncT T EXC T FT e e GDP GDP (0.79) T T VAT IncT = e Tax Elasticity ( (1.92) ( 0.07) VAT e GDP Inelastic GDP Inelastic Inelastic = ( 3.00) (0.97) = ( 2.97) e GDP T EXC D ( 1.38) (0.93) ( 0.37) IncT e GDP Inelastic Elastic = ( 2.05) (0.85) = 5.33) e (1) (2) GDP T FT e GDP (0.96) D D D (0.01) EXC ( (1.13) ( 0.74) FT , 2006*+2007F Total Tax Revenues Income Taxes Elastic Elastic T = ( 3.00) (1.12) T = 4.43) T IncT e GDP e ( (1.25) ( 0.42) GDP Inelastic Elastic = ( 1.40) (0.92) = 3.54) e GDP T IncT e GDP D ( (1.10) ( 0.53) IncT D 32

33 Ln T ) = T = β 0 e β M + β / IP) Ln( M / IP) + β 1 β ( EX / GDP) Ln( EX β 2 / GDP) + ( ( IMP) β ( 3 Tax Revenue Model e γ β Ln( IMP) + γ T = e (3.5248) ( M / IP) (0.6426) ( EX / GDP) (0.5270) ( IMP) (0.7437) T Total tax revenues IP Gross industrial production GDP Gross domestic product e exponential constant M Mining & Quarrying EX Total expenditure and net lending IMP Total imports Holding all else being constant: If [M/IP] increases by 1%, total tax revenue will increase by 0.64% Therefore, tax revenues and total budget revenues of Mongolia are highly dependent on its mineral industry. Policy Focus: Reduce this dependency and vulnerability. 33

34 1. Macroeconomic Indicators 2. Foreign Debt 3. ICOR / Investment Efficiency 4. Roles of the Mineral Industry in Mongolian Economy 5. Geological Investigation 6. Strategic Copper Deposits 7. Legal Environment of the Mineral Industry 8. Tax Burden and Elasticity 9. Promised Projects and their Contributions 10. Concluding Remarks Agenda 34

35 Promised Projects Deposit Types of Mineral Reserves 1 Khust Uul Iron 4.4 mln. t. 2 Tsav Lead, Zinc Pb: thous. t. Zn: thous. t. 3 Bargilt Iron 31 mln. t. 4 Tumurtei Iron mln. t. 5 Oyu Tolgoi Copper, Gold Cu: 24 mln. t. Au: 720 t. 6 Tsagaan Suvarga Copper, Moly. Cu: 1.3 mln. t. Mo: 48.2 thous. t. 7 Ulaan Lead, Zinc Pb: thous. t. Zn: thous. t. 8 Mardai Uranium 1104 t. 9 Tavan Tolgoi Cocking Coal 7 billion. t. 35

36 Contributions of Promised Projects to Mining & Quarrying and its Investments 3,500 3,000 Mining & Quarrying (bln.tugriks), W Promised Projects Mining & Quarrying (bln.tugriks), W/O Promised Projects Mining Investments (mln.usd), W Promising Projects Mining Investments (mln.usd), W/O Promising Projects (Bln.Tugriks) 2,500 2,000 1,500 1, (Mln.USD) ,493 1,575 1,657 1,738 1,953 1,902 1,984 2,206 2,148 2, F 2008F 2009F 2010F 2011F 2012F 2013F 2014F 2015F 0 36

37 1. Macroeconomic Indicators 2. Foreign Debt 3. ICOR / Investment Efficiency 4. Roles of the Mineral Industry in Mongolian Economy 5. Geological Investigation 6. Strategic Copper Deposits 7. Legal Environment of the Mineral Industry 8. Tax Burden and Elasticity 9. Promised Projects and their Contributions 10. Concluding Remarks Agenda 37

38 Development Fund (DF) Development Fund is financed by WPT revenues. Issues for discussion: - Commodity price risk Vulnerable budget. - Where to invest / spend WPT revenues? The Fund revenues are divided into 3 categories: - Savings (1/3) - Public investments (1/3) - Social welfare (1/3) DF revenues should be managed as a Stabilization Fund (Best practice Chile). Development bank can be initiated and financed by the Fund in order for revenues to be expended as public investments. 38

39 Structural Budget Balance " Mongolia s budget is highly dependent on metals price fluctuation in the global market. In order to reduce this dependency and fiscal planning to be more accurate, the effects of major exporting commodities prices on the budget should be separated using Structural Budget Balance. " The Structural Budget Balance aims to eliminate the effects of cyclical fluctuations of economic activity on the general budget balance. Total expenditures ceiling should be equal to the structural revenues (adjusted commodity price fluctuations and their effects) so that general government budget should be balanced over the long run. 39

40 ! Integrated Policy for National Development (2007): : per capita GDP $US 1500 $US 5000 How to reach this target? Implementation of promised projects on strategic deposits : per capita GDP $US 5000 $US 12,000! Requirements for FDI in the mineral industry: - Environmental-friendly & Advanced Technology - Deep processing & Value-added production - Environment protection & rehabilitation - Mutual interests to both parties (Government & Investor)! Needs to ameliorate accountability, transparency, credibility, certainty, predictability and stability of the Government services in order to attract reliable, prestigious investor with strong business ethic. Concluding Remarks 40

41 Thank you for your attention