Going for Gold in Mongolia

Lee M Cashell
Lee M Cashell
4 min read

What Mongolia’s expanding gold industry means for growth

Historically, Mongolia’s assets have been a blessing and a curse. It is a large country with abundant natural resources, low population density, and ready access to China. Given the economy’s dependence on the production (and sale) of many of the core commodities which power the modern world, it has enormous potential but is vulnerable to cyclical patterns of demand. This reality has led to explosive growth and unwelcome recession. It was 2017 when meaningful reforms were initiated to ensure downside protection in lean years, and this appeared to be mitigating the vagaries of production and distribution. Then came COVID. Like every country in the world, Mongolia’s economy contracted, and the future became less certain.

Mongolian GDP Growth

Source: Asian Development Bank

But to suggest this downturn was just another example of innate turbulence is misleading. It occurred at a time when reforms to the public finances were underway and when there had been sustained growth. A setback, certainly, but more a reflection of the harsh realities of a global health emergency than of Mongolia itself. This is borne out by the estimations of growth compiled by the Asian Development Bank (ADB). In spite of the current challenges, it predicts 4.6% expansion this year, and 6% next year. Further, the European Bank for Reconstruction and Development report across Central Asia there will sustained growth owing to expansionary policies and strong external demands for exports. The bigger question for Mongolia in the coming year may be one of actually getting product to market. With activity ramping up in many areas, it may prove difficult to mobilize after an enforced hiatus. The fact many areas of industry have not been mothballed and proceeded with government support, however, may mean it is in a more favourable position to respond that in countries which have been less supportive of key strategic sectors.


Source: Mongolian Statistical Information Service

Mongolia-watchers have long pointed to gold as a vital weapon in its armoury, and a welcome distraction from copper. There was a 235% increase in the export volume of Mongolian gold in 2020 relative to 2019, itself building on a 168% increase in the preceding year. The value of gold exported was even greater- increasing 327% in the year to the end of 2020. Perhaps reflective of a flight to core, traditional assets in a time of unprecedented global chaos, it more importantly showed how far the industry has come, and its ability to respond and export, even in logistically difficult times.

Gold Export Value USD (thous.)

Source: Mongolian Statistical Information Service

These figures were well publicised, but what has been less noted is the performance in 2021. It is certainly more muted but the value of gold exports still hit a total of US$460m by the end of September, which compares favourably with the US$344m recorded in 2019. In volume terms too, it was up appreciably. For many, 2020 could be seen as a particularly positive outlier year, however, 2021 is still showing improvement relative to the more routine years which preceded it. In keeping with the broader development of the Mongolian economy and its necessary diversification, this is welcome.

Aside from figures and statistics, there have been important announcements from key actors which suggest an acceleration of activity in the sector. In November, Steppe Gold announced it had closed US$65m of funding to fast track the development of its ATO gold mine. Much of this money came through the Gold-2 National Program facilitated by the Central Bank of Mongolia. Under the scheme which is delivered through the Trade and Development Bank of Mongolia, there is a fixed three year interest rate and an allowance for pre-payment without penalties. This program is a recognition from the government of the continued potential of the industry, with 45,000 ounces due to be deliverable by this project in the near term. By working to unlock new funding packages it supports both foreign exchange and national reserves.

To state the potential of the gold industry, though, is not to overlook headwinds elsewhere. The coal industry remains a pressing problem for Mongolia. In November, Bloomberg reported SouthGobi Resources had been forced to suspend mining operations due to an outbreak of COVID. In spite of reports earlier in the year surrounding increased engagement with Chinese manufacturers, border closures and disruption have hit producers hard. Indeed, in the third quarter, only one million tons entered the country, down three-fold on the preceding year. This is not to say there is any shortage of demand. China still needs to import massive quantities of coal, and the higher grades necessary for the production of steel, is still much sought after. What it does mean, however, is Mongolia cannot rely on coal, alone as it seeks to capitalize on the gains of years past. Indeed, with an increasing global focus on the need to reduce carbon dioxide emissions, it may face other obstacles, as yet unforeseen.

The next few years for Mongolia present familiar challenges. The ADB is developing a strategy which by its own admission, will focus on sustainable, inclusive growth. Though this is necessarily vague, it will continue its financing activities (both unilaterally and through partnerships), to help offset some of the most acute impacts of the pandemic. It is an appropriate time to ensure all sectors of the Mongolian economy are primed for growth, and nowhere is this more apparent than in the development of gold. Both the government’s recent support for the industry as well as a longer-term upward trajectory of volumes and export values, bode well for Mongolia’s public finances and wider prosperity.

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