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Adding value to Mongolian mining

Interview - February 12, 2014
As a 100% locally owned Mongolian company, Zasag Chandmani Mines LLC is an example of one of the country's firms – outside that of the industry giants Erdenet or Oyu Tolgoi – who are starting exploration activities with a clear objective: enrich raw materials by adding value in the downstream and midstream process. In an interview with United World, the Zasag Chandmani Mines LLC CEO Butanbal Damdin explains how is company are adding value to Mongolia’s mining sector in a sustainable and environmentally friendly way
Mongolia is blessed with abundant mineral resources, a boosting agricultural sector and a market open to the world. However there is a long way ahead to meet the expectations generated during the Davos Economic Forum where President Elbegdorj pointed the tremendous investment opportunities that remain untapped. We do believe that the best of Mongolia is still to come. For those who don’t now about Mongolia, which highlights would you like to point out?

Mongolia as a country has deep and great history and was one of the greatest empires in the past. Currently when we think about our situation, we are the remnants of our ancestor who has created such wonderful culture and history but also we are on the step towards fast transformation and it is almost possible to say we are one of the few remaining generations of the nomadic culture. Comparing to other developed countries we are still very far behind but there are always two sides to the coin. Most of these developed economies had to go through tough situations and they have lost a lot or still has problems in their economy where as our economy has much to learn from these past experience in order to cut through the mistakes and reach their standard fast.

As you said, every country learns from its past. Let’s talk about the mining sector as the major contributor of Mongolia’s GDP, source of employment and FDI first destination. What is the role that the mining sector has to play for the full development of Mongolia’s economy and society?

The key industry for the growth of the country is undoubtedly mining sector. When we look at our export, almost 95% is mining products so we can say Mongolia is a mining country and the remaining consists of cashmere and agriculture. And when we look deeper to the mining sector, there are three main commodities: coal, copper and iron ore. As I am in the iron ore sector I would like to focus on this area but to mention briefly about the other products, for example we have become the biggest coking coal importer in China surpassing Australia, as for copper we have Erdenet Mining corporation and now the newly build world level copper Oyu Tolgoi will be producing copper soon. But I want to emphasize the fact that Mongolia is not just Oyu Tolgoi but there are even more mines such as Oyu Tolgoi. The reason behind this statement is due to the fact that Mongolian is situated on a geographical zone of minerals such as copper, gold and iron ore. Currently our Iron ore export is reaching 6,000,000 tones and it is processed in the dry method and it can only satisfy 1% of the Chinese iron ore demand. Geographically we don’t have access to sea yet we are next to the biggest iron ore importer China, so we have to reach the level of production lines which we add value in the chain but we are far from that point. Even for copper it’s the same fact, Erdenet for instance imports enriched copper and the entire mining sector is in the same situation. This shows that we have the market, the resources but we lack the expertise and the technology to reach that stage of exporting value added products. In order to reach the ideal solution we require more investment, and the other countries have the money. Because we are landlocked between one of the biggest economies in the world, we need the third neighbor who can invest and support our development.

Mongolia mining sector is more than Erdenet or Oyu Tolgoi. There are companies making their way and starting exploration activities with a clear objective: enrich raw materials by adding value in the downstream and midstream process. How are you making your way into the mining industry and which are your key priorities in the upcoming years? How are you going to add value to Mongolia’s iron ore?

Our company is 100% locally owned company and we got the mining license from Ivanhoe mine and we are exporting and producing our material in the dry processing method. However we are on our way to start exporting wet method iron ores which will easily boost the profit to two folds because the enrichment level of our current products are up to 55% and if we start using this method the enrichment level will be more than 65%. To generalize there are at least 5 different stages of production in order to get the final products and we are on our way to reach the second level.

Sometimes it is even possible to analyze a countries development by its iron production stage. We have the resources but we are only on the first stage and reaching the final product from the production chain and we are only exporting the raw materials and because we don’t have the facility. When we buy back for example steel products such as rod or structural pillars or any product from China, we can do it ourselves. What we need is technology and specialist and supervisor and good solution. To summarize, Chinese economy is the second largest economy and we have what they want, so opportunity is here in Mongolia. The annual meeting of the Steel Association was held yesterday, and the main topic was to join the different mines that are selling small quantities into bigger brokers by supplying them with higher amount. Investment will be targeted to the small producers but to sell them it should be a joint effort and it can be sold to brokers and supply it through a single route.

As for our mine we have the human capital, the license to use the mines but we need the investment. We have managed to show the deposit size and prepared a business plan and now we are getting the finance from Noble Group on a loan basis. Noble Group did their IPO and it is one of the biggest commodity traders and Asia’s top 100 companies and our partnership is we provide our supply to Noble group and they sell our products on the Chinese market. Mining sector has its ups and downs and many of our previous companies had to go through this turmoil and have lost a lot. But as for the new companies it is reasonable to avoid these mistakes and start fresh with the approved world standard. Our mine is close to the Chinese border whereas many of the other Iron ore mines are situated much further away addition to the advantages of geological structure of our mine, which all the minerals are exposed on the ground. And all the materials from the nature without any processing have an enrichment level of 40% and finally the wet processing plant will improve the quality of the products. The opportunity is open for investors and with their support it is possible to reach different levels of the production chain.
In this crucial moment when the investment is drying in Mongolia you are one of the few to step up and started a mining company. This shows you are a leader, a visionary, and a person who is standing against the tide. How did it come the idea of starting a mining company?

Before getting in to this business I have conducted heavy research about the sector, the mine and our mine in specific. I saw the opportunity in our mine and decided to start this business. With the help of Noble Group we could start our first processing plant and the second wet processing plant is in its way. Yearly capacity is 500,000 tones of Iron ore and once the second plant becomes operational our mine can produce up to 1,000,000 tones. Mine is closely related to the infrastructure and the Mongolian infrastructure is weak and underdeveloped, not enough power plants, roads and of course railways. Mongolia has planned to build horizontal railway but they haven’t found the investment to build it, which means we only have vertical railway. If the horizontal railway is built the investment will be easily found from the long run from only Mining sector. Water plays also a crucial role in mines especially in the region of dry Gobi area where most of the mines are located. We are reusing the water in our mines up to 90% and this is the highest rate in the country.

It is delighting to hear that your company is conducting such responsible way of mining. By carrying out such responsible practices, do you receive any direct support from the Government?

We do not get any direct support but we do receive policy support and we do not plan to get any financial support because it is possible to see the condition of the Government. What the government can help us is to reduce the paper works and procedures to acquire them. Also before carrying out the mining we have done extensive exploration of the landscape, on the 571 hectares of land we have discovered almost 300 archeological findings. The findings are from the Great Mongolian Empire era or it even goes back to the Hun Empire and these are not merely just arrow heads but the findings are large burrows, or tombs which include thousands of physical objects. Using these findings we have established a museum in the same area where the locals or tourists can visit and see the rich history of Mongolia. Also we have supported the local population and our main policy is to employ at least 50% of the labor force from the area where we are carrying out our business, which we consider it will help the local population to be educated, experienced and help with their sustenance dramatically.

Apart from being an entrepreneur, a person committed with the human and social development of Mongolia, an environmental friendly businessmen…all these ideas must come from somewhere. Can you share with the readers of USA Today who is Buyanbal Damdin?

I was born in 1979 in Khovd aimag and same as majority of the herders and I am from a sibling of 9 children. I have my beloved wife and two children. I have a financial background and used to work in Golomt bank for almost 10 years and I was in charge of the Mining sector.

Our reports have covered many country especially mining countries such as Chile or Indonesia and we can proudly say that you are a true leader in Mongolia going against all the obstacles, bringing hope to the mining sector and succeeding in carrying out your business in this harsh economical climate. What is the message you want to deliver to readers of the USA Today?

Mongolia has the resources, it is not just limited to Oyu Tolgoi which is just a tiny fraction of the vast resources we have and we are neighboring with one of the biggest resource hungry economy in the world. The slight issue with the foreign investment law is suspended and we are now an open country and as long as the mining companies follow the standard there is plenty of opportunity waiting to be explored and used.