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Young company, new discoveries, big ideas

Interview - February 11, 2014
Having discovered Mongolia’s first fluorite mines for over 20 years, the country's young mining company Sod Gazar LLC (with just an average employee age of 23 years old) is growing up quickly. As the business expands and another new investment law is approved, CEO Sukhbayar Batsaikhan says that he and his team of ambitious and talented staff hope to attract fresh new investment on the way to achieving their goal of becoming one the world's mining big boys in years to come
SOD GAZAR, MONGOLIA
SUKHBAYAR BATSAIKHAN | CEO OF SOD GAZAR
Since the new investment law passed in May last year, the mining sector has experienced a sharp drop in investment and revenues. How do you see the situation of the sector nowadays that a new law is coming in and do you think it will get back to the state it was in 18 months ago?
 
Due to the ratification of the investment law in May 2012, the whole mining sector fell down to the bottom. In addition, the world economy and its finance system itself were in a recession and prices for precious metals were also very low. As many others, our company has suffered under this law. At that exact time when the law was ratified, we were negotiating with 2 or 3 foreign companies about our potential collaboration on fluorite mines which had been recently discovered in the Dornod province, but due to the investment law we had to postpone it.

After the ratification of the new law in autumn of this year there are some tendencies for positive changes in this field. However, the situation also depends directly on the downfall of mineral prices on the world market and therefore, in my opinion, the investment sector will not be able to recover fully in 2014.
 
What do you think is the main issue the Government should work on for Mongolia to gain appeal to foreign investment? 
 
The political stability is the most important and essential issue in Mongolia, because the political structure of the country is based on diversity of political parties.

Since the election in 2008, small and medium sized companies like us have suffered under this political situation. Because two political parties or coalitions are switching their dominating position almost every 4 years, consequently all related laws and regulations change as well, including the above mentioned investment law which drives away foreign investors.

Today all investors are focusing their views only on the stability of Mongolian laws. Nobody knows how stable today’s laws and regulations will be and what the election in 2016 will bring.
 
Sod Gazar LLC is a young company, established in 2005. Could you give us a quick recap, pointing out the significant events occurred in its history? 
 
In the period of 2005-2008 our company was a small, newly established company. Our staff was also very young – in my case, for example, it was only the 3rd year since my graduation. In general, this was a very hard period for all of us. However, if I should recapitulate that within those 3 years, we had managed to purchase 10 exploration licenses and already provided business activities on 2 mines. Moreover, from today’s point of view, the company development has proceeded quite well.

Since 2008 the business environment of the mining sector began to profit from positive changes and foreign investors started to come copiously to our country. Therefore, we consider 2008 as the year of our business resurrection. After the accomplishment of our activities on iron ore mines in the Gobi-Altai province in 2008, we expanded our business, starting with exploration of fluorite mines in 2009.

Since 2011 we have also been working on our molybdenum and wolfram mines. Nowadays, the company owns 32 special licenses for geological survey works, encompassing nearly 4,685,000 hectares in total. Without a shadow of a doubt, we can consider the past 5 years as very successful for Sod Gazar LLC.
 
What are today the key projects of the company? 
 
Within 2 years between 2008 and 2010 we have discovered fluorite mines, which have not been discovered in Mongolia for 20 years. In 2011, we started implementing related exploration works on rare metals, such as molybdenum and wolfram. According to our working schedule these works should be accomplished soon.

Currently we are negotiating about the investment for these mines - as I’ve mentioned before, the previous negotiations in 2012 had to be stopped due the investment law.

There is a saying by geologists: “You must dig and seek in a thousand different places to find one appropriate mine. And this will be a big rarity as well.” Sod Gazar LLC has achieved to work on two big mines within the past 5 years. We are very proud and excited about this, as for a 100% Mongolian company free of any foreign investments this represents quite a big fortune and opportunity.

What is Mongolia doing to attract American investors and how best firms from overseas can find opportunities and collaborate with local companies like Sod Gazar LLC?
 
The law on investment, recently approved, removes the distinction between foreign and domestic private investors. By doing so, the Government has shown its determination to encourage foreign investment, particularly in the mining sector. The new law also provides investors with tax stability by freezing VAT, corporation tax, customs duties and mining royalties. Investors from the USA and from all over the world are welcome. In addition, the mining law will be soon ratified. All this means possibilities of profitable investment for both local and foreign entities.
 
In this particular moment, I believe it is necessary that Mongolia becomes capable to manufacture completed and VAT-included products for the end user. As a matter of fact, this has been our company’s long-term policy for the last 8 years. As per opportunities of collaboration, Sod Gazar LLC will be glad to cooperate with American investors for the production and manufacturing of finished products. 
 
This company employs young professionals. What is the recruitment philosophy of Sod Gazar LLC and how does the company encourage growth and career development of its employees? 
 
Middle-sized companies like us, are often facing employment-related issues. In Sod Gazar LLC, we are aware of the importance of our human resources.

This is why we are deeply committed with our employees’ professional growth and we always strive to increase our human capital development. We regularly involve our staff in related training courses and seminars organized by the Mining Association and the Ministry of Mining of Mongolia. Furthermore, we believe in the potential of young people. They are talented and passionate. The average age of our staff is approximately 22 to 23 years old. We pride ourselves of our professional staff, which includes some of the best experts in the country. 
 
In less than 10 years since its establishment, this company experienced a vibrant growth and now it ranks itself among the major players within the Mongolian market. What did allow this company to achieve such an impressive result and where do you see your company in 10 years time?  
 
Although I’m acting currently as Sod Gazar’s director, the company was established initially with three friends of mine. We all graduated from the School of Geology. In the early stage of our company, we hadn't even imagined that we would achieve such results. Now, after 8 years, we are working on two big mining projects. One of them seems to be turning into a rare mineral project with quite a large scope and volume in the future. 
 
Because the legal environment of the mining sector is improving constantly, I can see the future of our company in a bright light. It is without a doubt that we will continue our business activities in the mining sector for at least 20 years. If I am to speak about the future of our company, I must say that we will face hard, but at the same time, exciting challenges. The company’s plan for the near future, meaning 10 years time from today, makes us proud and enthusiastic. Our aim is to build, within 3-4 years, our own facility to manufacture completely finished products made of rare metals. Currently, we are in the middle of important negotiations and we feel quite confident that the decision will be positive for us. 
 
Our mid-term ambition is to bring the shares of our company on the domestic stock exchange in order to strengthen the competitiveness of the company among the local competitors. I hope that, within 5-10 years, our company will be comparable with all the most prestigious foreign mining companies.
 
We are on the right path and we are strongly committed to contribute to the economical development of our country through specific actions like exploration of big-sized mines, execution of their exploitation by ourselves, manufacturing of finished products within the country and the creation of new jobs. 
 
If you had to launch a message to our audience in the United States, what would you say to invite them to visit Mongolia and to invest in this country?
 
To all tourists who are planning to come and visit Mongolia I can say: “Welcome to our beautiful country and enjoy the bright and endless steppes”. Although Mongolia is well-known as a land with a great deal of natural resources and big mines, our country has a very long and glorious history, which flourished in the 13th and 14th centuries. In these terms, Mongolia has plenty of beautiful things for visitors to learn and to discover.
 
To the foreign investors, I invite them to analyse our country’s recent changes: the new Mining Law will come out in 2014, the modified Investment Law is about to be ratified and the Law on Natural Resources is also being amended. This all means that our Government is implementing a totally new and open policy, intentionally focused to increase the appeal of the country. Mongolia is turning itself into the perfect business partner for those who seek profitable investment opportunities.

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