Ministry of Energy plans to take control of power plants following Saturday blackout www.zgm.mn

Minister of Energy Davaasuren Tserenpil held a press conference on the citywide blackout affected Ulaanbaatar last Saturday. Due to the accident, two generators were damaged and the case is currently under investigation. Thermal Power Plant IV was also damaged by an accident last Spring. The Minister informed that an official letter has been sent to the Government Agency for Policy Coordination on State Property (PCSP) to demand accountability from the Administering Engineer responsible for the incident; however, PCSP did not give any response and a major accident occurred last Saturday. Therefore, Mr. Davaasuren noted the significance of taking power stations under the Ministry’s control to entail accountability and provide independent energy. He added, “Due to potential voltage fluctuations, I demanded to limit solar and wind energy, as well as Baganuur power station to generate 150MW power. Solar and wind powers are highly inefficient as the electrical voltage will fall due to natural circumstances. If Baganuur plant installs 350MW power generator, a malfunction similar to last Saturday will also affect the entire power system. Therefore, we must intensify the implementation of a hydropower plant.

Irresponsibility at workplace results in citywide blackout www.zgm.mn

The entire city of Ulaanbaatar experienced a major blackout last Saturday morning. Some areas were affected by power outage for over 13 hours followed by a significant aftermath, including a malfunction in the wastewater plant pump, resulting in wastewater overflowing onto electrical system. Minister of Energy Davaasuren Tserenpil explained, “Thermal Power Plant (TPP) IV went into a full shutdown at 9:54 AM, causing malfunctions at other plants. There were no accidents or damage. The investigating is currently being conducted to locate the source of the outage. I was informed in advance that it was due to negligence in the work and irresponsibility of technical administrators.”

Salesforce billionaire Marc Benioff to buy Time magazine www.bbc.com

Time magazine is changing hands once again, nearly eight months after it was sold to US media group Meredith Corporation.

Investors should focus on battery materials, not EVs – Blackstone Resources CEO www.mining.com

Investors keen to tap into the electrification of the world’s transport networks should look upstream to the battery metals market instead of buying shares in automakers, according to Ulrich Ernst, the chief executive officer of Blackstone Resources.

The electric vehicle (EV) revolution will first emerge as a mixture of differing technologies, from hybrids to all-electric cars powered by an ever-evolving battery-metal-mix of cathodes, Ernst said.

“Battery-metals don’t mind what path the EV revolution takes. They don’t mind which automaker wins and which one loses. Even the type of technology used is of little relevance,” he said.

“Aggregate demand for battery-metals will rise at an exponential rate. And the days of the traditional combustion engine are limited,” he added.

Citing data from the Boston Consulting Group, Ernst said that the proportion of vehicles produced that run on gasoline and diesel will fall to just 52% by 2030from 95% globally in 2017.

“What’s astonishing is that we are now in 2018, and 2030 is only 12 years away,” he added.“What’s astonishing is that we are now in 2018, and 2030 is only 12 years away.”

The mix of battery metals used in battery cathodes may well change drastically in the years ahead, along with the battery cathodes themselves, according to Ernst.

“Technological progress will drive this shift to make owning a decent electric car like the Tesla more affordable. The exact mix of battery metals and the technology used will change to make all-electric cars more efficient, more powerful, drive longer and speed-up charging times while on the road,” he said.

“The beauty of investing in battery metals is that you don’t have to wait for this point in time to arrive. If you diversify your portfolio of batterymetal interests, then the final mix doesn’t matter whether it’s North American cobalt, rare earths from Norway, manganese from Colombia or molybdenum from Mongolia,” he noted.

“So forget about investing in EVs. Battery materials matter more,” he added.“Battery materials matter more,”

Price moves
Ernst is unfazed by the recent fall back in the cobalt and lithium prices, he said.

“The easing of supply-side tensions in the Democratic Republic of Congo has seen cobalt prices fall 15% and lithium prices fall 20% in the last six months. I think it’s good to see some of this risk premium come out of the battery metal market because it’s the long-term demand-side forces, such as the electric car, which will drive this market forward,” he said.

“Batteries might be falling in price due to efficiency gains made in battery technology. However, battery metals are also rising as a percentage-ofcost of these batteries. And, as the number of EVs dramatically increases, demand-side forces are likely to overwhelm any short-term supply-side relief,” he added.

Metal Bulletin's assessments of low and high-grade cobalt prices, a key raw material used in the production of EV batteries, peaked at 10-year highs in April but slid lower for several months after May. Meanwhile cheap selling from China met weak summer demand elsewhere.

Yet spot prices for high-grade cobalt rose for the first time in 19 weeks on Friday August 31, with sellers successfully hiking their offers in response to an uptick in consumer demand, alongside a more positive backdrop from China.

The high-grade cobalt price rose to $32.90-34 per lb, in-warehouse, on Friday August 31 from $32.55-33.55 per lb in mid-week.

The low-grade cobalt price was unchanged at $33-33.60 per lb inwarehouse on August 31.

Lithium prices meanwhile soared to an average of $21,760 per tonne in 2017 from around $9,500 per tonne in the second half of 2015, based on Metal Bulletin's assessment of spot prices ex-works China. Yet prices have since eased amid an anticipated supply surplus while projects ramp-up and new producers enter the market.

Metal Bulletin's battery-grade lithium carbonate index was calculated at 85,298 yuan ($12,492) per tonne, ex-works China on Thursday August 30, down from 159,250 yuan per tonne at the start of the year.

Switzerland-based Blackstone Resources is an independent mining and exploration company with strategic stakes in battery materials projects in Canada, Peru, Columbia, Norway and Mongolia.

Russia, Mongolia have great potentials for expanding bilateral cooperation - official www.ecns.cn

Russia and Mongolia have great potential for expanding bilateral cooperation in many areas, M.V.Vasiliev, trade representative of Russia to Mongolia, told Xinhua in an exclusive interview on Sunday.

Hunnu Air announces new deal with Sabre Corporation www.news.mn

However, thanks to the rise in popularity of experience drive holidays, with events such as the annual Nadaam Festival, where participants celebrate Mongolians’ rich heritage with horse races, archery contests and wrestling, the country is now drawing tourists from Russia, China and APAC as well as Europe and the United States.

Compounding this tourism trend, Mongolia also introduced a measure to drive the country’s potential by abolishing tourism licenses and the introduction of a tax exemption scheme which offers up to 10% of total investment to companies building “high-rated hotels and tourist complexes”.

This has resulted in Mongolia witness a slow, but steady, increase in the number of international visitors, creeping up to 705,000 in first quarter of 2018, a 11% increase on 2017’s figure.

One company seeking to take advantage of the uptick in interest to Mongolia is Hunnu Air, Mongolia’s second largest airline, who have announced a new deal with the Sabre Corporation which will see the carrier’s content rolled out via the tech provider’s marketplace platform used by more than 425,000 global travel agents. (travel daily media)

British and Mongolian army to play polo www.news.mn

The British and Mongolian army polo teams will mount for the annual friendly match on at the Khaan Polo Club, in Ulaanbaatar’s sub district area of Gachuurt on 22 September at 1.30 p.m. The army polo match has being held since 2015 and aims for deepening cooperation between the two countries in the sports, tourism and defence sectors.

Sharp Builds Mega Solar Plant in Zamyn Uud, Mongolia www.sharp-world.com

Sharp Energy Solutions Corporation (SESJ)*1 announces the completion of a mega solar power plant in Zamyn Uud, Dornogovi Province, Mongolia. The project was a collaboration with Shigemitsu Shoji Co., Ltd.*2 and Mongolian energy company Solar Tech LLC*3.

Fitch Ratings: Mongolia Banks Recovering Post-AQR but Loan Growth a Risk www.fitchratings.com

Fitch Ratings-Hong Kong/Singapore-12 September 2018: Most large Mongolian banks have undertaken additional provisioning in response to an asset-quality review (AQR) concluded earlier this year, which is likely to pave the way for a pick-up in profitability and faster growth, says Fitch Ratings. However, the AQR highlighted weak capital, with some banks close to the regulatory minimum, while weaknesses in the regulatory environment and lending standards will continue to pose medium-term risks as banks refocus on expansion.

The AQR and subsequent stress test has not resulted in a full and transparent clean-up of balance sheets, but the process is likely to have led to improved acknowledgement of underlying asset-quality problems and a reassessment of collateral valuation. The doubling of State Bank's official NPL ratio in 1Q18, for example, is likely to have reduced under-reporting. State Bank's NPL ratio was previously well below the wider measure used by Fitch, which combines impaired loans and loans more than 90 days overdue. NPL ratios of other domestic systemically important banks (DSIBs) were more stable following the AQR, and those of Khan Bank (B/Stable/b) and XacBank (B/Stable/b) even declined, due to loan growth and, possibly, write-downs.

DSIBs' loss-absorption buffers - reserves and excess capital - averaged 6.8% of gross loans at end-1H18, which fell short of their average official NPL ratio of 7.4%. TDB was the only bank with loan-loss allowances that exceeded regulatory NPLs. Khan, State and Xac have full coverage if excess capital buffers are included, while Golomt is the only DSIB with an overall shortfall. This analysis excludes collateral and future earnings, which may address uncovered potential losses.

Provisioning costs are likely to ease in 2H18, and they will also benefit from a stronger operating environment. Banks could even receive a boost from recoveries on non-performing assets as the economy gains momentum. We forecast real GDP growth of 5.2% in 2018 and 6.3% in 2019.

This improvement in conditions will support earnings and reduce near-term risks. However, the pick-up has already triggered an acceleration in lending growth that will add to pressure on capitalisation and could signal a return to high risk-taking. System-wide lending growth increased to 17.8% ytd in 1H18, compared with 9.0% in the whole of 2017, and is now considerably faster than nominal GDP growth. Golomt was the fastest-growing DSIB, with lending growth of 23.3% ytd in 1H18, even though its total capital ratio was barely above the 14.0% regulatory minimum. Xac and TDB also have relatively thin buffers.

The return to strong growth could test the effectiveness of efforts to address structural weaknesses in the supervisory framework, and the authorities' willingness to prioritise financial stability. The AQR process has strengthened the role of the supervisor, and there is a focus on containing more aggressive lending toward the lower-risk consumer sector, encouraging scrutiny of borrowers' consolidated debt burdens, and deterring banks from lending in foreign currency. However, continued rapid growth of weaker banks without regulatory intervention could signal continued shortcomings in enforcement, and might encourage moral hazard.

The banking sector recapitalisation law, approved by parliament in June, could add to moral hazard risks. The law sets guidelines under which DSIBs can receive public capital injections. Regulators' application of the law has not been tested, and banks with weak capital could view potential state injections as a reason not to ease back on growth.

The second "Fitch on Mongolia Forum" was held on 30 August 2018 in Ulaanbaatar. Presentation slides are available on www.fitchratings.com or by clicking the link.

Contact:

Sabine Bauer 
Senior Director 
Financial Institutions 
+852 2263 9966
Fitch (Hong Kong) Limited
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68 Des Voeux Road, Central
Hong Kong

Savio Fan
Associate Director
Financial Institutions
+852 2263 9955

Dan Martin
Senior Analyst
Fitch Wire
+65 6796 7232

Media Relations: Leslie Tan, Singapore, Tel: +65 6796 7234 , Email: leslie.tan@fitchratings.com
Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935 , Email: wailun.wan@fitchratings.com

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed atwww.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Power plant delays fuel tensions over Rio's giant Mongolia copper mine www.reuters.com

LONDON/ULAANBAATAR (Reuters) - Nearly 10 years on from the launch of a giant copper and gold project in Mongolia, Rio Tinto is still looking to secure a domestic power source it needs for the mine under an agreement with the government.

Oyu Tolgoi, located in the South Gobi region near landlocked Mongolia’s southern border with China, is scheduled to complete a $5.3 billion underground expansion for first production by 2020, creating one of the world’s biggest copper suppliers.

The project, launched in 2009 and 34 percent-controlled by Mongolia, is set to transform the country’s tiny economy, and is also key for Rio as the biggest potential growth area for its copper business. But it has been beset by squabbles over cost overruns and claims of unpaid taxes.

Under an agreement with the government, by 2022 a domestic power source must be found for the project, currently running on power imported from China. But while Rio has invited three state-owned Chinese firms to submit bids to build a power station at a cost of up to $1.5 billion, it has yet to make a final decision on a go-ahead.

Rio also has yet to have its permits for the plant renewed by the Mongolian government, according to a government source.

“The main challenge remains the same: political instability and unpredictability,” said Otgochuluu Chuluuntseren, a former government official who also served as an Oyu Tolgoi board member.

Oyu Tolgoi has suffered repeated delays amid government wrangling, the reshuffling of officials, disputes over Mongolia’s share of the returns and opposition to foreign participation among nationalist politicians.

Complicating the power project has been the Mongolian government’s desire to kickstart the nearby Tavan Tolgoi coal project, one of the world’s biggest deposits with an estimated reserve of more than 6 billion tonnes, which lies just 150 km (93 miles) from Oyu Tolgoi.

Rio had originally planned to build its own power plant, but it suspended construction plans in 2012 after it was encouraged by the government to switch to a proposed plant at Tavan Tolgoi, where it would be an off-taker rather than investor.

However, in February this year, the government canceled a 2014 agreement setting up a framework for co-operation on a shared power plant, with Rio saying the project still lacked a credible lead investor and could not be completed on time.

DIFFICULT TIMEFRAME
Oyu Tolgoi currently pays about $100 million a year to buy electricity from China, according to an industry source with knowledge of the matter.

The project is now looking at options for a domestic power source, said Luke Colton, chief financial officer at Turquoise Hill Resources, the Rio-controlled unit that owns 66 percent of the project.

“An Oyu Tolgoi-based plant is currently the most feasible option that could deliver a domestic power source within the shortest timeframe,” Colton said in a call on second quarter earnings at the end of July.

Rio Tinto said it was working with the government and other stakeholders to progress the building of a new power station.

“Rio Tinto and its partners are committed to securing a domestic power supply within the agreed timeframe,” a spokesman said.

Some government officials have expressed impatience about the power plant delays, underscoring the political challenges facing the project.

“Oyu Tolgoi should stop playing with the Mongolian state!” Mongolia’s energy minister Davaasuren Tserenpil said on the ministry’s official Twitter account last month, in extracts from an interview to local media.

“Oyu Tolgoi got permission from the ministry in 2012 to build the power plant on its site but it has done nothing.”

Otgochuluu said transporting power from a Tavan Tolgoi plant to Oyu Tolgoi would be more efficient than transporting coal to a likely coal-fired plant at the Oyu Tolgoi mine.

Of the three contractors invited by Rio to tender for the project, Power Construction Corp of China spokesman Sun Jianli told Reuters the bid was “preliminary” and the project was still “very far away”.

The others, China Machinery Engineering Corp and Harbin Electric International, declined to comment.

If the plant is not built on time, Rio and the government would need to negotiate on alternative supply arrangements, potentially a sensitive task as discord continues to rumble around the project.

“It is a huge and prized project. Rio Tinto and the Mongolian government would do everything to avoid any major disruption to supply,” said Shairaz Ahmed, Manager of Statistical Analysis, International Copper Study Group

Reporting by Barbara Lewis and Munkhchimeg Davaasharav; additional reporting by David Stanway in SHANGHAI, Melanie Burton in MELBOURNE and Tom Daly in BEIJING; editing by Richard Pullin