'Mongolia does not need to join SCO' says transport minister www.news.mn

During the 18th Shanghai Cooperation Organisation (SCO) summit earlier this month in Qingdao, Mongolian President Kh.Battulga said that his country is studying the possibility to upgrade the level of its participation in the SCO and a discussion on this matter has been launched in political and social circles in Mongolia. However, J.Bat-Erdene, Minister of Road and Transport Development said there is no need to join the SCO.

Copper price takes another huge hit www.mining.com

The price of copper suffered its seventh straight day of declines on Thursday, losing more than 3% in New York to $2.8205 or $6,220 a tonne on the Comex market, its lowest level since July last year.

It was one of the busiest days of 2018 on commodity futures markets with with over 2.3m tonnes of September copper worth $14.6 billion exchanging hands by mid-afternoon. 2018 star performer nickel also succumbed on Thursday, becoming the last of the base metal complex to drop below its 100-day moving average at $14,200 a tonne. Zinc's woes continued and the metal is now down nearly 20% year to date.

Reports out on Thursday suggest the trade spat between the US and China, responsible for half the world's consumption of copper, could quickly turn nasty. President Trump's 25% tariffs on more than 800 Chinese goods worth $34 billion kick in midnight Friday. The latest round comes a few months after duties on steel and aluminum exports from China and other countries went into effect.

Investment bank Goldman Sachs poured cold water on the notion that a trade war represents a serious threat to raw materials, saying most of them aren’t likely to be significantly impacted, and after recent declines now’s the time to buy.

Growth in global industrial production and manufacturing output appears to have peaked in the first-half of 2018, suggesting that resource commodity prices may generally have set their highs for the cycle.
“The trade war impact on commodity markets will be very small, with exception of soybeans where complete rerouting of supplies is not possible,” analysts including Jeffrey Currie said in the July 4 note. “This is consistent with our economists’ view that the macroeconomic impact of the trade war is likely to be very small,” it said, with added emphasis on the final two words.

Raw materials have been hurt by growing concern among global investors about the potential impact of the trade tariffs planned by Washington, and the threatened Chinese response. In June, the Bloomberg Commodity Index suffered its biggest monthly slump since mid-2016.

“In metals, we believe Chinese domestic concern over credit availability has been the primary driver of recent weakness, fueled by trade wars, and is set to reverse given recent policy shifts in China,” it said in the latest report, citing moves including the recent reduction in some banks’ reserve requirements.

“China will want to negotiate the trade wars from the position of a strong economy, which reinforces fading the trade war rhetoric but buying the trade war reality (which will likely be small),” Goldman said.

Other banks are more cautious. Among them, Morgan Stanley has flagged risks for consumption from a potential deepening of the global trade squabble, as well as from any slowdown in China. “Escalating global trade tensions bring a risk of demand destruction across commodity markets,” it said last week.

“Trade tensions between the U.S. and its major trading partners have the potential to undermine confidence and hinder global economic output,” Australia's Department of Industry, Innovation & Science said on Monday. Trade wars aside, the government forecaster sounded gloomy about the prospects for metals and minerals prices:

Growth in global industrial production and manufacturing output appears to have peaked in the first-half of 2018, suggesting that resource commodity prices may generally have set their highs for the cycle.

Thermal coal prices hit 6-year high www.mining.com

Benchmark seaborne thermal coal prices jumped to $120.10 per tonne on Thursday, its highest level since November 2012, thanks to tight supply in key Asian export regions. Measured from lows hit end-2015, early 2016 coal used in power generation has gained 140%.

New Fund Plans Could Divert Mongolia’s Focus from Mining Sector Reforms www.resourcegovernance.org

Mongolian Minister of Mines and Heavy Industry D. Sumiyabazar has stated that he wishes to create a new “sovereign wealth fund” managed by state-owned miner Erdenes Mongol. This fund would invest inside Mongolia and would be financed from dividends of Erdenes Mongol subsidiaries and possibly by the sale of state mining assets.

Several ideas have been floated, from selling shares of certain mines on a stock exchange to increasing production at state-owned mines. After all, a recent valuation of just three state-owned mines owned by Erdenes Mongol found they are valued in the many billions of dollars.

Based on these statements, the minister seems intent not on creating a sovereign wealth fund—defined by the International Monetary Fund (and our organization, the Natural Resource Governance Institute) as an entity investing partly in foreign assets for a macroeconomic purpose—but rather a “strategic investment fund” managed by Erdenes Mongol.

While we support the minister’s aim to enhance Mongolia’s benefits from the mining sector, such a fund might lack adequate safeguards. We are also concerned that a new fund would divert Mongolia’s scarce government income away from essential public services, such as education and healthcare.

Strategic development funds and development banks, which are similar institutions, have often proven to be sources of patronage, corruption and mismanagement. The Development Bank of Mongolia (DBM), for example, has made a long list of bad loans. It is a major source of the Mongolian state’s indebtedness, which led to an IMF-led bailout last year.

The DBM has provided financing for a number of important development projects, including an hydroelectric plant, apartment construction and renovations to central heating systems. However, some investment decisions were politically motivated. Furthermore, the former CEO was arrested for approving debt issuances without tender.

Of equal concern: strategic development funds often undermine public financial management systems by bypassing parliamentary oversight and general procurement procedures for domestic contracting. The USD 10 billion Russian Direct Investment Fund, for example, invests in domestic companies virtually without independent oversight, creating an unaccountable source of financing for supporters of the ruling regime. The fund is currently subject to U.S. sanctions due to management’s alleged involvement in corruption.

Mongolia already has a plethora of public institutions to manage its mineral wealth. These include Erdenes Mongol, the General Local Development Fund, the Fiscal Stability Fund and the newly enacted Future Heritage Fund, each of which draws money away from the general budget. These allocations, while potentially useful, imply less spending on healthcare, education and public infrastructure. Depending on its design, a new fund could either improve this situation or make it worse.

As such, we believe the Mongolian government should consider alternative proposals to boost mining and better manage the sector.

First, management of Erdenes Mongol itself can be improved. Profitability at Erdenes Mongol-controlled mines generally underperform private sector mines in terms of production and cost effectiveness. While we congratulate the company for making essential information, such as a financial report, publicly available for the first time, more reforms are urgently needed if Erdenes Mongol is to become a world-class mining company.

Second, the government ought to avoid the mistakes of the past when signing mining contracts and tax treaties with other countries. A recent analysis of the Oyu Tolgoi copper mine contract showed that profit shifting and use of a Dutch tax treaty may cost the government up to USD 9.8 billion over the life of the existing mine, notwithstanding the planned expansion. Poor understanding of these types of fiscal devices has led to consistent overestimation of government revenue, meaning even existing funds do not receive the money they expected and do not function as designed.

Third, Mongolia’s mining revenue management can be improved via prudent budget spending and better fiscal management. The government has committed to a number of fiscal rules and development plans to ensure that future generations benefit from today’s mining, but these rules and plans exist mainly on paper. As indicated by high deficits and the threat of defaults, the government budget remains unstable.

If the government is set on creating a new fund, we would suggest that proper governance rules be enacted in law. Following on the good examples of Germany’s Kreditanstalt für Wiederaufbau and the Korean Development Bank, there would be a need for clear ownership policy, legal framework and performance monitoring framework. These institutions are characterized by high degrees of professionalism, effectiveness, transparency and oversight.

Still, success stories such as these are few and far between. The global experience demonstrates that strategic development funds and development banks often divert scarce resources away from public sectors that need them the most. The government may be better served by improving the performance of existing institutions, such as Erdenes Mongol and the Future Heritage Fund, than creating new ones.

Andrew Bauer is a consultant with the Natural Resource Governance Institute (NRGI). Dorjdari Namkhaijantsan is NRGI’s Mongolia manager.

Mongolia's foreign reserves hit new record high in May www.akipress.com

Mongolia's foreign currency reserves reached 3.26 billion U.S. dollars in May, a new high since June 2013, Xinhua reported citin Bank of Mongolia.

Mongolia and Malaysia renew ties strained by Altantuya murder www.thestar.com.my

ULAANBAATAR: Datuk Seri Dr Wan Azizah Wan Ismail’s visit here seems to have rejuvenated bilateral ties between Malaysia and Mongolia.

Mongolia's central bank purchases 7.1 tons of gold www.xinhuanet.com

ULAN BATOR, July 4 (Xinhua) -- The Bank of Mongolia said Wednesday that it had purchased 7.1 tons of gold from legal entities and individuals in the first half of this year, up 6.0 percent year on year.

Mongolia sets out annual wind plan www.windpowermonthly.com

The government of Mongolia hopes to commission at least two wind power projects a year, as it moves to reduce its dependence from traditional energy sources.

Agricultural machinery to be bought with loan from Development Bank www.montsame.mn

Ulaanbaatar /MONTSAME/ During the Cabinet’s regular meeting, Minister of Food, Agriculture and Light Industry B.Batzorig reported on progress of spring sowing.

Former Rio Tinto exec jailed for corruption in China let free www.mining.com

Former Rio Tinto’s head of iron ore business in China, Stern Hu, has been released Wednesday after spending nearly nine years in prison in Shanghai, following a 2010 conviction for corruption and industrial espionage.