Cashmere piles up in Mongolia as coronavirus cripples trading www.asia.nikkei.com

EMEELT, Mongolia -- After years of expanding their goat herds to meet growing demand for soft cashmere from Chinese traders and Western shoppers, Mongolian herders were looking forward to a bumper payoff this spring following the country's usual long brutal winter.

The coronoavirus pandemic has crushed those hopes for herders like Munkhsaikhan Telmen.

He recently drove four hours from his family pasture in Tuv Province to the Emeelt market near Ulaanbaatar just to sell 2 kg of raw cashmere fiber for 90,000 tugrik ($34) in cash to meet immediate household expenses.

The bulk of the wool gathered from the Munkhsaikhans' 200 goats is piled in their yurt as cashmere now fetches barely a third of what it did last year when the family sold around 167 kg.

"It seems like this pandemic has killed everything for us," Munkhsaikhan said.

Mongolia produces around 40% of the world's cashmere fiber, but the country's herders, traders and processors depend on Chinese buyers who purchase more than 80% of their wool for further processing into yarn that can woven into sweaters, scarves and other clothes.

Cashmere is Mongolia's top non-mineral export and more than a third of the country's population of 3 million is involved in its production.

The herders usually generate two-thirds of their annual income through spring sales of the hair their goats accumulate during the frigid winter, using the proceeds in part to repay grocers and vendors who sold them supplies on credit.

But with international travel and many factories worldwide shut down by the COVID-19 outbreak, the Chinese just aren't buying this year.

"There is almost no demand for cashmere," said Shu Quming, a Chinese trader at Emeelt. "I can't tell the price because of the uncertainty, so I am not buying now."

Munkhsaikhan made another trip to Emeelt to raise cash so the family could catch up on payments on a Toyota Prius car it leased last year when they were selling their raw cashmere at 110,000 tugrik/kg. Now that the price is down to 45,000 tugrik/kg, his parents are worried about an 18 million tugrik loan they took out last November for hay.

"We watch the news every evening to find out what the government will say about us and how they will save us," he said.

Chinese and European clients of cashmere processor Khatant International have been canceling orders across the board in recent weeks, Chief Executive Bayarmaa Byambaa told the Nikkei Asian Review.

"My partners in Italy don't talk about business or price at all," Bayarmaa said of her top market. "All they say is, 'Stay healthy then we will meet someday.'"

Bayamaa is now considering branching into sheep wool to keep factory staff busy. Gobi Cashmere, the country's largest fiber processor, has already cut about 10% of its 2,550 staff due to plunging sales.

The government initially offered 300 billion tugrik in subsidized loans, at a discounted 3% interest rate compared to the average commercial rate of 17.6%, to processors on condition they purchased cashmere from herders at 100,000 tugrik per kg or more.

But with cashmere trading in Emeelt at no more 55,000 tugrik/kg, processors showed little interest.

Usually traders’ warehouses in Emeelt would be full of raw cashmere, but herders are holding back supplies with COVID-19 driving prices down. (Photo by Anand Tumurtogoo)
With Mongolian voters scheduled to go the polls to elect a new parliament on June 24, Prime Minister Khurelsukh Ukhnaa last week announced that herders would be paid a subsidy of 20,000 tugrik/kg per goat.

While herders are eager for details about when and how the payments will be made, many in the industry are also hoping the government will soon relax border controls to allow entry by Chinese traders and tourists.

Health officials say the country has not had any cases of local COVID-19 infection due to early moves to tighten border controls, impose social distancing and require the wearing of masks. All 42 confirmed infections involve Mongolians returning from overseas, according to the government.

"It will be a scary thing for herders if Chinese partners cannot come here," said Erdene Zorig, an Emeelt cashmere trader. "They buy their cashmere only after they check quality with their own eyes and hands."

Mongolia reports 1 more COVID-19 case www.xinhuanet.com

Mongolia's National Center for Communicable Disease (NCCD) confirmed on Sunday one more COVID-19 case, bringing the total infections in the country to 136.

Iron ore export resumes through Burgastai border checkpoint www.montsame.mn

Gobi-Altai /MONTSAME/ Burgastai border checkpoint in Altai soum of Gobi-altai aimag has reopened and iron ore export to China has resumed through the checkpoint.

Financing agreement on cable car project approved www.montsame.mn

Ulaanbaatar/MONTSAME/. Yesterday, May 14, the Parliament passed a bill on ratifying the financial agreement to be established between the Governments of Mongolia and the French Republic.

Turquoise Hill expects Oyu Tolgoi blowout to top $1.8bn www.mining.com

Canada’s Turquoise Hill Resources (TSX, NYSE: TRQ) said this week that an ongoing expansion of the giant Oyu Tolgoi copper-gold-silver mine in Mongolia is expected to cost as much as an additional $1.8 billion.

The Rio Tinto-controlled company and mine operator had expected the underground expansion to cost $5.3 billion when it was approved in 2015. Last year, however, Turquoise Hill flagged stability risks associated with the original project design, adding that amendments to it could increase costs by as much as an additional $1.9 billion.

The Vancouver-based miner also warned at the time of further delays of up to two and a half years, noting it wouldn’t know the exact scale of schedule and costs blowouts until mid-2020.

Oyu Tolgoi’s operator now says the expansion will need an estimated $1.5 billion, in a range of $1.3 billion to $1.8 billion. This may change due to any additional scheduling delays or increases in capital costs arising from the impacts of the covid-19 pandemic, it said.

In terms of project completion, Turquoise anticipates it would take two extra years than originally planned for the project to begin production, with a 21 to 29 months range.

“It is still a range. It is still fairly broad, but it is narrower (than the 2019 estimates), and importantly, it stayed within the range we have given,” chief executive officer Ulf Quellmann said.

Block caving
Turquoise Hill’s boss noted the company had selected block caving for the mine design, as it considers it a “more resilient mine plan that provides the best opportunity for success.”

Quellmann also said that the decision was based on an extensive trade-off analysis taking into account the reserve recovery, geotechnical, constructability, operability, schedule, as well as cost and value risks.

Turquoise Hill has $1.8 billion, which Quellmann says is sufficient to fund operations, underground and power development into the third quarter of 2021.

He also said that a definitive estimate will be published in the second half of the year.

Turquoise Hill is currently in discussions with Oyu Tolgoi’s 50.8%-owner, Rio Tinto (ASX, LON, NYSE: RIO), regarding a proposal for an interim $4 billion funding over and above the liquidity currently available.

The massive deposit was discovered in Mongolia’s south Gobi Desert in 2001. Rio Tinto gained control of it in 2012, with the government of Mongolia retaining one-third ownership of the asset.

The ongoing expansion is expected to lift production from 125,000–150,000 tonnes in 2019 to 560,000 tonnes at peak output, targeted for 2025. This would make it the biggest new copper mine to come on stream in several years.

Oyu Tolgoi produced 35,203 tonnes of copper and 26,154 ounces of gold in the first three months of this year, which puts it on track to achieve 2020 production guidance.

One of Rio Tinto’s top investors, US hedge fund Pentwater Capital, said in April it would push for a management shakeup at the operation, due to what it calls “a massive devaluation” of the asset.

Mongolia issues severe weather warning www.marketwatch.com

Mongolia's National Agency for Meteorology and Environmental Monitoring on Thursday issued a dust and snow storm warning.

Sales revenue of OT contracts 62.9% to USD 130.7 million www.zgm.mn

Turquoise Hill Resources Ltd (TRQ) on Thursday announced its financial results and operational review for the period ended March 31, 2020. According to the report, Oyu Tolgoi (OT)’s revenue decreased 62.9 percent to USD 130.7 million year-on-year. This is primarily due to both a 78.2 percent drop in gold production and a 23.1 percent fall in copper production. Even though the pandemic has led to unprecedented challenges, OT open pit has continued to operate without interruptions and the underground development has been progressed. The average price of copper downturned by 9.1 percent, mainly influenced by the impact of the pandemic on global copper demand. Additionally, OT’s concentrate sales fell in the first two months of this year due to the COVID-19, but intensified in March, exceeding its quarterly plan. The company reported a net profit of USD 105.2 million a year ago, declined to USD 19 million this year. At the end of Q1’20, OT’s workforce including employees and contractors totaled approximately 13,600, of which 94 percent were Mongolians. Oyu Tolgoi is expected to produce 140,000 to 170,000 tons of copper and 120,000 to 150,000 ounces of gold in concentrates in 2020 from both the open pit and the beginning of the underground development material being processed. The production in 2021 is predicted to increase of 170,000 to 200,000 tons of copper, and 450,000 to 500,000 ounces of gold, as a transition to the higher grade ore in the lower benches of the pit and continue to raise the amount of underground development material processed. Previously, Oyu Tolgoi LLC had stated that the expansion and excavation of the underground mine could be delayed by 30 percent due to COVID-19, restricting the access of foreign experts to the mine. This affects the operations of underground mining subcontractors. For example, GIP, which is involved in the construction of Shafts III and IV, has announced that it may lay off 400-500 employees.

Global investments pour into China as Covid-19 turmoil grips financial markets www.rt.com

China has seen more capital flow into its stock markets as a result of market dislocations caused by the Covid-19 crisis. According to some strategists, this is part of a longer-term trend.
Allocation to Chinese stocks among more than 800 global funds reached nearly a quarter of their almost $2 trillion in assets under management, according to data from EPFR, a company which provides fund flow and asset allocation information to financial institutions around the world. That’s up from about 20 percent a year ago.

Record number of new COVID-19 cases confirmed, total surges to 98 www.montsame.mn

Covid-19 test results of the Mongolian military students who arrived from Russia on May 13, yesterday, have all come out, and 55 of them were resulted positive for the virus, bringing the total number of Covid-19 cases in Mongolia to 98.

ADB, Mongolia sign 3 loans to boost COVID-19 response, renewable energy www.montsame.mn

Ulaanbaatar /MONTSAME/ The Asian Development Bank (ADB) and the Government of Mongolia today signed two loans to mitigate the severe health and economic impacts of the novel coronavirus disease (COVID-19) pandemic and one loan and grant to install the country’s first large-scale advanced battery energy storage system (BESS).

The loans and grant comprise of $100 million loan for the COVID-19 Rapid Response Program, $30 million additional financing for the Fifth Health Sector Project to further strengthen the country’s preparedness and response to COVID-19, and $100 million loan and $3 million grant for the First Utility Scale Energy Storage Project.

Signing for ADB was Country Director for Mongolia Pavit Ramachandran while Khurelbaatar Chimed, Minister of Finance, signed for the Government of Mongolia. Minister of Health Sarangerel Davaajantsan and Minister of Energy Davaasuren Tserenpil attended the ceremony.

“The two COVID-19 related loans will assist the government as it manages the impact and responds to health and social protection needs arising from the pandemic,” said Mr. Ramachandran. “The Energy Storage Project will help tap the country’s rich renewable energy potential in wind and solar power to meet the country’s future power demand.”

The COVID-19 Rapid Response Program will support the government’s ongoing initiatives, including a National Emergency Response Plan to contain the spread of COVID-19 and strengthen the health system as well as social protection measures targeting poor and vulnerable groups, households, and businesses. It will also supply medical equipment and supplies and strengthen standards on infection control and testing capacity in hospitals across the country.

The additional financing of $30 million for the Fifth Health Sector Development Project will increase the coverage of upgraded sterilization departments to all referral (secondary and tertiary) hospitals nationwide and boost the capacity of hospitals to diagnose and treat COVID-19 patients, including by providing intensive care and ambulance services. It will also establish a warehouse to manage centralized stockpiles of medicines and medical devices in Ulaanbaatar.

ADB approved the Fifth Health Sector Development Project in December 2012, with ADB contributing the equivalent of $30 million to the $38.38 million project cost to promote safe blood transfusion services, medical waste management, and hospital hygiene. The World Health Organization provided cofinancing of $480,000.

The renewable energy project will install 125 megawatts of advanced BESS making it among the largest battery storage systems globally. The BESS will be resilient to Mongolia’s extremely cold climate and equipped with a battery energy management system enabling it to be charged entirely by renewable electricity. This will then discharge clean electricity to supply peaking power in the central energy system grid. The project will also provide regulation reserve to integrate additional renewable energy capacity in the transmission grid.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.

Source: Asian Development Bank