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http://zgm.mn/post/4600/

Bilguun: Drop in copper price may affect other commodities

Bilguun: Drop in copper price may affect other commodities
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http://zgm.mn/post/4600/

The current business environment of Mongolia has been declining as the spread of the coronavirus impacts the global economy in the last few months. Across nearly every industry, multinational companies are confronting the stark reality that business will not go on as usual. Economist and CEO of MIBG Bilguun Ankhbayar expressed his opinion on the situation in Mongolia. 

-Since the COVID-19 outbreak has been threatening economies around the world, some of the differences have been seen in the stock market. For example, Mazaalai bond yield rose dramatically to 12 percent and Khuraldai bond to 13 percent as well. What is your verdict on it? 

-Not only international investors but also users have experienced mental shock. It leads people to act strangely. Everyone individuals including the investors have been seeking zero-risk options since the virus became worse. Following the situation, many changes have been made in the markets. 

-Most of the econismts seem to expect Mongolia to issue bonds again in the near future as the Government bonds are due soon. But the bond yields have increased. Do you think it will be stabilized at its previous rate? 

-As far as I can see, the bond yields may decrease but not the same as it was before. Mongolia is likely to attract additional finance by issuing bonds. 

-Mining sector, one of Mongolia’s main sources of economic growth, has been halted for a couple of months. Even though the coal export to China resumed recently, is it still possible to cover its losses in short term? 

-It is hard, especially in the short term. The borders to China had been closed since the early January. In other words, it is merely impossible to cover almost two months of coal exports revenue. However, it is not the biggest problem for Mongolia than the potential commodity price decline. Recent drop in copper price may affect other commodities such as coking coal. Global economies are all connected. Producers and exporters in China are most likely to see decline, increasing the risk of Mongolia’s mineral products price to slip in the long term. 

-Does the Single Window policy necessary during the economic hardship? 

-Ofcourse, it will be effective to provide public service in this situation. As the investors have seen, Mongolians have the potential to unite when the crisis occur and the Government can provide reliable information, showing solidarity and cooperation. 

-Central banks around the world have taken measures to manage the economic crisis, such as cutting the policy interest rate or spuring specific sectors. Most of them combined both fiscal and monetary policy. How accurate is Mongolia’s fiscal policy at the time? What should we do in the upcoming year? 

-Well, we need to expand the budget to invest it on the long term projects, namely mining sector. It will benefit Mongolia in the long term as well as affecting other sectors. Focusing on the main revenue source is important. 

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Gold projects continue to attract fund

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  • Steppe Gold LLC successfully started the Altan Tsagaan Ovoo gold project, starting ore processing at the deposit

Erdene Resource Development Corp, one of the companies developing gold projects in Mongolia, is planning to release the feasibility studies for the Khundii gold within mid-2020. Moreover, the company had secured and attracted USD 5 million convertible loans from the European Bank for Reconstruction and Development (EBRD) at the beginning of last year. CEO of Mongolian Investment Banking Group LLC Bilguun Ankhbayar said, “Although the demand for gold as a safe investment tool and the price rising is favorable for gold mining companies, the shares of companies which developing gold projects, are highly volatile.” ASX listed Xanadu Mines Ltd. has stopped drilling for the Kharmagtai project in Umnugovi province in February. In this regard, the company reconsidered its 2020 operational plans and cut management costs by AUD 1.3 million or 35 percent. Besides, the company has signed an agreement with Japan Oil, Gas and Metals National Corporation (JOGMNC) to attract up to USD 7.2 million for exploration of the “Red Mountain” project. The project is scheduled to set up May and continue until November. Further, Steppe Gold LLC (STGO) successfully started the Altan Tsagaan Ovoo gold project, starting ore processing at the deposit. The company is extracting 533,000 tons of ore containing two grams of gold per ton and concentrating on leaching technology. Also, STGO is arranging to mine 60,000 ounces of gold and set to raise USD 3 million from the National Investment Fund this year. 

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Seddorj: Coal price is likely to rise in the global market

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  • Tavan Tolgoi JSC planned to export 6 million tons of coal this year but it was interrupted. In 2019, the company’s sales revenue reached MNT 263 billion, mined 2.2 million tons of coal, and exported 1.9 million tons of coal with a net profit of MNT 48 billion

Coal export revenue had declined significantly after the specific restrictions had been made by the Government in an effort of preventing coronavirus outbreak, such as closing the borders and halting coal export temporarily. However, coal export is now resumed, allowing the exporter companies to produce normally. Serdorj Renchinbyamba, Chief Executive of Tavan Tolgoi JSC, talked about the industry’s challenges and outlook. 

-Coal export had resumed and companies are exporting coal through the Gashuunsukhait port as usual. How much coal is Tavan Tolgoi JSC exporting daily?

-Well, approximately 40-60 coal trucks are in container transportation, transporting coal from Tsagaan Khad. There are about 720,000 tons of coal in stock as well as 600,000 tons of coal that is ready to be mined. Consumers are not fully satisfied with the lack of coal transportation through the border. Even though the container transportation has started, drivers are on the brink of unemployment as the normal coal trucks are not in operation. 

-How are the economic consequences measured? 

-If the situation stays the same, we will be in a critical condition economically. Currently, we are hoping the situation at the Gashuunsukhait port and China’s construction to be changed. However, Tavan Tolgoi is operating normally. 

-How did Chinese coal importer companies respond to the current situation? 

-The Chinese side is waiting for he export output and transportation conditions to get better. Four of the companies that have signed an agreement with us are working as normal. Those companies have paid the down payment in line with the contract. To that extent, it is our duty to export coal. Other consumers have halted their consumption, so we are in a waiting situation. 

-Did the decision to halt coal export affect the company’s export target? 

-Tavan Tolgoi JSC planned to export 6 million tons of coal this year but it was interrupted. In 2019, the company’s sales revenue reached MNT 263 billion, mined 2.2 million tons of coal, and exported 1.9 million tons of coal with a net profit of MNT 48 billion. The shareholders’ meeting will be held online on April 29. Over 51 percent of the company’s dividends contribute to the budget of Umnugobi province. People from 23 countries, mostly from Mongolia, own 49 percent of Tavan Tolgoi’s stake. 

-Is there any projection of Mongolia’s coking coal demand to increase in China’s market? 

-There is a difference between the selling price of the mine and the global market price. World market prices and steel production are also expected to increase. So, that means we can hope for it. 

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Cashmere demand may decrease as tourism shrinks

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  • 41 percent of the entities expect the cashmere price to be more than MNT 50,000-70,000

The luxury product industry is on the brink of crisis as the economic outlook started to falter in 2020. The demand for washed and combed cashmere fiber is likely to decrease in Mongolia as the COVID-19 restrictions affect the tourism industry. During the financial crisis in 2009 and 2015-2016, raw cashmere price dropped by 24-25 percent and combed cashmere fiber declined by 30-31 percent respectively. This can be seen in this year, posing risk to the industry. According to research conducted among the cashmere industry, 41 percent of the entities expect the cashmere price to be more than MNT 50,000-70,000 while 18 percent of the participants assume it to be higher than MNT 90,000. However, the Mongolian National Chamber of Commerce and Industry (MNCCI) estimates the cashmere wool price to be around MNT 60,000 based on the current situation, which might show the same result as the 2009 financial crisis. MNCC included over 50 cashmere entities in Mongolia. Approximately 24,000 tons of cashmere is been produced around the world a year. Of these, China supplies 50 percent of it or 12,000 tons and Mongolia exports 40 percent or 9,600 tons of cashmere. Last year, Mongolia exported 100 percent of its washed cashmere wool to China, 85 percent of its combed cashmere to Italy, and the rest to the UK and Korea. 

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Registered COVID-19 cases rise to 16

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  • According to the NCCD, the citizen came from Moscow on March 27 and tested negative the day after the arrival

The number of imported cases increased to 16 in Mongolia as one more citizen who was isolated in Selenge province tested positive for COVID-­19 after the re­test on April 7. According to the National Center for Communicable Diseases (NCCD), the citizen came from Moscow on March 27 and tested negative the day after the arrival. As of Tuesday, 237 people had been tested and 177 people are being hospitalized at the NCCD. However, 192 people who came from Istanbul tested negative after 25 surveillance testing. To help Mongolians overseas, the Government had commenced the Ulaanbaatar-Seoul charter flight at 9:10 a.m. yesterday, and 261 more people arrived in Mongolia on this flight.