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http://zgm.mn/post/1273/

Surprising figures from pre-election year budget

​International organizations warn potential risks of high expenditure​

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http://zgm.mn/post/1273/


The Parliament is currently discussing the draft bill on 2019 State Budget. As expected of a pre-election year, a significant amount of financing has been allocated to local budgets. On the other hand, the mining revenue, which is expected to account for 27 percent of total budget revenue, was increased by 76.4 percent compared to 2018 budget. Considering the external environment, the World Bank and Asian Development Bank recently upgraded their outlook on Mongolia’s economy; however, both banks warned the Government to remain wise on expenditure. “In some senses, the revenue performance has increased, so it does give the Government more flexibility. What they have got to do is to use that flexibility wisely. I would say to them that the best course of action going forward is to continue the focus on building up the buffers and keeping control of current expenditure,” said Declan Magee, Senior Economist at ADB. As for the World Bank, the recent regional economic report stated that the “Growing political uncertainty could induce a sudden relaxation of the government’s commitment to structural reforms. Mongolia’s growth prospects could be adversely affected by the consequences of an escalating trade war and a potential reduction in global demand-mainly from China-for coal, copper and other commodities and the resultant decline in global commodity prices. Weather related shocks, resumption of non-trade barriers at the border with China, could also significantly affect Mongolia’s coal exports.”

Expenditure

The draft of 2019 budget allocated MNT 2.08 trillion on construction and another MNT 1.2 trillion on 877 development projects. Both the allocations double the last year’s amount. These will be spent on constructing 117 schools, 143 kindergartens, 62 extension of primary care centers and 34 dormitories. As the Prime Minister highlighted, the local budgets have been increased dramatically. A total of MNT 189 billion will be financed for local budget. The amount triples the 2018 budget, which was only about MNT 59 billion. Furthermore, allocation to the Local Development Fund raised by 62 percent, to MNT 144 billion, compared to MNT 89 billion in 2018.

Revenue

Under the tax reform, the budget expects MNT 8.58 trillion in tax revenue, which was MNT 6.2 trillion in the 2018 budget. Additionally, the mining revenue is facing a heavy criticism as the 2019 budget is in plan to collect MNT 3 trillion from mining. This is around 76.4 percent higher than 2018 expectation of MNT 1.7 trillion. The draft expects to fulfill this amount by exporting 42 million tons of coal and 1.4 million tons of copper. As of August 2018, Mongolia exported 23.4 million tons of coal, 960,000 tons of copper ores.

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Miners start the year with revenue growth

Oyu Tolgoi spent USD 296.4 million on underground development in the first quarter

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Mining projects that have a major impact on Mongolia’s economy saw splendid expansion in the first  quarter. The Top 100 Mongolian firms included Erdenet Mining Corporation (EMC), Erdenes Tavan Tolgoi (ETT) and Oyu Tolgoi (OT). These companies paid a total of MNT 2.1 trillion to the state budget last year.

Copper

Oyu Tolgoi, one of the main mining projects in Mongolia, spent USD 296.4 million on underground development in the first quarter of this year. The second shaft is still ongoing and it is expected to end in October.

Xanadu Mines, listed on the Australian Stock Exchange announced the result of additional exploration at Kharmagtai deposit. In the first quarter of this year, the capital balance of the company reached AUD 3.1 million, while post-tax losses nearly halved from the same period last year. The share price of the company reached AUD 0.08 at the Australian Stock Exchange.

Gold

Erdene Resource Development Corp. (ERD), Toronto Stock Exchange (TSX) and the Mongolian Stock Exchange (MSE) listed firm, has conducted drilling at the Khundii field and expanded the mineralization of the Bayan Khundii deposit. The company explained its plans in a report to support the feasibility study of the project. “The exploration of the project on the Midfield area found 5.9 grams of gold per tonne at a depth of 112 meters per. This affirms the high mineralization in the main part of the Bayan Khundii deposit,” said the CEO of the company Peter Akerley. The share prices of ERD at the TSX reached CAD 0.19.

Coal

SouthGobi Resources, operating at Ovoot Tolgoi mines increased its coal sales by over 80 percent to 1.1 million tons in the first quarter of the year. The average selling price of the company has decreased from USD 43 in 2018 to USD 34.9. The net profits have doubled from the previous year to USD 13.4 by reducing the cost.




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Tavan Tolgoi JSC: Coal sales totaled 1.8 million tons in 2018

The company's share price fell 36 percent to MNT 6,400 at MSE in a year

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Tavan Tolgoi JSC: Coal sales totaled 1.8 million tons in 2018 Tavan Tolgoi (TT) JSC was planning to sell 5 million tons of coal in 2018, but the amount totaled only 1.8 million tons, earning MNT 226.4 billion in sales revenue. Net profit was MNT 52.8 billion, according to its financial statement.

The company's share price fell 36 percent to MNT 6,400 at the Mongolian Stock Exchange (MSE) over the last year. The decline is mainly due to the Professional Inspection Agency's activity that caused temporary delay in share sales for over two months in connection with the mining operation of the company.

In addition, the companies that are operating at the residual deposits of Tavan Tolgoi have been facing a major problem in the customs sector last year. The Chinese side delayed the import at the Gantsmod port because of the introduction of smart systems, which resulted in the 21-day suspension of the Tavantolgoi-Gashuunsukhait road to reduce the overload at the road.

The government is working to improve the capacity of the border checkpoint

Tavan Tolgoi JSC reported in its financial statements that the road was closed for 18 days due to weather conditions. However, Erdenes Tavan Tolgoi JSC, which operates at the same deposit with TT exported 13 million tons of coal in 2018, while Energy Resources LLC's coal production reached 10.9 million tons.

The government is working to improve the capacity of the border checkpoint. Umnugovi province Governor's Office reported that the Gashuunsukhait is waiting for a transaction of CNY 140 million or MNT 50 billion in part of the Chinese grant.



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Tavantolgoi-Zuunbayan railway to commence this week

MNT 750 billion will be spent on the project

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The Government is planning to inaugurate the construction of 416.6 km railway from Tavantolgoi to Zuunbayan on May 24. The Minister of Road and Transportation Enkh-Amgalan Byambasuren announced that soldiers will help finish the task. Also, it is estimated that MNT 750 billion will be spent on the project.

The domestic transport revenue of the Tavantolgoi-Gashuunsukhait railway is about USD 8, while the transport revenue of the Tavantolgoi-Zuunbayan railway will be USD 20 (per what? Add measure). The Tavantolgoi-Zuunbayan railway line is scheduled to be completed in 2020 starting from May. A total of 3,647 people will work on the construction of the tunnel and dam, while 1,144 people will participate in building the other development works.

There are seven tasks to build a railway:

● Pre-construction work ● Laying bottom ballast 

● Top ballast

● Water supply 

● Electricity

● Connection 

● Building

“The first task, pre-construction activities will be undertaken by the Mongolian Armed Forces (MAF). Ulaanbaatar Railway will be responsible for the construction of the top ballast, the others will be done by the chosen domestic companies, and 36,000-meter cubic soil work will have completed. MAF and subcontractors will do the soil work,” the Deputy Minister of Road and Transportation.

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Erdenet Methane LLC signs Methane Investment Agreement

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Erdenes Methane LLC and Jade Methane LLC of Australia established Methane gas investment agreement to set reserves of coal seams of coal at Tavantolgoi deposit. Executive Director of Erdenes Methane LLC and Executive Director of Jade Methane LLC have signed the contract on May 17, 2019.

CEO of Jade Methane Joseph Burke said “Mongolia is close to the market of key customers in methane gas. It is seen as a major competitive advantage since the natural gas reserves are relatively close to 600km from Ulaanbaatar. China receives natural gas from other countries through its northern port. Instead of that, if they export natural gas and methane gas from Mongolia, China will have the opportunity to deliver at least cost to its core customers.”

The Board of Directors of Erdenes Mongol LLC made a decision to raise funds from the international market by exchanging exploration and feasibility studies for the Coal Seam methane gas project by foreign investors last year. According to this, Erdenes Methane announced an open tender and Australia's Jade Methane was chosen as the foreign investor to cooperate on the project.