Interview: George Lloyd
From an exploration standpoint, what is your opinion on the overall potential of Mongolia?
GEORGE LLOYD: It is widely recognised that Mongolia has huge exploration potential, but it is still vastly under-explored relative to more established resource-rich countries like Australia, Canada and Chile.
While the country has substantial deposits of bulk commodities such as coal and iron ore, the market tends to gravitate towards large-scale projects, which require considerable infrastructure and outlays of capital that are beyond the means of most junior exploration companies.
As such, the real opportunities for companies like Xanadu, in my opinion, are in metals such as copper and gold. The South Gobi is part of a larger Central Asian copper belt that has been successfully exploited in neighbouring countries. Kazakhstan has a number of established copper operations, and there has been some copper exploration work in China of late. Already, Oyu Tolgoi and emerging projects such as Tsagaan Suvarga and our project at Kharmagtai are representative of the potential in Mongolia.
How are junior exploration firms working to attract financing, despite the limited amount of capital currently available for such activities?
LLOYD: While it is a difficult time globally for exploration, I see positive signs for the Mongolian market. For one, there is considerable strategic interest. Explorers are also partnering with local firms and are collaborating with global commodity traders, which remain keen to become involved in the country.
Second, investment is becoming more specialised and is moving away from the broader investment class to more specialist investors, groups that have built up deep expertise in exploration and emerging markets over many years of active investing or their past involvement in successful mining projects, and which are now looking to reinvest capital in new, early-stage projects. This is a positive development in that it brings much-needed operating and development experience into the sector as opposed to just injections of cash. These investors are more patient with their capital and are willing to wait for the right project or situation before making large-scale investments, allowing for junior companies to take on the high-risk, early stages of work. So at this stage in the cycle, the interest in Mongolia is of a more strategic, long-term nature.
What impact will the recent changes to the minerals law have on the sector’s development in both the short and long term?
LLOYD: I see the recent changes as less of a sea change and more of a recognition by the government that the 2006 mining law, while a reasonable base, needed updating to bring it further in line with international best practices. If continued, this policy of incremental change will have a positive impact on the development of the sector.
In terms of the most material changes from an exploration perspective, the end of the moratorium on new licences is the most significant. While a handful of global macroeconomic factors as well as Mongolia-specific ones have limited investment over the past few years, this structural issue was the biggest barrier from an exploration perspective. Currently we have a number of generations of licences that are late in their term; therefore, the time remaining makes it unattractive to invest further in many of them, limiting the number of attractive or feasible exploration opportunities available. By allowing for new licences, this issue can be overcome.
Another positive step is that the government is now following through on its intention to re-tender the 106 licences, and this process seems to be proceeding smoothly. Other changes – such as the lengthening of the licence term from nine to 12 years and provisions to prevent the warehousing of licences for speculative purposes – are also positive.
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