When will Asgat silver mine be commercialized?

The Asgat silver mine in Bayan-Ulgii Province has been dormant for nearly 30 years but politicians have taken up newfound interest in commercializing the mine.

Discovered in 1973, Asgat is situated 170 kilometers from Ulgii soum, the center of Bayan-Ulgii Province, 70 kilometers from Nogoonnuur soum and 110 kilometers from Tsagaannuur soum, where there is a transmission base. A part of the deposit spreads onto Russian territory over the border, namely Altai Republic and Tuva, which requires cooperation from the Russian side. On account of identified poisonous arsenic and antimony contents and lack of infrastructure and processing technology, Mongolia hasn’t made much progress in mining Asgat.

Nevertheless, the country remains hooked on the prospects of commercializing the deposit as it has estimated reserves of 2,247 tons of silver in addition to estimated 490 tons of lead, 2,092 tons of zinc, 4,229 tons of arsenic, 356 kilograms of gold, and 8.9 tons of cadmium.

The mining license of Asgat was transferred to the Mongolian-Russian joint venture Mongolrostsvetmet in 1993.

The government set up Asgat Silver LLC with a US company and MS Asgat LLC with the Altai Republic, but both efforts failed to produce actual progress.

In 2006, Polymetal, a leading Russian silver miner with large petroleum, coal, gold and copper deposits offered to invest in Asgat, which the government found enticing and gave the green light to sign a memorandum of understanding with the company on establishing the Asgat Polymetal as a joint venture in December 2006. A month later, Parliament recognized Asgat as a deposit of strategic importance.

In May 2009, Mongolia was able to reclaim the 49 percent stake of Mongolrostsvetmet from Russia and transferred Asgat’s mining license completely over to Erdenes Mongol LLC in preparation for mining. However, this issue has been idle since, causing many to speculate about the project as well as the new owners of the mine. In particular, the authorities haven’t disclosed who now owns the 49 percent stake of the company and some reports suggest that like Erdenet Mining Corporation, Mongolrostsvetmet along with Asgat mining license has been put up as collateral for a foreign loan. But this is simply a rumor and there are no concrete evidence. Should this rumor happen to be true, the government must probe the matter like it did with Erdenet Mining Corporation’s ownership issues.

Production at Mongolrostsvetmet’s other deposits have been decreasing over the years and the company isn’t as big as it once used to be, but its main value lies in its mining licenses at Asgat, which has potential to become one of the largest silver mines in the world. The company holds MV-004388 license for 37.03-hectare Asgat silver mine, MV-008191 for 390.28-hectare Uchastok in southern Asgat, MV008645 for 620.63-hectare section at the center of the deposit, and MV000278 for 2.41-hectare mine near Asgat.

On November 10, the Parliamentary Standing Committee on Industrial Policy discussed putting Asgat into economic circulation and assigned a taskforce to oversee this matter.

During the meeting, Minister of Mining and Heavy Industry G.Yondon explained that challenges concerning infrastructure and processing technology have been delaying the Asgat project.

“There are two reasons as to why Asgat hasn’t been mined to date. First, the infrastructure issue, and second, processing technology. At present, we have built a road to the geological base. To access the mine, we have to enter from the other side of the border in Russia. To mine Asgat, we must reach an understanding with Russia, which means we have no choice but to cooperate with the Russian side on this project. We could have started this project in 2006 when we established Polymetal in partnership with Russia. The company has a processing factory, located 160 kilometers from the deposit. We have sent a letter to the company but haven’t received a response yet,” he said.

Citing US experts, the minister said the most efficient option for the project is to cooperate with foreign companies and get equipment from Russia and Kazakhstan. He added that working condition is the primary topic to discuss with foreign investors and that all options for the project must be first assessed.

Lawmaker Ts.Anandbazar agreed with Minister G.Yondon, saying that partnership with Russia would be optimal as Asgat will be “challenging” to mine despite its strategic importance.

He added that Russia has better access to eco-friendly technology.

Revising the feasibility study for Asgat conducted by Sibgiprozoloto Company in 1995, Erdenes Mongol reported this year that the project will require investment of 123.8 million USD and an internal rate of return of 21.3 percent. The study further shows that the project will create 500 new jobs, but operational cost is estimated at 256.6 million USD, net profit at 197.1 million USD, and tax payment at 241 million USD.

“The payback period is defined as 11 years, but revision to the feasibility study is still underway. This is just a conversion of the previous estimation to current value,” explained Deputy Financial Director of Erdenes Mongol N.Ganbold.

CEO of Erdenes Mongol D.Khayankhyarvaa noted, “We have not reached the level of talking about the Asgal silver mine yet. The study and feasibility study for this deposit were conducted quite early. As of today, the feasibility study is being conducted on a preliminary basis. There are probably many organization in Mongolia capable of conducting feasibility studies. It is clear that various ideas and proposals will be made for the project, but we must first determine with whom we will work together on this project and how. After that, we can talk about share related matters. Erdenes Mongol is striving to ensure the project is beneficial to Mongolia and put it into practice as soon as possible.”

Commercialization of Asgat is in line with the Government Action Plan for 2020 to 2024, which stipulates that the government will “conduct necessary trials and studies to put the Asgat silver mine into economic circulation and resolve investment issues”. The project has been stagnant for years due to lack of road and railway infrastructure, inconvenient location, failure to connect to central energy network, unresolved water supply and lack of appropriate processing technology. Now that the government is the sole owner of Mongolrostsvetmet and Asgat, the project might advance but the authorities must resolve the issues at hand before it can begin mining and reap the benefits of the project. With silver price forecast to be stable over the next 10 years, Asgat is a prosperous deposit but commitment is imperative if the government wishes to attract long-term foreign partners and investors.