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SainshandIndustrialPark

MasterPlanStudyReport

Sainshand Master Plan Project


Final Report
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Sainshand Master Plan Project


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TABLE OF CONTENTS
1.

Executive Summary.................................................................................................... 1-1


1.1 Report Contents
1.2. Industrial Plants ................................................................................................ 1-1
1.2.1.
Coking Coal Plant .............................................................................. 1-1
1.2.2.
Copper Smelter .................................................................................. 1-2
1.2.3.
Iron Ore Pelletizing Plant ................................................................... 1-4
1.2.4.
DRI/HBI Plant..................................................................................... 1-5
1.2.5.
Cement Plant ..................................................................................... 1-6
1.2.6.
Coal Gasification Plant ....................................................................... 1-6
1.2.7.
Power Plant ....................................................................................... 1-8
1.3. Utilities.............................................................................................................. 1-8
1.4. Material Handling and Transportation Systems ................................................ 1-9
1.4.1.
Rail System ........................................................................................ 1-9
1.4.2.
Highways ......................................................................................... 1-10
1.5. Site Development ........................................................................................... 1-11
1.6. Alternate Sites ................................................................................................ 1-13
1.7. Community Facilities ...................................................................................... 1-14
1.8. Sustainability .................................................................................................. 1-16
1.9. Project Schedule ............................................................................................ 1-17
1.10. Capital Cost Estimate ..................................................................................... 1-17
1.11. Economic Analysis ......................................................................................... 1-18
1.12. Commercial and Financial Structuring ............................................................ 1-21
1.13. Recommendations.......................................................................................... 1-23

2.

Industrial plants .......................................................................................................... 2-1


2.1. Coking Coal Plant ............................................................................................. 2-1
2.1.1.
Description of Process Technologies and Licensors .......................... 2-1
2.1.2.
Plant Capacity .................................................................................... 2-4
2.1.3.
Feedstock and Product Inputs............................................................ 2-4
2.1.4.
Product Outputs and Target Markets ................................................. 2-5
2.1.5.
Waste and Hazardous Products ......................................................... 2-6
2.1.6.
Utility Requirements ........................................................................... 2-6
2.2. Copper Smelter ................................................................................................ 2-7
2.2.1.
Description of Process Technologies and Licensors .......................... 2-7
2.2.2.
Plant Capacity .................................................................................... 2-7
2.2.3.
Feedstock and Product Inputs............................................................ 2-8
2.2.4.
Product Outputs and Target Markets ................................................. 2-8
2.2.5.
Waste and Hazardous Products ......................................................... 2-9
2.2.6.
Utility Requirements ........................................................................... 2-9
2.3. Iron Ore Pelletizing Plant ................................................................................ 2-10
2.3.1.
Description of Process Technologies and Licensors ........................ 2-10
2.3.2.
Plant Capacity .................................................................................. 2-11
2.3.3.
Feedstock and Product Inputs.......................................................... 2-12
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2.4.

2.5.

2.6.

2.7.

2.8.
3.

2.3.4.
Product Outputs and Target Markets ............................................... 2-13
2.3.5.
Waste and Hazardous Products ....................................................... 2-15
2.3.6.
Utility Requirements ......................................................................... 2-15
DRI/HBI Plant ................................................................................................. 2-15
2.4.1.
Description of Process Technologies and Licensors ........................ 2-16
2.4.2.
Plant Capacity .................................................................................. 2-17
2.4.3.
Feedstock and Product Inputs.......................................................... 2-17
2.4.4.
Product Outputs and Target Markets ............................................... 2-18
2.4.5.
Waste and Hazardous Products ....................................................... 2-19
2.4.6.
Utility Requirements ......................................................................... 2-19
Cement Plant.................................................................................................. 2-20
2.5.1.
Description of Process Technologies and Licensors ........................ 2-20
2.5.2.
Plant Capacity .................................................................................. 2-21
2.5.3.
Feedstock and Product Inputs.......................................................... 2-22
2.5.4.
Product Outputs and Target Markets ............................................... 2-23
2.5.5.
Waste and Hazardous Products ....................................................... 2-25
2.5.6.
Utility Requirements ......................................................................... 2-25
Coal Gasification Plant ................................................................................... 2-25
2.6.1.
Description of Process Technologies and Licensors ........................ 2-25
2.6.2.
Plant Capacity .................................................................................. 2-27
2.6.3.
Feedstock and Product Inputs.......................................................... 2-28
2.6.4.
Product Outputs and Target Markets ............................................... 2-29
2.6.5.
Waste and Hazardous Products ....................................................... 2-29
2.6.6.
Utility Requirements ......................................................................... 2-29
Power Plant .................................................................................................... 2-30
2.7.1.
Plant Capacity .................................................................................. 2-30
2.7.2.
Major Plant Scope ............................................................................ 2-31
Drawings and Data ......................................................................................... 2-32

Utilities ........................................................................................................................ 3-1


3.1. Power Distribution ............................................................................................ 3-1
3.2. Raw Water ....................................................................................................... 3-2
3.3. Potable Water................................................................................................... 3-3
3.4. Industrial Water ................................................................................................ 3-4
3.5. Boiler Feed Water, Condensate........................................................................ 3-5
3.6. Fire Protection .................................................................................................. 3-6
3.7. Cooling Water................................................................................................... 3-6
3.8. Central Utility Heating System .......................................................................... 3-6
3.9. Steam Systems ................................................................................................ 3-6
3.10. Fuel Gas........................................................................................................... 3-6
3.11. Fuel Oil ............................................................................................................. 3-7
3.12. Oxygen ............................................................................................................. 3-7
3.13. Nitrogen............................................................................................................ 3-8
3.14. Waste Water Treatment ................................................................................... 3-8
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3.15. Storm Water ..................................................................................................... 3-9
3.16. Sanitary Waste Water....................................................................................... 3-9
3.17. Telecommunications......................................................................................... 3-9
4.

Material Handling and Transportation Systems .......................................................... 4-1


4.1. Rail System ...................................................................................................... 4-1
4.1.1.
Introduction and Background ............................................................. 4-1
4.1.2.
Mongolian Rail Network ..................................................................... 4-2
4.1.3.
Rail Standards ................................................................................... 4-4
4.1.4.
Product Flows and Rail Volumes........................................................ 4-7
4.1.5.
SIP Rail System and Layout............................................................... 4-9
4.1.6.
Ownership and Operating Assumptions ........................................... 4-18
4.2. Highways ........................................................................................................ 4-19
4.2.1.
Introduction and Background ........................................................... 4-19
4.2.2.
Existing Highways and Conditions ................................................... 4-19
4.2.3.
Highway Standards .......................................................................... 4-19
4.2.4.
SIP Highway System........................................................................ 4-24
4.2.5.
Description of the System ................................................................ 4-34
4.2.6.
Description of the Highway System Layout ...................................... 4-35

5.

Site Development ....................................................................................................... 5-1


5.1. Introduction ...................................................................................................... 5-1
5.2. Existing Topography ......................................................................................... 5-2
5.3. Grading ............................................................................................................ 5-5
5.3.1.
SIP Grading Concept ......................................................................... 5-5
5.3.2.
Cut/fill Requirements .......................................................................... 5-7
5.4. Drainage........................................................................................................... 5-7
5.4.1.
SIP Drainage Concept Drainage ........................................................ 5-7
5.4.2.
Rainfall Data and 100 Year Storm Design Basis ................................ 5-9
5.4.3.
Catchment Area and Stormwater Calculations ................................. 5-10

6.

Alternate Sites ............................................................................................................ 6-1


6.1. Iron Ore Plants at Darkhan ............................................................................... 6-1
6.1.1.
Iron Processing Plants ....................................................................... 6-1
6.1.2.
Coal Gasification Plant ....................................................................... 6-2
6.1.3.
Power Plant ....................................................................................... 6-2
6.1.4.
Utilities and Common Facilities .......................................................... 6-2
6.2. Copper Smelter at Oyu Tolgoi .......................................................................... 6-4
6.2.1. Copper Smelter ................................................................................................ 6-4
6.2.2. Power Plant ...................................................................................................... 6-4
6.2.3. Utilities and Common Facilities ......................................................................... 6-4
6.3. Coke Plant at Tavan Tolgoi .............................................................................. 6-5
6.3.1.
Coke Plant ......................................................................................... 6-5
6.3.2.
Power Plant ....................................................................................... 6-5
6.3.3.
Utilities and Common Facilities .......................................................... 6-6
6.4. Material Handling and Transportation Systems ................................................ 6-6
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Final Report
6.5.

Alternate Locations Drawings and Data .......................................................... 6-10

7.

Community Facilities .................................................................................................. 7-1


7.1. Introduction ...................................................................................................... 7-1
7.1.1.
Project Vicinity ................................................................................... 7-1
7.1.2.
Climate............................................................................................... 7-1
7.2. Population ........................................................................................................ 7-2
7.3. Housing ............................................................................................................ 7-3
7.4. Community Facilities ........................................................................................ 7-4
7.5. Community Site Selection................................................................................. 7-5
7.5.1.
Existing Conditions ............................................................................ 7-5
7.5.2.
Potential Sites for Community Development ...................................... 7-5
7.5.3.
Site Evaluation ................................................................................... 7-7
7.6. Community Concepts ....................................................................................... 7-8
7.6.1.
Site A: Integrated Community ........................................................... 7-8
7.6.2.
Site B: Stand-alone Community ........................................................ 7-8
7.6.3.
Circulation .......................................................................................... 7-9
Appendix 7.A
Population Tables ..................................................................... 7-14

8.

Sustainability (Sustainable Development) ................................................................... 8-1


8.1. Key Issues Identified in the Master Plan Screening Assessment ...................... 8-1
8.2. Key Areas to Address in Next Phase Activities ................................................. 8-2
8.2.1.
Meeting Social and Environmental Standards .................................... 8-3
8.2.2.
Stakeholder Engagement ................................................................... 8-5
8.2.3.
National (Mongolian) Content............................................................. 8-6
8.2.4.
Sustainable Design and Construction ................................................ 8-8
8.3. Draft Sustainability Vision for SIP ..................................................................... 8-8
8.4. Glossary of Terms As Commonly Used Relative to Sustainability................... 8-10

9.

Indicative Project Schedule ........................................................................................ 9-1


9.1. Baseline Schedule ............................................................................................ 9-1
9.2. Critical Path ...................................................................................................... 9-2
9.3. Opportunities for Schedule Improvement.......................................................... 9-3
9.4. Basis of Indicative Schedule ............................................................................. 9-3
9.5. Indicative Schedule Assumptions ..................................................................... 9-4

10. Capital Cost Estimate ............................................................................................... 10-1


10.1. Estimate Basis................................................................................................ 10-1
10.2. Sainshand Industrial Park ............................................................................... 10-6
10.3. Sainshand Support Facilities .......................................................................... 10-8
10.4. Alternate Locations ......................................................................................... 10-9
11. ECONOMIC ANALYSIS OF INDUSTRIAL PLANTS ................................................. 11-1
11.1. Executive Summary........................................................................................ 11-1
11.1.1. Base Case Results .......................................................................... 11-1
11.1.2. Enhancements to Economic Feasibility ............................................ 11-2
11.1.3. Conclusions and Recommendations ................................................ 11-4
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11.2. Introduction Commercial Considerations ..................................................... 11-5
11.3. Analysis Methodology Overview ..................................................................... 11-6
11.3.1. Analytical Approach ......................................................................... 11-9
11.3.2. Financial Metrics ............................................................................ 11-10
11.3.3. Utilities and Common Facilities ...................................................... 11-11
11.3.4. Alternate Sites................................................................................ 11-13
11.3.5. Data Sources ................................................................................. 11-13
11.4. Base Case Assumptions .............................................................................. 11-14
11.4.1. Macroeconomic Assumptions ........................................................ 11-14
11.4.2. Capital Cost and Construction Period Escalation ........................... 11-15
11.4.3. Development Cost and Owners Cost During Construction ............. 11-15
11.4.4. Commodity Pricing ......................................................................... 11-16
11.4.5. Operations Period Labor Cost ........................................................ 11-23
11.4.6. Non-Labor Operating Costs ........................................................... 11-24
11.4.7. Value Added Tax and Customs Duties ........................................... 11-25
11.4.8. Depreciation, Income Tax, and Withholding Tax ............................ 11-25
11.4.9. Financing Assumptions .................................................................. 11-26
11.4.10. Working Capital Assumptions ........................................................ 11-27
11.5. Coke Plant .................................................................................................... 11-27
11.5.1. Assumptions .................................................................................. 11-27
11.5.2. Results ........................................................................................... 11-27
11.6. Iron Ore Pelletizing Plant .............................................................................. 11-28
11.6.1. Assumptions .................................................................................. 11-28
11.6.2. Results ........................................................................................... 11-28
11.7. DRI/HBI Plant ............................................................................................... 11-28
11.7.1. Assumptions .................................................................................. 11-28
11.7.2. Results ........................................................................................... 11-29
11.8. Copper Smelter ............................................................................................ 11-29
11.8.1. Assumptions .................................................................................. 11-29
11.8.2. Results ........................................................................................... 11-31
11.9. Coal Gasification Plant ................................................................................. 11-31
11.9.1. Assumptions .................................................................................. 11-31
11.9.2. Results ........................................................................................... 11-32
11.10. Cement Plant................................................................................................ 11-32
11.10.1. Assumptions .................................................................................. 11-32
11.10.2. Results ........................................................................................... 11-34
11.11. Power Plant .................................................................................................. 11-34
11.11.1. Assumptions .................................................................................. 11-34
11.11.2. Results ........................................................................................... 11-36
11.12. Utilities and Common Facilities ..................................................................... 11-36
11.12.1. Air Separation Unit ......................................................................... 11-37
11.12.2. Water Utilities ................................................................................. 11-37
11.12.3. Other Infrastructure at SIP ............................................................. 11-37
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11.13. Alternate Sites .............................................................................................. 11-38
11.13.1. Iron Plants at Darkhan ................................................................... 11-38
11.13.2. Copper Smelter at Oyu Tolgoi ........................................................ 11-39
11.13.3. Coke Plant at Tavan Tolgoi ............................................................ 11-40
11.14. Observations from Base Case Economic Analysis ....................................... 11-40
11.15. Potential Enhancements to Project Economics............................................. 11-42
11.15.1. Revised Base Case SIP with Grid Power .................................... 11-42
11.15.2. Other Scenarios to Enhance Economic Feasibility ......................... 11-46
11.16. Sensitivity Analysis ....................................................................................... 11-51
11.16.1. Sainshand Location........................................................................ 11-51
11.16.2. Alternate Sites................................................................................ 11-54
11.17. Conclusions and Recommendations ............................................................ 11-54
11.18. Final Remarks .............................................................................................. 11-56
11.18.1. Further Refinements of the Economic Analysis .............................. 11-56
11.18.2. Other Considerations ..................................................................... 11-56
12. COMMERCIAL AND FINANCIAL STRUCTURING ................................................... 12-1
12.1. Executive Summary and Recommendations .................................................. 12-1
12.2. Mongolias Industrial Park Strategy ................................................................ 12-3
12.3. Implications of the SIP economic analysis for Commercial and Financial
Structuring ................................................................................................................ 12-4
12.4. Characteristics of Successful and Unsuccessful Special Economic Zones
Lessons for Mongolia................................................................................................ 12-4
12.5. Investor Considerations .................................................................................. 12-7
12.6. Key Commercial Considerations for SIP ....................................................... 12-12
12.7. Alternative Commercial Approaches for SIP ................................................. 12-13
12.8. Financing Structures..................................................................................... 12-19
12.9. Preliminary Development Plan ..................................................................... 12-24
Appendix 12.A
Special Economic Zones: Country Case Studies ................... 12-32
India ............................................................................................................. 12-32
Peoples Republic of China........................................................................... 12-35
Saudi Arabia ................................................................................................. 12-39
Singapore ..................................................................................................... 12-45
Thailand ....................................................................................................... 12-48
United Arab Emirates (UAE) ......................................................................... 12-51
Vietnam ........................................................................................................ 12-56
Appendix 12.B
Public-Private Partnerships - Lessons Learned....................... 12-60
Appendix 12.C
Sources of Debt and Equity Financing .................................... 12-64
13. Addenda Further Studies ....................................................................................... 13-1
13.1. SIP Railroad Integration with the Phase 1 Railway ......................................... 13-1
13.2. Iron Ore to Iron ............................................................................................... 13-2
13.2.1. Introduction ...................................................................................... 13-2
13.2.2. Criteria for Selection of Iron Making Technology at SIP ................... 13-3
13.2.3. Selection of Iron Making Technology at SIP ..................................... 13-3
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13.2.4. Review of Iron Making Processes .................................................... 13-7
13.2.5. iron Plant Economic Analysis ......................................................... 13-10
13.2.6. Iron Plant Recommendation ........................................................... 13-12
13.3. Copper Smelter ............................................................................................ 13-13
13.3.1. Introduction .................................................................................... 13-13
13.3.2. Assumptions .................................................................................. 13-14
13.3.3. Results ........................................................................................... 13-15
13.3.4. Recommendations ......................................................................... 13-15
13.4. Market Information........................................................................................ 13-16
Appendix 13A:
Summary Presentation .......................................................... 13A-1
Appendix 13B:
CRU Market Forecast ............................................................ 13B-1

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LIST OF REFERENCES
Numbering of the References is based on the section in which each is first encountered.
2.1.i

Mongolia Industrialisation and Downstream Processing Study, Final Report, Worley


Parson, et. al. June 24, 2010

2.1.ii

Energy Benefits Of Suncokes Heat Recovery Technology, Suncoke Energy

2.1.iii Request For Proposal For Coke Plant


2.1.iv Suncoke Budgetary Proposal
2.1.v

Chinas 12th Five-Year Plan: Iron and Steel, KPMG

2.1.vi Mongolia: Railway Development Project, TERA


2.3.i

Budgetary Proposal from KSL for Pellet Plant

2.3.ii

Request for Proposal for Pellets Plant

2.3.iii Chinas Steel Industry: An Update, East Asia Institute Background Brief No. 501,
2.4.i

Direct Reduction Iron, Posco E&C, a Presentation for Mongolia Industrial


Corporation

2.4.ii

Request for Proposal for DRI/HBI Plant

2.4.iii Handbook of Explosion Prevention and Protection, edited by Martin Hatlwig and
Henrikus Steen, pub. Wiley-VCH Verlag GmbH. Section 2.8.2.6 Direct Reduced Iron
(DRI)
2.5.i

Feasibility Study for a 1.0 MTPA Cement Plant, FL Smidth for Yalgun International
Mongolia

2.5.ii

Request for Proposal for Cement Plant

2.5.iii An Introduction to the Mongolian Cement Industry, from http://www.cementchina.net


2.6.i

SES Gasifier Technology Information

4.1.i

State Policy on Railway Transportation

4.2.i

American Association of State Highway and Transportation Officials Standards

4.2.ii

California Department of Transportation (Caltrans) Policy

4.2.iii AASHTO Guide for Design of Pavement Structures, Published 1993


5.1.i

Manual for Railway Engineering, Chapters 5 and 14, 2011, AREMA, (American
Railway Engineering and Maintenance-Of-Way Association)

5.1.ii

A Policy on Geometric Design of Highways and Streets, Fifth Edition, Chapters 3


and 4, 2004, AASHTO (American Association of State Highways and Transportation
Officials)

5.4.i

Climatological Normals of Sainshand". Hong Kong SAR Government. Retrieved


2011-01-05

5.4.ii

AIACC Working Paper No. 13, Observed Climate Change in Mongolia, Batima P.,
Natsagdorj L., Gombluudev P., Erdenetsetseg B., June 2005

5.4.iii Hydraulic Engineering Circular No. 22, Second Edition, Urban Drainage Design
Manual, USDOT Federal Highway Administration, 2001
7.2.i

AusAID/World Bank Study: Southern Mongolia Infrastructure Strategy, 2009

Use of this Report is subject to certain restrictions


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Sainshand Master Plan Project


Final Report

1.

EXECUTIVE SUMMARY

This Master Plan study document presents the results of a study undertaken by Bechtel in
accordance with an agreement with the National Development and Innovation Committee of
Mongolia (NDIC). The purpose of the study was to analyze a potential industrial park in the
vicinity of Sainshand, Mongolia comprised of a slate of plants included in the study basis. In
the study, Bechtel examined the proposed facility and the development process to assist
NDIC and the Government of Mongolia (GoM) to move the industrial park project forward.
This work product is preliminary in nature and (i) does not contain the amount of information
needed to satisfy local or international funding institutions or other potential project finance
lenders and local and international investors and (ii) should not in any event be used as a
basis for capital investment by NDIC without NDIC having obtained further information and
analysis including detailed studies, front end engineering and detailed cost estimates and
other necessary information as may be required.

1.1.

REPORT CONTENTS

Sections 2 through 12 of this Report are summarized in the following Sections 1.2 through
1.12. These sections contain the results of the analysis of the base configuration of the
Sainshand Industrial Park. This base configuration may not ultimately be incorporated into
the park. In particular, the economic analysis demonstrated that certain plants contained in
the base configuration may not be economically attractive for investors. Based on the
findings of this study, NDIC and the GoM may change the configuration from the base. Any
such changes are not incorporated in the base report Sections 2 through 12. Section 13,
Addenda, contains some discussion and consideration of those potential park configuration
changes.

1.2.

INDUSTRIAL PLANTS

A more detailed description of the industrial plants is included in Section 2.


The industrial plants included in the study are:
Coking Coal Plant
Copper Smelter
Iron Ore Pelletizing Plant
DRI/HBI Plant
Cement Plant
Coal Gasification Plant
Power Plant
1.2.1.

COKING COAL PLANT

The Coking Coal Plant, with a product capacity of 2.0 million tonnes per year (MTPA), would
produce metallurgical coke from a feed of high grade coal from the Tavan Tolgoi mine. The
Heat Recovery process was chosen over the other prevalent technology, Byproduct,
because Heat Recovery coke ovens are generally considered less expensive to build, easier
to operate, more economical, and more environmentally friendly than Byproduct coke ovens.
The main flow path of the Coking Coal Plant is depicted by Figure 1-1.
Plant inputs and outputs are summarized below:
Inputs
o Coking Coal - 2.9 MTPA
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o Lime (for Flue Gas Desulfurization [FGD]) - 22 thousand tonnes per year (kTPA)
o Boiler Feed Water (for steam production) 5.9 MTPA
o Industrial Water 971 kTPA
o Electrical Power 13 MW
Outputs
o Metallurgical Coke 2.0 MTPA
o Gypsum (from FGD) 44 kTPA
o HP Steam 5.7 MTPA (equivalent to 200 MW of electric power)

The coke product would be exported by rail to the blast furnace steel industries in China,
Russia, Korea, Japan, or other Asian markets. The coal would be transported to Sainshand
by rail in dedicated unit trains.

Figure 1-1: Coke Plant Flow Illustration


1.2.2.

COPPER SMELTER

Copper Smelter, with a feed capacity of 1.0 MTPA of copper concentrate, would produce
solid copper (cathode). A simplified flow diagram is shown in Figure 1-2. Plant inputs and
outputs are summarized below:
Inputs
o Copper Concentrate 1.0 MTPA
o Lime - 15 kTPA
o Silica 82 kTPA
o Oxygen 330 kTPA
o Boiler Feed Water 672 kTPA
o Industrial Water 2.8 MTPA
o LP Steam 84 kTPA
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o Fuel Gas 5.9 MW


o Fuel Oil 14 kTPA
o Electrical Power 42 MW
Outputs
o Copper Cathode 300 kTPA
o Sulfuric Acid 925 kTPA
o Gold 10 TPA
o Silver 64 TPA
o HP Steam 478 kTPA
o MP Steam 91 kTPA

Figure 1-2: Copper Plant Simplified Flow Diagram


The copper cathode is a commodity product, and could be marketed in China, Russia, or
other copper users, and also could supply the domestic Mongolian copper industry as it
develops. Bulk feeds and products would be transported by rail. The copper concentrate is
produced in the Oyu Tolgoi and/or Erdenet mining areas.
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The plant capacity of 300 kTPA copper product specified in the study basis is less than the
largest single-train copper smelters. As larger facilities tend to be more economically
attractive, consideration should be given to increasing the capacity to 450 to 500 kTPA
product.
The sulfuric acid produced as a byproduct would be shipped via rail tanker cars to the
fertilizer industry, where it would be a feedstock. The fertilizer industries in northern China,
Kazakhstan, and Russia are likely markets for the sulfuric acid. Because of the large
quantity of sulfuric acid, a potential investor/owner may want to insure an outlet for the acid
as part of the investment decision and project planning.
1.2.3.

IRON ORE PELLETIZING PLANT

The Iron Ore Pelletizing Plant, with a product capacity of 4.5 MTPA, would produce iron ore
pellets suitable for feed to a DRI Plant from iron ore beneficiated (concentrated) at the mine.

Figure 1-3: Iron Ore Pelletizing Plant


A summary of plant inputs and output follows:
Inputs
o Iron Ore 4.46 MTPA
o Bentonite - 23 kTPA
o Dolomite 45 kTPA
o Industrial Water 700 kTPA
o Fuel Gas 144 MW
o Electrical Power 23 MW
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Output
o Iron Ore Pellets 4.5 MTPA

The iron ore pellet product is usually fed to a Direct Iron Reduction (DRI) plant. The
DRI plant considered for this study in the Sainshand Industrial Park would consume
3.6 MTPA, and the balance would be exported to DRI plants located elsewhere in
Mongolia or internationally.

1.2.4.

DRI/HBI PLANT

The Direct Reduction Iron/Hot Briquetted Iron (DRI/HBI) Plant would process iron ore pellets
from the Iron Ore Pelletizing Plant into an iron product suitable for feed to an electric arc
furnace for steel making. The iron ore is reduced to iron by contact and reaction with a
reducing gas consisting of carbon monoxide and hydrogen from the Coal Gasification Plant
at Sainshand.
Iron Ore Pellets

Top Gases
CO2 + H2o

Reducing Gas
H2 1 Co

Temperature
~ 930c

Reduction Zone
Fe2O3 + 3H2 ? 2Fe + 3H2O
Fe2O3 + 3CO ? 2Fe + 3CO2

Carburization
CH4 + 3Fe ? Fe3C + 2H2
2CO + 3Fe ? Fe3 + CO2

Direct Reduction Iron

Figure 1-4: DRI Reactants and Product


Plant inputs and output are summarized below:
Inputs
o Iron Ore Pellets 3.625 MTPA
o Reducing Gas (CO, hydrogen, methane) 1.1 MTPA
o Lime 5 kTPA
o Industrial Water 3.0 MTPA
o Oxygen 50 kTPA
o Nitrogen 160 kTPA
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o MP Steam 1.25 MTPA


o Electrical Power 13 MW
Output
o DRI/HBI 2.5 MTPA

As discussed in the Economic Analysis (Section 11), reducing gas from coal gasification
tends to be significantly more costly than reducing gas from natural gas. The Sainshand
DRI/HBI plant, with no available source of natural gas, would likely be at an economic
disadvantage to plants based on natural gas. Without significant governmental support in
the form of incentives, pricing guarantees, etc., the DRI/HBI plant may not be attractive to
potential investors/owners. NDIC should consider and investigate alternates to the DRI/HBI
plant, such as:
Iron ore reduction plants based on other technologies such as Outotec SL/RN or
Kobe ITmk3 which produce reduced iron through direct contact between iron ore and
coal
A smaller capacity plant targeted for the domestic Mongolian steel industry
1.2.5.

CEMENT PLANT

The Cement Plant would process limestone and gypsum from the Sainshand area into
cement, primarily for use within Mongolia. A previously performed feasibility study for a
1 MTPA cement plant by FL Smidth for Yalguun International LLC was used as the basis for
this study. A simplified flow diagram is shown in Figure 1-5, and a summary of plant inputs
and output follows:
Inputs
o Limestone 1.31 MTPA
o Thermal Coal - 127 kTPA
o Gypsum 50 kTPA
o Basalt 250 kTPA
o Steel Slag or Volcanic Ash 16 kTPA
o Clay (Alumina) 40 kTPA
o Industrial Water 200 kTPA
o Electrical Power 22 MW
Output
o Type I & II Cement 1.0 MTPA
1.2.6.

COAL GASIFICATION PLANT

The coal gasification plant would produce synthetic reducing gas for the DRI/HBI Plant. It
would also supply fuel gas for general use in the park, and fuel for power production. Many
coal gasification technologies are available: this study uses SES technology because of its
tolerance of coal feed with high ash content, and for other reasons indicated in the report
(see Section 2.6.1). Plant inputs and outputs are summarized below:
Inputs
o Thermal Coal 1.5 MTPA
o Oxygen 1.1 MTPA
o Boiler Feed Water 3.2 MTPA
o Electrical Power 37 MW

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Outputs
o DRI Reducing Gas (CO & hydrogen) 1.1 MTPA
o Fuel Gas 300 MW
o Ash 115 kTPA
o HP Steam 1.6 MTPA
o Waste Water 1.18 MTPA
o Acid Gas (sulfur content) 9.7 kTPA

Figure 1-5: Cement Plant Simplified Flow Diagram


The estimated plant capacity described above is sufficient to satisfy the DRI/HBI reducing
gas need, provide fuel for other process plants, and supply fuel gas to produce sufficient
power to make the industrial park self-sufficient (no normal power import or export).
Economic analysis results show that the relatively small power production to satisfy internal
park needs is likely not economical or practical. Further, the economic analysis also
indicates that the DRI.HBI plant may not be economically attractive. NDIC should further
evaluate the need for a Coal Gasification Plant and its capacity in the selected configuration
of the industrial park.

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1.2.7.

POWER PLANT

The Power Plant would produce 278 MW of electrical power from steam turbine driven
generators to satisfy the internal needs of the industrial park. 215 MW are derived from
steam exports from the process plants, and the balance would be produced by boilers fired
with coal gasification synthesis gas.
The economic analysis shows that the relatively small boilers are likely not economically
viable, and NDIC should consider a different configuration for power supply to the park.
Options include:

Elimination of the synthesis gas boilers, and production of power from the process
steam in the individual process plants. This would require power import from the grid
to satisfy the needs of the industrial park, and this configuration was economically
evaluated in the study and results are presented in Section 11.

Installation of a larger (700 to 1000 MW) coal fired power plant, with excess power
exported to the grid for sale.

1.3.

UTILITIES

Central and common utility plants would be provided in the industrial park to provide utility
service to the process plants. Utility systems included:

Power Distribution system to connect to the national grid and supply power to each
facility.

Raw Water treatment and water distribution system to provide industrial quality
water. The industrial park, as configured, would consume 11.8 MTPA of raw,
untreated water. The study basis was raw water from deep wells not yet specifically
identified or classified for the study. NDIC should have the water source identified,
adequate reservoir and flow capacity confirmed, and water quality analyzed to
provide a basis for design in the next phase of development of the industrial park.

Potable Water is produced from the treated raw water by further purification and
treatment. The potable water system is sized to supply the needs of the industrial
park, and the new community that would be needed to house the population influx
due to the park. The capacity of the potable water purification system is 3000 cubic
meters per day.

Industrial Water would be produced from the treated raw water by adjusting the pH
so that it is suitable for storage and plant use. The capacity of the industrial water
system is 1076 cubic meters per hour.

Boiler Feed Water would be produced by further treatment of the industrial water for
suitability for use in boilers. The capacity of the boiler feed water treatment plant is
470 cubic meters per hour. Including recycled condensate, the capacity of the boiler
feed water system is 1700 cubic meters per hour.

Fire Water is industrial water that is stored, pressurized, and delivered to the
boundary of each plant in an underground piping system.

A Central Utility Heating system would use heat from the power plant to provide hot
water for comfort heating to the industrial park, and to the existing and new
Sainshand communities. The existing heating system for Sainshand is in need of
replacement, and would be decommissioned. The capacity of the new system is 100
MW, with a water circulation rate of 2,150 cubic meters per hour.

Interconnection piping for the Steam System would be provided to deliver steam to
and from the plants.
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Fuel Gas, from the Coal Gasification Plant, would be distributed and provided for
use in the plants.

Oxygen and Nitrogen would be produced by an Air Separation Unit (ASU) and
distributed to plant users. Coal Gasification and the Copper Smelter would be the
predominant users of oxygen, and nitrogen is provided for general use as an inert
gas. The ASU design capacity is 211 tonnes per hour of oxygen, and nitrogen is
produced as a byproduct, with an estimated park consumption of 20 tonnes per hour.

Waste Water Treatment would receive waste water flows from the park facilities and
treat the water for reuse as industrial water. Each individual plant would treat its
waste water to effluent quality before discharge to the common waste water
treatment plant. The estimated capacity of the system is 860 cubic meters per hour
of received waste water.

The Storm Water system would collect rain and runoff water that enters the park
boundary, impound the water, and send it to the water treatment system for use.

The Sanitary Waste Water system would receive and treat sanitary sewer flows
from the industrial park and both the existing and new Sainshand communities, and
would return the water to the industrial park waste water treatment system for recycle
and reuse as industrial water. The existing Sainshand sanitary sewer system would
be abandoned. The estimated capacity of the new system is 156 cubic meters per
hour.

A Telecommunications system is included to provide data, voice, and other


communications connectivity for the industrial park.

1.4.

MATERIAL HANDLING AND TRANSPORTATION SYSTEMS

1.4.1.

RAIL SYSTEM

The Sainshand Industrial Park would be connected to the Mongolian rail system. The park
would receive most bulk raw materials via rail from mines within Mongolia, and also the
majority of products would be transported from the park via rail. The rail capacities are
based on 10 operating months per year, to allow for rail system maintenance and weather or
other service interruptions. Likewise, the capacities and schedule are based on 6 days per
week to allow for routine maintenance. A summary of projected rail shipments follows:
Rail Incoming Volume
o 9 trains per day, 6 days per week, 10 months per year
o 40 to 80 (average 66) cars per train
o 12.2 MTPA
Rail Outgoing Volume
o 5 to 6 trains per day, 6 days per week (40 per week)
o 60 cars per train
o 7.1 MTPA
The park would include a rail yard for receiving and marshaling trains, and a bulk storage
area with a capacity of two months storage for both the feed and product materials. Inputs
would be offloaded into the storage area, and intermittently batch transferred to the
individual plants. Likewise, products would be intermittently batch transferred from the
plants into the storage area, from which trains would be loaded. Figure 1-6 shows an
overview of the Sainshand rail facilities.

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Figure 1-6: Rail Facilities


1.4.2.

HIGHWAYS

Highways and roads would be required for access to the park for personnel and materials
and supplies not delivered by rail. Heavy truck deliveries are summarized in Table 1-1
below.
Trucks per year

Trucks per week

Trucks per/day

Cement Plant

31,867

738

123

Iron Pellets

2,267

53

DRI Plant

168

Coke Plant

728

17

Copper Smelter

3,237

76

13

TOTAL

38,267

888

148

Table 1-1: Truck Deliveries


The road system is shown in Figure 1-7. Most of the personnel traffic would be to and from
the west park gate, and the heavy truck traffic to and from the east gate.

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Figure 1-7: Highway System

1.5.

SITE DEVELOPMENT

The site development is a crucial early works activity to prepare the area prior to
construction of the industrial facilities. Site development would provide a level area
sufficient for plants, including future expansion, and for rail and roads. An overview of the
plot is shown in Figure 1-8, and a closer view of the industrial area is in Figure 1-9.

Figure 1-8: Sainshand Site Plan


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Figure 1-9: Sainshand Plot Plan

Figure 1-10: Cut and Fill

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Site development would also provide facilities necessary to accommodate the 100 year
storm precipitation of 50 mm in an hour, and 100 mm in 24 hours. The plant site is a natural
runoff collection area for a local watershed of approximately 450 square kilometers. The
site grading would be designed to collect and impound normal precipitation events, and also
would have the ability to divert to an outflow without disruption of the industrial park. The cut
and fill required to accomplish this is shown in Figure 1-10.

1.6.

ALTERNATE SITES

Part of the Sainshand Industrial Park Master Plan Study is a differential economic analysis
of locating selected plants at other sites within Mongolia closer or adjacent to the major raw
material source. The selected plants and the alternate locations, shown in Figure 1-11, are:
The Iron Ore Pellets Plant and DRI/HBI Plant located near Darkhan, adjacent to an
existing iron based industrial area. The major proven reserves of iron ore are in
northern Mongolia near Darkhan.
The Copper Smelter located adjacent to the Oyu Tolgoi mine where the copper ore
is mined.
The Coke Plant located adjacent to the Tavan Tolgoi mine where the metallurgical
coal is mined.

Figure 1-11: Alternate Plant Locations


In Sainshand, the plants have the benefit of shared infrastructure and utilities, making the
capital construction cost lower, but the alternate sites, being closer to the raw material
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Final Report
sources, would have lower transportation costs. Neither of these factors greatly influences
the economics, and their cost differentials partially balance each other out. The economic
analysis shows that there is not a significant difference in economic performance with the
location change.
The Darkhan location has the benefit of having an ample water supply, and is in proximity to
the existing iron and steel industries in Mongolia. Both Oyu Tolgoi and Tavan Tolgoi would
allow transfer of mine product to the plant by conveyor, simplifying the material handling
system. Both sites, though, are very remote, with little support infrastructure, and water is
extremely scarce in both locations.
The Sainshand site would create an integrated, multi-industry park, and would include
community and regional development. In the absence of a clear economic driver for the
alternate locations, there does not appear to be a reason to abandon the strategy of
developing the Sainshand area.

1.7.

COMMUNITY FACILITIES

Development of the Sainshand Industrial Park would create a drastic increase in the
population of the Sainshand and Dornogobi region. The following criteria were used to
estimate the population increase:
Average Mongolian Household Size:
4.1
Percentage Mongolian Employees:
90%
Percentage of Mongolian Employees with families: 100%
Percentage of Expatriate Employees:
10%
Percentage of Expatriate Employees with families: 0%
Influx population ratio:
1.0
The population influx ratio is the number of people employed outside of the park for each
person employed in the park.
Table 1-2 summarizes the estimated population increase, and the population of the new
community required to house them.

270
295
136
270
161
122
515
395
100

Expatriate
Employees
(10%)
27
30
14
27
17
12
52
40
10

Mongolian
Employees
(90%)
243
265
122
243
144
110
463
355
90

Mongolian
Family
Members
756
827
383
756
451
346
1442
1106
285

453

45

408

1404

1857

2717

275

2448

7756

10,473
10,473
20,946
~ 21,000

Total
Employees

Project
Cement Plant
Iron Pellets Plant
DRI Plant
Coke Plant
Power Plant
Gasification Plant
Copper Smelter
Copper Refinery
Rail Repair Facil.
Common Facilities
20% of above
Total Direct Population
Influx Population @ 1.0
Total Community
Population

Total
Population
1026
1122
519
1026
612
468
1957
1501
385

Table 1-2: Population Estimate


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Table 1-3 shows the housing required for this estimated population and Table 1-4 the
community facilities.
Single Family Detached

Number
of Units
488
319
11%

Unit Size
(M2)
185
205

2 bedroom
3 bedroom
% of total housing
Attached Houses
1 bedroom
550
100
2 bedroom
550
120
3 bedroom
550
135
% of total housing
23%
Apartments
1 bedroom
1620
80
2 bedroom
1620
90
3 bedroom
1620
105
% of total housing
66%
Total Units
7317
Table 1-3: Community Housing

Lot Size
(M2)
700
700

420
420
420

100
100
100

Facility
Number Ratio per Population
Education
Day Care
5
1: 4,000
Primary School
3
1: 6,250
Middle School
2
1: 11,000
High School
2
1: 11,000
Health
Clinic
7
1: 3,000
Hospital
1
1: 15,000
Social Institutions
Library
2
1: 10,000
Community Center
2
1: 10,000
Public Institutions
Post Office
4
1: 5000
Police Station
3
1: 7500
Fire Station
1
1: 15,000
Government Offices
3
1: 7,500
Recreation
Sports/Athletic Center
3
1: 6,000
Shops and Retail
Local Merchants
70
1: 300
Local Markets
7
1: 3,000
Neighborhood Market
4
1: 5,000
City-wide Mall
1
1: 20,000
Table 1-4: Community Facilities
The location, layout, and relationship to the existing Sainshand City are shown in Figure
1-12.
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Figure 1-12: Community Location and Layout

1.8.

SUSTAINABILITY

As Mongolia begins to increase its industrial development, it is important that the


development be done in a manner that not only allows long-term, continuing economic
development, but also has a positive, sustainable impact on Mongolian society and the
environment. Key issues identified in the study include:

Water is a key, limited and non-renewable resource in the region of the industrial
park. Further studies should be conducted to prove a suitable source for water, and
initiatives to bring renewable surface water to the region should continue to be
examined and pursued.

Environmental standards accepted by the world community and international


lenders should be adapted, both to protect and preserve Mongolia, and to comply
with requirements for external, international financing.

Possible displacement of herders by the industrial park development should be


studied and any impact mitigated. This is also a concern and criteria of international
lenders.

Cultural heritage and any archeological sites of the region should be preserved,
and studies should be conducted to ascertain and mitigate any negative impact.

Local residents should be engaged early in the development process, so that the
positive and potential negative impacts of the industrial park can be understood and
accepted, and so that the local population benefits and participates in the project.

The influx of people for construction and plant operations should be planned and
managed.

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The level of Mongolian and regional content should be managed to facilitate


continuing growth in local and domestic capabilities and capacity.

Standards for sustainable design and construction should be defined and


required to reduce environmental and human impacts, provide long-term benefits to
the community, and reduce project and operational costs.

1.9.

PROJECT SCHEDULE

The overall Engineering Procurement and Construction (EPC) Summary Schedule


(Section 9) illustrates the leading activities and the many milestones which need to be
achieved if the timing of the various projects is to be successful. A long path of 85 months is
a challenge for any contractor, but with 7 plants working concurrently there will be many
opportunities and challenges that are sure to arise in the course of managing the largest
industrial endeavor in Mongolias history. The critical path in all the schedules start with the
decision to proceed, interim financing, then follows through the environmental impact
statement, approval and assessment, obtaining financing, awarding concessions, and
issuing the first notice to proceed.
A table of projected milestones, in months beginning with the GoM decision to proceed,
follows in Table 1-5.
General
GoM Decision to Proceed
Final Geotech Report
Environmental Impact Study Approval
Plant Concessions Granted
Facility

Start of Engineering

Infrastructure
Site Development
Rail Facilities
Utilities
Community Facilities
Process Plants
Cement
Coking Coal

Project Month
0
8
12
24 (Cement in month 1)
Project Month
Start of Construction
Complete

10
12
20
20

21
21
33
34

52
53
59
76

1
24

13
38

Power

34

45

Coal Gasification
Copper
Iron Pellets
DRI/HBI

24
31
31
34

37
42
45
49

43
75
85
(1st power 75)
79
83
75
75

Table 1-5: Schedule Milestones

1.10.

CAPITAL COST ESTIMATE

Bechtel estimated the capital cost of the facilities. Key estimating factors include:

All costs are expressed in US dollars, with value as of September 2011. Any forward
escalation is included in the economic analysis.
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The estimate basis and the estimating process was consistent with a Bechtel Class 5
EPC capital cost estimate with an expected accuracy of minus 10% to plus 40%.

The construction labor force is assumed to be 10% Mongolian and 90% temporary
workers from other Asian countries, such as China or Philippines.

Standard work week is 6 days per week, 60 hours per week.

Average labor wage rate is $4.50 per hour.

The construction management staff is 85% Asian, and 15% western. Construction
management total hours are estimated as 15% of the construction labor hours.
Average construction management wage rate is $39 per hour.

Engineering and procurement services are assumed to be executed in a combination


of Asian and western locations.

The capital cost estimates includes a contractor fee of 8% of EPC contract value,
and contingency of 15% has also been included.

A summary of the capital cost estimate follows in Table 1-6.


Facility
Coke Plant
Copper Plant
Iron Ore Pellet Plant
DRI/HBI Plant
Cement Plant
Power Plant
Coal Gasification Plant
Common Facilities
Total SIP
Community
Roads
Rail and Rail Yard
Total Support Facilities
PMC
Coke Plant at Tavan Tolgoi
Copper Plant at Oyu Tolgoi
Iron Ore Processing Complex at Darkhan

Total Estimated Capital Cost


(USD Thousands)
1,822,276
1,731,576
379,061
576,184
315,029
1,137,349
704,511
2,850,388
9,516,374
693,935
33,297
563,222
1,290,454
180,540
2,556,729
2,046,244
2,908,314

Table 1-6: Capital Cost Estimate

1.11.

ECONOMIC ANALYSIS

Bechtel developed an Economic Model to evaluate the economic feasibility of SIP based on
forecasted after-tax, nominal cash flows to international investors over an assumed
economic life of 30 years. The analysis assumed that the Coke Plant, Iron Pellet Plant,
DRI/HBI Plant, Copper Smelter, and Cement Plant would sell all of their products at
prevailing market prices in domestic or export markets, and that the Coal Gasification Plant
would sell synthesis gas (syngas) and the Power Plant would sell power within SIP at prices
that would result in an acceptable return on investment. The analysis initially assumed that
the capital costs and operating costs of common facilities and utilities would be recovered
through charges to the industrial plants. As described below, this assumption was modified
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in subsequent scenario analyses conducted to enhance the economic feasibility of the
industrial plants.
Economic results, expressed as after-tax unleveraged internal rate of return (IRR), with and
without the cost of the infrastructure development allotted to the plants, are summarized in
Table 1-7 below.
Plant

Before Allocation of Infrastructure

With Allocation of Infrastructure

15.9%

15.2%

Not Profitable

Not Profitable

0.7%

Not Profitable

DRI/HBI

Not Profitable

Not Profitable

Cement

6.5%

Not Profitable

Coking Coal
Copper
Iron Pelletizing

Table 1-7: Base Case Economic Results


In view of the low expected unleveraged after-tax IRR, NDIC directed Bechtel to evaluate
the impact of potential changes to Economic Model assumptions on economic feasibility. As
directed by NDIC, a Revised Base Case and additional scenarios were developed with the
following changes from the Base Case:

Supplying power from the grid, instead of constructing a dedicated power plant

Government of Mongolia (GoM) ownership and financing of SIP infrastructure

A 50% increase in the proposed capacity of the copper smelter to take advantage of
economies of scale in construction and production

Potential government incentives to encourage private investment in SIP, including


exemptions from VAT and customs duty, Mongolian tax holiday, subsidy of water
cost, government ownership of Coal Gasification Plant (to reduce the price of
syngas), and subsidies of thermal coal and electricity costs

Table 1-8 shows the estimated progressive improvement in expected unleveraged after-tax
IRR for each industrial plant that is expected to sell its output outside SIP under different
scenarios. To differentiate between different levels of government support that may be
required to make different industrial plants economically feasible, unleveraged after-tax
IRRs are not shown for additional scenarios once the expected unleveraged after-tax IRR
exceeded 10%-12%, the range foreign investors may expect.

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Scenario

After-Tax Unleveraged IRR


Cement
Plant

Coke
Plant

Iron Ore
Pelletizing
Plant

Copper
Smelter

DRI/HBI
Plant

10.8%

10.4%

6.1%

1.8%

N/A

12.0%

11.4%

8.1%

4.9%

N/A

Income Tax Holiday

10.5%

6.6%

N/A

Water Cost Subsidy (Raw Water Rate)

11.6%

7.1%

N/A

Government Ownership of Coal Gasification Plant ;


target 0% Return
(Syngas price $5.7MMBtu)

7.1%

N/A

Tavan Tolgoi Thermal Coal Sold to Coal


Gasification Plant at Mine Cost + Transportation
(Syngas price $3.7/MMBtu)

7.1%

6.1%

100% Electricity Cost Subsidy for Coal Gasification


Plant (Syngas price $2.7/MMBtu)

7.1%

10.4%

Cumulative Impact of Changes

Revised Base Case (Grid Power)


(Syngas price $8.6 /MMBtu)
50% Increase in Copper Smelter Capacity
Exempt from VAT and Import Duties on EPC Cost

4.2%

N/A After-tax unleveraged IRR cannot be calculated due to poor project economics

Table 1-8: Expected Impact of Enhancements to Economic Feasibility


The following observations may be drawn from the analysis:

With power supplied from the grid and with the cost of infrastructure borne by the
GoM, the Cement Plant and the Coke Plant may be economically feasible without
further government incentives.

Under the Revised Base Case assumptions (grid power and GoM-owned
infrastructure), the Iron Ore Pelletizing Plant would likely require tax incentives
(exemption from VAT and customs duty on EPC cost, zero VAT rating for iron ore
pellet exports, and Mongolian tax holiday) to become economically feasible.

Also under the Revised Base Case assumptions, increasing the capacity of the
Copper Smelter and incorporating government incentives in the scenarios
considered are not expected to be sufficient to make the project economically
feasible. According to the sensitivity analysis (see Section 11.16), reduction in
capital cost and/or increase in commodity pricing are required.

The DRI/HBI Plant is not expected to be economical, without substantial government


incentives to lower the cost of reducing gas to approximately the level expected in
areas where natural gas is readily available.

In general, project economics are most sensitive to changes in commodity prices and capital
costs.
In summary, key conclusions from the economic analysis of this study include:

An integrated, dedicated power plant at SIP, specified in the study, is not expected to
generate electricity at a competitive price; supplying power from the grid appears to
be a more economic option for the SIP industrial plants as a whole.

The costs of infrastructure and utilities are significant, and recovery of the costs
through infrastructure charges and utility charges will likely cause most projects at
SIP and the alternate sites to not be economically feasible. GoM ownership and
financing of infrastructure and utilities is critical to enhancing the economics of most
industrial plants.

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The proposed Coking Coal Plant may be economically feasible at SIP or Tavan
Tolgoi, if the GoM provides basic infrastructure and utilities.

With power supplied by the grid, the Cement Plant proposed for SIP may also be
economically feasible if the GoM provides basic infrastructure and utilities.

With appropriate GoM incentives (such as exemption from VAT and customs duty,
income tax holiday, provision of infrastructure, and subsidized of water costs), the
Iron Ore Pelletizing Plant proposed for SIP may be economically feasible.

Under Base Case assumptions, the expected economics of proposed copper smelter
may only be marginal, even with GoM provided infrastructure and tax incentives. An
increase in capacity, significant improvement in revenue assumptions, and/or
reduction in capital cost may be required to improve project economics sufficiently to
attract private investment.

Of all the industrial plants proposed for SIP, the DRI/HBI plant is expected to have
the least favorable economics. According to our analysis, the DRI/HBI plant is not
expected to be economically feasible unless it can procure syngas at less than $3
per MMBtu (2011 US$).

Economics at the alternate sites are not expected to be significantly different from
those at SIP, provided that the GoM provides the same level of infrastructure
support.

1.12.

COMMERCIAL AND FINANCIAL STRUCTURING

The Sainshand Industrial Park is projected to be the cornerstone of Mongolias


industrialization strategy. This strategy envisages leveraging the coal, copper, iron ore, and
other mineral resources that are Mongolias natural comparative advantage to attract
international investment in industrial facilities to create a strong foundation for economic
growth. The Government of Mongolia should develop a strong regulatory, legal, and
institutional foundation to attract investors to implement these facilities and achieve its
objectives for the park.
According to the Facility for Investment Climate Advisory Services (FIAS) in its 2008 Special
Economic Zones report published by the World Bank, over the past 30 years, thousands of
special economic zones have been developed worldwide. These zones include free trade
zones, export processing zones, and industrial parks which can serve as useful models for
Mongolia as it embarks on SIP development. Successful zone developments usually share
certain common elements, including:
A long-term commitment by the government to support zone development
Strong connectivity to major transportation networks
Strong legal, regulatory, and institutional frameworks
Good infrastructure to support development of zone facilities
A strong package of regulatory, fiscal, and financial incentives
Prospective investors may consider these and other aspects of the proposed park in
assessing their investment in SIP against other global investment opportunities. Some
factors that may influence their investment decision include:

A well-defined, predictable, and transparent process for bidding and investing in


projects

A best-practice institutional framework with a high-level government regulatory


agency, a high-level park development agency, and development and/or
management of the park through an experienced private sector park developer
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Clearly defined commercial arrangements that are communicated to prospective


bidders in the bidding documents

Transportation linkages to the park with enforceable transportation agreements for


industrial plant feedstock and export products

Certainty regarding availability of infrastructure and utilities to support construction


and operation of the industrial plants in the park

A sustainable plan for attracting and training workers for the park and required
support facilities (hospitals, schools, etc.)

Availability of an Environmental Impact Assessment that covers the entire SIP park
complex, meets World Bank and Mongolian environmental standards, and
addresses the environmental impact of the park with recommendations to mitigate
impacts

With a strong regulatory, legal, and institutional foundation for the park and with enabling
outside-the-park and inside-the-park common infrastructure in process, the GoM may be
able to attract investor interest in the SIP. The GoM should work with its advisory team to
identify its preferred commercial approach for the planned common inside-the-park
infrastructure projects and the industrial plants. In part, this process should be based on
feedback received from prospective international investors and lenders in meetings with the
GoM and its commercial advisor after SIP approval by the GoM.
Three alternative ownership models are available for SIP projects: wholly-government
(public) ownership; wholly-private ownership; or joint venture ownership between the GoM
and one or more private investors. In a concession project structure, the government
typically retains legal ownership, but beneficial ownership resides with the concessionaire
and is administered under the terms of a concession agreement. Consequently, a
concession may be used to achieve many of the same objectives as wholly-private
ownership. The choice of ownership model for a particular SIP project will largely be
determined by the nature and economic viability of the project, scale of the project, status of
the park build-out during project implementation and operation, and GoM objectives.
Common inside-the-park infrastructure needed to support start of construction of the
industrial plants (Tier 1) will likely need to be implemented as wholly-government owned
projects with the potential to transition to a concession structure after park build-out.
Common inside-the-park infrastructure that can be deferred until the later stages of the park
implementation process or that can be packaged with park industrial facilities (Tier 2) may
be implemented as wholly-private or joint venture projects on a concession basis if they can
recover their costs through charges to the industrial plants. To the extent that such costs
threaten the economic viability of the industrial plants, these projects may need to be
implemented as wholly-government owned projects with the potential to transition to a
concession structure in the future. Industrial plants are planned to be implemented as
wholly-private or joint venture projects on a concession basis.
Wholly-government owned projects are planned to be financed on the GoMs balance sheet
on a sovereign-credit basis and funded from a mix of internal sources and external
borrowings. External funding sources may include the Asian Development Bank, European
Bank for Reconstruction and Development, export credit agencies, or national development
banks. Wholly-private or joint venture concession projects may be financed on a corporate
credit basis (in which the concessionaire guarantees loan repayment) or on a limited
recourse project finance basis (in which loan repayment is secured by project revenues and
underpinned by a network of contracts among the project participants). A project financing
entails a more complex financing structure and consequently is usually more expensive and
time-consuming to implement and presents greater financing execution risk than other
financing alternatives.
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1.13.

RECOMMENDATIONS

SIP is a commercially and technically challenging project that, if successful, has the
potential to catalyze Mongolian industrialization. To achieve a successful outcome, Bechtel
recommends the following:
Evaluate Iron Ore Processing Options
The economic analysis indicates that a DRI Plant using reducing gas derived form coal
gasification may not be economically attractive. NDIC should consider and investigate
alternates to the DRI/HBI plant, such as:
Iron ore reduction plants based on other technologies such as Outotec SL/RN or
Kobe ITmk3 which produce reduced iron through direct contact between iron ore and
coal
A smaller capacity plant targeted for the domestic Mongolian steel industry
Increase Copper Plant Capacity
The plant capacity of 300 kTPA copper product specified in the study basis is less than the
largest single-train copper smelters. As larger facilities tend to be more economically
attractive, consideration should be given to increasing the capacity to 450 to 500 kTPA
product.
Reconfigure Electric Power Supply
The study basis of a small power plant to meet only the needs of the industrial park is likely
not economically viable. Reliable, grid power should be used for the industrial park, or a
larger power plant, supplying grid power should be considered.
Review Environmental Standards
Environmental standards and policies should be evaluated, and modified if necessary, to
ensure that they are in accordance with those accepted by the world community and
international lenders, and encompass the scope of the industrial park development.
Hire a Strong Advisory Team
Complex, first-of-a-kind projects for a country may succeed or fail based on the strength of
their advisory team. The GoM should hire an experienced team of outside advisors to
provide specialized expertise during the development period to complement GoM
capabilities and resources. These advisors should include the Project Management
Contractor (PMC), commercial advisor, legal advisor, and possibly a financial advisor.
Get Early Feedback from Prospective Lenders and Investors
The preliminary commercial and financing structures presented in this Master Plan Report
should be vetted in meetings with prospective international lenders, investors, and park
developers and then refined based on their feedback.
Implement International Standard Regulatory and Legal Frameworks
The GoM should work with its legal advisor to evaluate Mongolias current regulatory and
legal frameworks against international standards for similar undertakings to identify potential
changes that would assist Mongolia to effectively compete for the significant amounts of
investment required to fund SIP.
Provide a Well-defined Package of Investor Incentives
The GoM should work with its advisory team to evaluate Mongolias current package of
investor incentives to determine if they are capable of attracting the required amount of
investment for SIP and achieving a net economic benefit for Mongolia.
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Develop a Credible Plan for Implementing Enabling Infrastructure
The GoM should work with its advisory team to develop a credible plan to implement
necessary infrastructure to support implementation of investor projects at the park. Enabling
infrastructure projects should be operational or on schedule for completion in time to support
investor project requirements.
Target GoM Financial Resources to Maximize Impact
The GoM should target its financial resources to maintain park development momentum and
achieve credibility with international investors and lenders. GoM funding should be
preferentially allocated to front-end development costs, site work, and funding certain
common inside-the-park infrastructure in order to attract foreign investment to other
elements of the park.
Engage Local Stakeholders
Local residents should be engaged early in the development process, so that the positive
and potential negative impacts of the industrial park can be understood and accepted, and
so that the local population benefits and participates in the project.

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INDUSTRIAL PLANTS1

2.

Except where stated otherwise, the design basis, capacity, feed inputs, outputs and utility
requirements contained in this Section are based on data and design bases provided by
NDIC or on behalf of NDIC by other agencies of the Government of Mongolia contacted by
Bechtel at NDICs direction. Where specific data was not so provided, Bechtel has
developed further details from the data that was provided, and made assumptions to
complete the configuration parameters. The objective of these assumptions is to specify an
industrial park that meets the overall intent, as conveyed to Bechtel, of NDIC for the
proposed facility. Except where stated otherwise, NDIC has previously approved such
developments and assumptions by approval of previous task reports (including any changes
directed by NDIC) submitted to NDIC as part of the scope of work of this Master Plan Study.
This report describes the industrial plants anticipated at the time of this Report pursuant to
design basis and assumptions outlined in the preceding paragraph. The number and type
and design of industrial plants and anticipated utilities may change as further analysis,
preliminary/front end engineering, detailed design, further investigations, and other
necessary data and services are performed which are not part of the scope of this Master
Plan Report, but which are necessary before making any capital investment decisions.

2.1.

COKING COAL PLANT

The Coke Plant at Sainshand will process metallurgical coal mined in Mongolia to produce
metallurgical coke.
2.1.1.

DESCRIPTION OF PROCESS TECHNOLOGIES AND LICENSORS

Metallurgical coke is the solid non-volatile component left after coal is heated to volatize and
remove unstable components. Coke making is a batch process and coke ovens are
arranged in linear batteries to use automated loading and unloading equipment and
standardized production processes.
There are two commonly used technologies for producing metallurgical coke:

By-product coke makinga process in which the coke charge is heated by an


external heat source. Components volatized from the heated coal are recovered and
piped to a nearby chemical plant for processing into saleable by-products. The
CoalTech website, http://www.coaltech.com.au/Cokemaking.html describes the
process of by-product coke-making.
By-product coke making is a long established method of making coke and most
existing coke ovens are by-product coke ovens. Mongolia Industrialisation and
Downstream Processing Study, a report prepared by Worley-Parsons for the
Ministry for Mineral Resources and Energy of Mongolia (Reference 2.1.i), provides a
discussion of the present state of by-product coke making in China. Historically, byproduct coke plants have been significant sources of air pollution because the byproduct coke oven chamber is maintained at a positive pressure and hightemperature piping is required to transport the byproducts to the chemical plant. The
economics of by-product coke plants are typically complicated by the expense of
producing and marketing the by-products.

Except where specifically stated otherwise in this Report, the information contained in this Report was provided to Bechtel or
its affiliates by NDIC as the Client or third parties. In such instances, Bechtel and its affiliates have relied on the information
provided by the Client or third parties without seeking to separately confirm, verify, validate or otherwise examine the
information to determine its accuracy, completeness or feasibility.

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Heat-recovery coke makinga process in which the coke charge is heated by


consuming a portion of the coal charged into the coke oven. Components volatized
from the heated coal are burnt as the coal is consumed within the coke oven. Heatrecovery coke making process technology is described in a paper prepared by
SunCoke (Reference 2.1.ii).
Heat-recovery coke making has been developed since the 1960s. Although a newer
technology than by-product coke making, heat-recovery coke making is a wellestablished technology that offers what are generally considered to be technical,
economic and environmental advantages over by-product coke making. The
SunCoke paper in Reference 2.1.ii describes some of the advantages of the heatrecovery process technology as compared to the by-product coke making
technology. Many newly constructed coke making plants are heat-recovery type
plants because of the improved air pollution characteristics and the simplified
economics as compared to by-product type plants.
The chamber of the heat-recovery coke oven is maintained at negative pressure
during operation to facilitate the combustion of the coal in the oven. Negative
pressure in the coke oven and no external piping of by-products minimizes gaseous
emissions from the heat-recovery coke oven. During charging of coal into the ovens
and pushing (removing) coal from the ovens, the flow of air tends to be from the
outside towards the inside of the oven, helping to minimize gaseous emissions
during these operations. Furthermore, heat from the flue gas of the heat-recovery
coke oven is recovered to produce electric power or steam for sale to an electric
power plant. Recovery of heat as electric power or steam for sale is an important
part of the economics of operation of a heat recovery coke plant.

In brief, heat-recovery coke ovens are generally considered to be less expensive to build,
easier to operate, more economical and more environmentally friendly than by-product coke
ovens.
Bechtel has recommended and NDIC has approved the selection of a heat-recovery coke
making process technology as the basis for the Sainshand Coke Plant because of the above
stated environmental and economic advantages of this technology.
Other significant technologies to be employed in the Sainshand Coke Plant:

2
3

Stampinga process to consolidate the coke charge before it is introduced into the
coke oven. Stamping allows lower quality coking coals to be used but also helps to
minimize the discharge of fugitive dust when the coke is discharged from the coke
oven.2

Coke Dry Quenching (CDQ)3 a process in which the coke charge is cooled by a
circulating gas to a temperature at which it can be handled by conveying equipment.
CDQ minimizes consumption of water and facilitates the recovery of heat from the
coke charge. Cooling the coke charge with water (instead of CDQ) would consume
approximately 2 to 2.5 m3 of water per ton of coke and the heat from the hot coke
would be lost to the heat of vaporization of the water. Heat recovered by CDQ will
be used to produce steam available for sale to the Sainshand Electric Power Plant
(see section 2.7 below). Furthermore, cooling by CDQ instead of water will avoid
potential problems with freeze-up during times of sustained low ambient
temperatures.

This is an assumption made by Bechtel to meet NDICs stated intent and yield potentially feasible facilities.
This is an assumption made by Bechtel to meet NDICs stated intent and yield potentially feasible facilities.

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In preparing the definition of plant requirements for the Sainshand Coke Plant, Bechtel has
investigated the following potential international suppliers:

SunCoke, a U. S. based supplier of coke oven technology and a producer of coke for
use in the steel industry. SunCoke has built and operates coke ovens in the U. S.
states of Virginia, Ohio and Indiana and in Brazil. SunCokes operations are
described on the SunCoke website home page, http://www.suncoke.com/index.php.
As reported on their web-site, SunCoke has recently completed construction of a
one-million ton/year coke plant at Haverhill, Ohio, in the United States. The coke
from the Haverhill plant is sold to AK Steel located nearby. Part of the recovered
steam is sold to a chemical plant located next door to the Haverhill coke plant and
electricity generated from part of the recovered steam is sold to American Electric
Power.

ThyssenKrupp, a diversified industrial group. The ThyssenKrupp coke making group


is Uhde, GmbH, headquartered in Dortmund, Germany. Uhdes website home page,
http://www.uhde.eu, gives details of Uhdes capabilities and background in the
engineering and construction of coke oven plants. As reported on their web-site,
Uhde has recently completed a construction of a 2.6 million ton/year coke plant at
Schwelgern near Duisburg, Germany. Coke from the Schwelgern coke plant is sold
to the ThyssenKrupp steel mill located nearby. The Schwelgern coke plant is a byproduct recovery plant and the coke oven gas is sold to the ThyssenKrupp steel mill.

Bechtel requested budgetary proposals from both SunCoke and ThyssenKrupp-Uhde for the
Coke Plant at Sainshand. Bechtels E-mail Request for Proposal (RFP) together with the
Scope of Work and the Data Sheet as technical basis for the RFP are in Reference 2.1.iii.
The Scope of Work and Data Sheet were prepared as a preliminary specification based on
NDIC requirements in order to obtain a budget proposal and as such neither the Scope of
Work, Data Sheet nor the budget responses from the suppliers, are sufficient to be used as
a basis for any capital investment without further information and analysis including detailed
studies, front end engineering and detailed cost estimates and other necessary information
as required (and which does not form part of the scope of this Master Study). Section 10
further refers: pricing is indicative only.
An indicative budgetary proposal (Reference 2.1.iv) has been received from SunCoke. The
SunCoke budgetary proposal has limited technical information and does not include coke
dry-quenching as requested in Bechtels RFP.
Uhde has not provided a budgetary proposal in direct response to Bechtels RFP but Uhde
had previously prepared a Feasibility Study for a Heat Recovery Coke Plant for TT Coke,
LLC, Ulaanbaatar, Mongolia. This Feasibility Study was prepared under a contract between
Industrial Corporation of Mongolia (ICM) and Uhde. Bechtel has obtained a copy of this
Feasibility Study Report directly from ICM subject to confidentiality agreements between
Bechtel both ICM and Uhde that allows the conditional use of data (Confidential Data) from
the Feasibility Study Report for the preparation of the Master Plan Study for Sainshand
Industrial Park. This Confidential Data may not be further used without the consent of ICM,
Uhde and Bechtel.
Because it has been prepared specifically for the Sainshand area and is technically more
complete than the SunCoke Proposal, Bechtel has used and relied upon Uhdes Feasibility
Study Report as the basis for the development of the Coke Oven portion of this Master Plan
Study.
If the Sainshand Coke Plant should proceed as a project, Bechtel recommends that both
SunCoke and Uhde be considered as potential suppliers to the project. Any other suitable
and potential suppliers should also be considered. Bechtel does not represent that the
above named suppliers are the only suitable and potential suppliers.
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2.1.2.

PLANT CAPACITY

A Sainshand Coke Plant of 2.0 million tonnes annual capacity4 would be comparable in size
to other major coke plants around the world. Such a plant should be of sufficient size to be
of interest to the potential suppliers described in Section 2.1.1 preceding. A plant of such
capacity could (subject to confidentiality restrictions) use designs based on similar size
plants already operating.
Product output and target markets are discussed in Section 2.1.4 following.
The Scope of Work for the Budgetary RFP in Reference 2.1.iii requests that the plant be
constructed in four phases of 500,000 tonnes per annum (TPA) each. The SunCoke
Proposal (Reference 2.1.iv) suggests that there could be a ten percent savings in capital
cost for each 500,000 TPA unit constructed during the same phase. The indicative capital
cost estimate and execution schedule prepared as part of this Master Plan Study Report
assume that the Sainshand Coke Plant will be constructed as one plant of 2.0 million TPA
annual capacity in four 500,000 TPA trains constructed concurrently.
Although the estimated capital cost of constructing the Sainshand Coke Plant as provided
by SunCoke in one phase is less than its estimated capital cost of constructing the plant in
multiple phases, there would be some advantages to constructing the plant in multiple
phases. Some of these advantages are:

Constructing the plant in multiple phases would reduce the peak demand for
construction workers which in turn would reduce the cost of temporary housing for
workers, reduce the strains on the local community caused by importing and training
workers and would increase the possibility that trained workers will be transitioned
from temporary construction work to permanent employment at completion of
construction.

Phasing of the plant would increase the percentage of Mongolian employment as


compared to foreign employment for the same reasons cited directly above.

Constructing the plant in phases would ease the startup of the plant. There would be
cost savings in the startup of later phases because the later startups could use
trained workers from Phase 1.

The direct monetary cost savings of constructing the plant in one phase instead of multiple
phases could be substantial and should be investigated before proceeding with the
Sainshand Coke Plant as a project. Investigation of these costs is not within the scope of
this Report.
2.1.3.

FEEDSTOCK AND PRODUCT INPUTS

Following is a list of feedstocks and inputs5 to the Sainshand Coke Plant for two million
tonnes per year coke production:
Metallurgical (Coking) Coal2,867,600 TPA (dry basis)
Boiler Feed Water to CDQ738.5 t/hour or 5,908,000 TPA
Industrial Water108.0 t/hour or 946,080 TPA
Electric Power (Consumption)12.6 megawatts (MW) or 100,800 MW-hour/year
Lime for FGD22,435 TPA

2.0 million tonnes annual capacity is an assumption made by Bechtel to meet NDICs stated intent and yield potentially
feasible facilities.
5
These are assumptions made by Bechtel to meet NDICs stated intent and yield potentially feasible facilities.

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Supply of Metallurgical Coal (Coking Coal)
The Sainshand Coke Plant requires an assured supply of metallurgical coal (coking coal).
Metallurgical coal is a particular type of coal with physical and chemical properties suited for
the production of coke for steel mill blast furnace feed. It is expected that the Sainshand
Coke Plant will contract with a source within Mongolia for a reliable and consistent supply of
metallurgical coal6.
Reports are available reporting on the reserves of metallurgical coal in Mongolia. In
particular, the prospectus for Mongolian Mining Corporation (MMC) Global Offering reports
that the UHG mine within the Tavan Tolgoi coal formation has 206 million tonnes of
measured and 293.9 million tonnes of indicated coal reserves. The prospectus reports that
MMC produced 1.8 million tonnes of coking coal from the UHG mine in 2009, expects to
produce 3.8 million tonnes in 2010 and plans to produce 14.7 million tonnes in 2013.
Furthermore, the MMC prospectus reports that MMC is in the process of constructing coal
washing facilities to process 15 million tonnes of coal per year. It reports that coal from the
UHG mine is sold into China as coking coal. Bechtel has relied upon the above information
for the Master Plan Study Report.
This Master Plan Study is based on Sainshand Coke Plant processing coking coal from
MMC or the UHG mine, and we have assumed from the information of the MMC Prospectus
that adequate coking coal supplies would be available for the life of the Sainshand Coke
Plant.
The extent of coking coal reserves available to the Sainshand Coke Plant should be
confirmed before proceeding with the execution of the Coke Plant at Sainshand7.
2.1.4.

PRODUCT OUTPUTS AND TARGET MARKETS

Metallurgical Coke
Metallurgical coke as blast furnace feed is one of the principal feed-stocks of the modern
steel industry. Because there is no established blast furnace steel industry in Mongolia,
metallurgical coke produced by the Sainshand Coke Plant will be exported8.
Only limited information was made available for this Report in respect of potential output and
markets, but preliminary ranking of possible markets for metallurgical coke produced at
Sainshand would be,

Highest ranked would be China due to proximity of Sainshand to the established


steel companies in Chinese Inner Mongolia, Hebei and Hubei (Reference a report
compiled by KPMG, Chinas 12th Five-Year Plan: Iron and Steel, Reference 2.1.v).
Furthermore, Mongolia has an existing market for coking coal in China. The MMC
UHG prospectus (see 2.1.3 above) reports that all the coal from the UHG mine is
trucked to China for sale as coking coal. We have assumed that coke produced in
Mongolia can be marketed to the steel mills in China that are now purchasing coke
produced by Chinese coke ovens using Mongolian coal. It is possible that some of
these Chinese coke ovens are old (Reference the Worley-Parsons and the KPMG
reports) and some of any shut-down Chinese coke oven capacity can be taken up by
a new environmentally friendly heat-recovery type coke oven plant at Sainshand.

Second ranked would be Russia. Russia is less likely than China as a possible
market for coke produced at Sainshand because the established and well known

Information / requirement provided or specified by NDIC.


This is not part of the scope for this Master Plan Report.
8
Information / requirement provided or specified by NDIC.
7

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steel industry in Russia is in the Urals, about 3,000 km distant from Mongolia.
Although less likely as a market than China, the Russian market for Sainshand coke
should be investigated as an alternative to the Chinese market. Shipment to Russia
would not require transfer between different gauges of railroad as shipment to China
requires at the border point of Zamyn Uud. The report Mongolia: Railway
Development Project (Reference 2.1.vi) by TERA International Group, Inc. for
Sharyn Gol Energy LLC, funded by USTDA, reports on the situation at Zamyn Uud
but also reports that some coking coal from Tavan Tolgoi is being shipped to Choir
(on the Trans-Mongolian Railroad about 150 km south of Ulan Baatar) for loading on
to trains and shipment to Russia. (See Section 3.1 of the TERA report).

Third ranked as a possible market for coke produced at Sainshand would be export
to the established steel industries in Korea, Japan or other countries of Asia.
Possibility of export to other major countries of Asia is ranked lower in probability
than either China or Russia because of the length of railroad transportation from
Sainshand to sea ports in the Russian Far East or through China to sea ports along
the Chinese coast. The cost of coke shipped by rail from Sainshand to a sea port
and then by sea to Korea or Japan might be competitive if favorable freight rates and
tariffs can be negotiated with either Russia or China.

The above discussion represents suggestions only for potential development of a market for
the metallurgical coke from the Sainshand Coke Plant. A full evaluation of the metallurgical
coke market should be made before a coke plant project is initiated in Sainshand. Such a
market evaluation is beyond the scope of this Report.
Recovered Heat
Recovered heat in the form of steam or generated electrical power is usually an important
element in the economic success of a heat-recovery type coke plant. For the Sainshand
Coke Plant, it is planned that the steam will be sold at the Coke Plant boundary to the
Sainshand Electric Power Plant9.
For two million TPA coke production, Uhde has forecast10 that a total of 717 tonnes/hour
(5.736 million TPA) steam at 535C and 10 mPa will be available for sale to the Sainshand
Electric Power Plant. A sales agreement will have to be developed between the Coke Plant
and the Electric Power Plant.
2.1.5.

WASTE AND HAZARDOUS PRODUCTS

Flue gas from the Sainshand Coke Plant will be treated by Flue Gas Desulphurization (FGD)
and media filters to remove sulfur and particulates. The product from FGD is gypsum and
can be processed through the Sainshand Cement Plant or combined with similar product
from other Sainshand process plants for sale or disposal.
Air and water emissions from the Sainshand Coke Plant will conform to Mongolian law11.
2.1.6.

UTILITY REQUIREMENTS

Electric power and water requirements of the Coke Plant are tabulated in Section 2.1.3.
The Coke Plant will require communication services including telephone and broadband
internet access.

Information / requirement provided or specified by NDIC.


Reference the Udhe feasibility report referred to in Section 2.1.1.
11
Information / requirement provided or specified by NDIC.
10

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Drainage will be provided within the Coke Plant to direct normally expected storm water
runoff (including roof drains and parking lot runoff) to a storm water pond located within the
Coke Plant. Unusually large precipitation events will be channeled to emergency overflow
for discharge to the Sainshand Industrial Park storm drainage system.

2.2.

COPPER SMELTER

2.2.1.

DESCRIPTION OF PROCESS TECHNOLOGIES AND LICENSORS

The Copper Plant at Sainshand will include the following main process areas12:
Concentrate Storage
Concentrate and Matte drying
Concentrate Smelting (FSF)
Continuous Converting (FCF)
Anode Casting
Sulfuric Acid plant
Effluent treatment Plant
Copper Refinery
Precious Metals Plant
Slag Cleaning (Slag Concentrator or Electric Furnace)
The chosen smelter process technology for the Study is Outotec FSF-FCF. This is
because, whilst there are other technology providers, Rio Tinto, developer of the Oyu Tolgoi
mine, is part owner of the FCF technology marketed by Outotec, and it is assumed that it will
likely ultimately be implemented.
Technology suppliers for the copper refinery include:
Outotec
Xstrata Technology (ISA Process & KIDD Process)
Technology suppliers for the sulfuric acid plant include the following:
Outotec (Lurgi process)
Monsanto
Chemetics
The other process facilities will have multiple options for equipment supply and will be
considered in more detail at later stages of the project.
In addition to the copper product, the Copper Plant will produce gold and silver as recovered
byproducts, and a large quantity of sulfuric acid.
2.2.2.

PLANT CAPACITY

The Copper Plant is currently envisaged to produce 300 thousand tonnes per year of
copper, in the form of copper cathode, from approximately 1 million tonnes per year of
copper concentrate. The Study basis is to be copper concentrate from Oyu Tolgoi, although
future implementation plans could also include feed from Erdenet13.

12
13

These are assumptions made by Bechtel to meet NDICs stated intent and yield potentially feasible facilities.
Information / requirement provided or specified by NDIC.

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NDIC should consider increasing the capacity to 1.5 million tonnes per year of concentrate,
the capacity of the largest single-line smelter facilities. The capital investment required per
tonne is less with the larger facility, and would likely result in improved economic results. If
sufficient concentrate is available it may be beneficial to consider a larger facility to optimize
the use of capital investment. As the plant capacity is specified by NDIC in the Study
contract, it remains at 300,000 tonnes per year of copper, unless otherwise directed by
NDIC.
2.2.3.

FEEDSTOCK AND PRODUCT INPUTS

Raw material receiving will be done by common facilities, and transferred to the copper
smelter daily. The materials received by rail include the following:
Copper Concentrate
Silica Flux
Lime flux
Some consumables and utilities will be supplied by other facilities at the industrial park via
pipeline. These include:
Oxygen
Nitrogen
Diesel or Fuel Oil
Synthesis gas from Coal Gasification
The copper concentrate composition considered in this Study is the following:
Unit

2013-2015 Average

Long Term Average

Cu

27

30

Fe

27

23

34

30

SiO2

As

ppm

327

1351

Bi

ppm

<10

<10

Sb

ppm

21

200

Pb

ppm

481

300

Au

g/t

30

10

Ag

g/t

68

64

The above data reflects the analysis of copper concentrate from the Erdenet mine, provided
by the Erdenet Mining Corporation through NDIC. Although the feed basis for the Copper
Plant is to be concentrate from the Oyu Tolgoi mine, analysis of that concentrate has not
been made available, and the Erdenet analysis is therefore used and relied upon.
2.2.4.

PRODUCT OUTPUTS AND TARGET MARKETS

The products and byproducts produced by the smelter and refinery, which will be
transported out of the facility for either sale or disposal include:
Copper Cathode, 300 KTPA (transported by railcar in bundles)
Sulfuric Acid, 925 kTPA (transported by rail in tanker cars)
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Smelter Slag (disposed of in offsite storage area)


Gold, 10 TPA
Silver, 64 TPA
Steam (transported by pipeline)
Gypsum (from effluent treatment)

The sulfuric acid produced as a byproduct is shipped via rail tanker cars to the fertilizer
industry, where it is a feedstock. The fertilizer industries in northern China, Kazakhstan, and
Russia are likely markets for the sulfuric acid. Because of the large quantity of sulfuric acid,
a potential investor/owner will want to ensure an outlet for the acid as part of the investment
decision and project planning. According to the Global Fertilizer Trade Map published
December 2011 by the International Fertilizer Industry Association in partnership with
ICIS,China imports 1.6 million tons per year of sulfuric acid from Japan and Korea and 4.7
million tons per year of sulfur (equivalent to 14.4 million tons of sulfuric acid) from Russia,
Canada and the United Kingdom.
2.2.5.

WASTE AND HAZARDOUS PRODUCTS

The slag produced can be landfilled or used for fill or road base material. All waste streams
will be treated within the Copper Plant to meet effluent quality standards.
2.2.6.

UTILITY REQUIREMENTS

Utility requirements of the Copper Plant14 tabulated below are assumed to be sufficient
based on Bechtels experience with similar projects.
Copper Plant Utility Needs
Utility
Oxygen
Nitrogen
Industrial Water
Boiler Feed Water
60 bar Steam (export)
15 bar Steam (export)
5 bar Steam (import)
Fuel Gas (Synthesis Gas)
Fuel Oil
Electrical Power

Rate
42 tonnes/hr
0.25 tonnes/hour
350 m3/hour
84 m3/hour
60 tonnes/hour
11 tonnes/hour
11 tonnes/hour
5.9 MW (1.0 tonnes/hr)
1.8 tonnes/hour
42 MW

The Copper Plant will require communication services including telephone and broadband
internet access.
Drainage will be provided within the Copper Plant to direct normally expected storm water
runoff (including roof drains and parking lot runoff) to the storm water pond located within
the Copper Plant. Unusually large precipitation events will be channeled to emergency
overflow for discharge to the Sainshand Industrial Park storm drainage system.

14

Assuming 300 thousand tonnes per year of copper, in the form of copper cathode, from approximately 1 million tonnes per
year of copper concentrate.

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2.3.

IRON ORE PELLETIZING PLANT

The Iron Ore Pelletizing Plant at Sainshand will process concentrated iron ore
fromMongolian mines into an iron ore pellet suitable for use as feed to the Direct Reduction
Iron (DRI) Process. This type of iron ore pellet is referred to as a DR Pellet and is
specifically intended as feed to the DRI Process. Although it is possible to produce iron ore
pellets as blast furnace feed, the Sainshand DR Pellet will be produced and marketed
specifically as DRI feed, either for use in DRI/HBI plants within Mongolia or exported15.
2.3.1.

DESCRIPTION OF PROCESS TECHNOLOGIES AND LICENSORS

Iron ore pelletizing is a well-established and proven process with a number of world-scale
operations and suppliers within Asia as well as other parts of the world. In preparing the
definition of plant requirements, Bechtel has investigated the following potential suppliers of
iron ore pelletizing technology or equipment:

Kobelco or Kobe Steel Limited (KSL) of Japan KSL has acquired the license of
Allis Chalmers of the USA and is a well-established producer of iron ore pellets as
well as a supplier of iron ore pelletizing plants. KSL cooperates with Midrex a
supplier of DRI plants. The budgetary proposal from KSL is in Reference 2.3.i.

Metso A global company based in Finland, Metsos web-site


(http://www.metso.com) advises that they operate in fifty different countries and have
provided iron ore processing and pelletizing equipment to many projects including
technology and services to Wuhan Iron and Steel Corporation (WISCO) starting in
2003 through the present. WISCO is located along the Yangtze River in Chinas
Hubei province.

Outotec Based in Finland, Outotec is a well-established supplier of mining and


processing equipment. Outotecs web-site (http://www.outotec.com) reports Outotec
to have a world-wide customer base and a line of iron ore pelletizing equipment
utilizing the Outotec travelling grate process, originally developed by Lurgi.
Furthermore, Outotecs web-site reports that they have recently completed the
engineering and successful commissioning of the world's largest pelletizing plant in
Brazil for Samarco with capacity of 7.25 million TPA.

Danieli Danieli is a global supplier of DRI plants based in Italy. Danieli could
provide an iron ore pelletizing plant as part of the supply of their DRI Plant as
described in Section 2.4 of this Report.

During the definition of plant requirements, Bechtel requested budgetary proposals from all
potential suppliers as listed above. The E-mail Request for Proposal (RFP) with the Scope
of Work and the Data Sheet are in Reference 2.3.ii. The Scope of Work and Data Sheet
were prepared as a preliminary specification based on NDIC requirements in order to obtain
a budget proposal and as such neither the Scope of Work, Data Sheet nor the budget
responses from the suppliers, are sufficient to be used as a basis for any capital investment
without further information and analysis including detailed studies, front end engineering and
detailed cost estimates and other necessary information as required (and which does not
form part of the scope of this Master Study). Section 10 further refers: pricing is indicative
only.
Neither Metso or Outotec provided a budgetary proposal (the former citing their engineering
work-load). The budgetary proposal from KSL is in Reference 2.3.i, and the budgetary
proposal from Danielli is part of the proposed supply of the DRI Plant as described in
15

Information / requirement provided or specified by NDIC or assumed from NDICs stated intent.

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Section 2.4 of the Report. For this study, Bechtel has used the KSL proposal and
information as the basis for the Iron Ore Pelletizing Plant in the proposed industrial park.
The KSL technology is representative of pelletizing plants, and the characteristics of the
plant (overall material balance, plot space requirement, capital cost, schedule, etc.) would
not be expected to differ greatly if another technology is incorporated into SIP. If the
Sainshand Iron Ore Pelletizing Plant should proceed as a project, Bechtel recommends that
all suppliers as listed above be considered as potential suppliers to the project. Any other
suitable and potential suppliers should also be considered: Bechtel does not represent that
the above named suppliers are the only suitable and potential suppliers.
2.3.2. PLANT CAPACITY
An Iron Ore Pelletizing Plant at Sainshand with annual capacity of 4.5 million tonnes DR
Pellets16 would be comparable in size to other major iron ore pelletizing plants around the
world. Such a plant would likely be of sufficient size to be of interest to the potential
suppliers described in Section 2.3.1 preceding. A plant of such capacity could (subject to
confidentiality restrictions) potentially use designs based on similar size plants already
operating.
An annual capacity of 4.5 million tonnes of pellets would provide feed of 3.625 million tonnes
DR Pellets to a DRI plant located in Sainshand and an excess of 875 thousand tonnes DR
Pellets for export17. Product output and target markets are discussed in Section 2.3.4
following.
The Scope of Work for the Budgetary RFP in Reference 2.3.ii requests that the plant be
constructed in two phases: Phase 1 of 2.25 million tonnes per annum (TPA) capacity and
Phase 2 of an additional 2.25 million TPA capacity. The KSL budgetary proposal suggests
that there would be a potential savings in capital cost by constructing one plant of 4.5 million
TPA capacity, and the indicative capital cost estimate and execution schedule in this Report
assumes the plant would be constructed as one plant.
Although the indicative capital cost of constructing the plant in one phase as provided by
KSL is less than the cost of constructing the plant in two phases, there would be some
advantages to constructing the plant in two phases. Some of these advantages are,

16
17

Reduction of the peak work force during the construction phase. The peak
construction force could be between 1,000 to 2,000 workers. Constructing the plant
in two phases would reduce the peak demand for construction workers which in turn
would reduce the cost of temporary housing for workers, reduce the strains on the
local community caused by importing and training workers and would increase the
possibility that trained workers will be transitioned from temporary construction work
to permanent employment at completion of construction.

Phasing of the plant would increase the percentage of Mongolian employment as


compared to foreign employment for the same reasons cited directly above.

Constructing the plant in phases would ease the startup of the plant. There would be
cost savings in the startup of Phase 2 because Phase 2 startup could use trained
workers from Phase 1.

Smaller Phase I production of 2.25 million TPA would reduce the quantity of pellets
required to be exported while the Mongolian steel industry develops to take the pellet
output. This is discussed further in Section 2.3.4 following.

Assumption made by Bechtel to meet NDICs stated intent and yield potentially feasible facilities.
Assumption made by Bechtel to meet NDICs stated intent and yield potentially feasible facilities.

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The direct monetary costs of constructing the plant in one phase instead of two phases
could be substantial and should be investigated before proceeding with the Sainshand Iron
Ore Pelletizing Plant as a project. The quantification of these costs are not within the scope
of this Report.
2.3.3.

FEEDSTOCK AND PRODUCT INPUTS

According to the KSL Proposal in Reference 2.3.i, the Iron Ore Pelletizing plant will require:
Concentrated Iron Ore4,459,000 TPA
Process Water0.15 m3/t-pellets (equivalent to 1,849 m3/day at full capacity of 4.5
million TPA iron ore pellets)
Electrical Energy40 kWh/t-pellets (or 22.5 MW at full capacity)
Bentonite0.0056 t/t-pellets (or 23 TPA)
Natural gas924 MJ/t-pellets (or 144 MW at capacity)
Dolomite45,000 TPA
Iron Ore
Published sources report Mongolia to be rich in iron ore. In particular, a map in a document
produced and made available by the Mineral Resources Authority (MRA) of Mongolia
indicates iron ore deposits south of Choir and north of Sainshand, as well as in the region of
Darkhan, north of Ulaanbaatar. In 2005, Mongolia Industrialisation and Downstream
Processing Study, a report prepared by Worley-Parsons for the Ministry for Mineral
Resources and Energy of Mongolia, estimated Mongolias total country proven reserves at
427.1 million tonnes. The same reference reported only three well-explored iron ore
deposits, namely Tumurtein Deposit, Tumur Tolgoin Deposit and Bayan Golyn Deposit, all
three located in Selenge Aimag in the region of Darkhan. The report also estimated the
mineable reserves of these three deposits to be 377.1 million tonnes of iron ore.
In the meeting of 14 June 2011, the Ministry of Mineral Resources and Energy (MMRE
stated that the basis for the iron ore to feed the Sainshand Iron Ore Pelletizing Plant will be
supply from the northern range. MMRE went on to say there are iron ore deposits nearer
Sainshand but these have not yet been explored.
In a meeting organized by NDIC on 20 June 11 in Ulaanbaatar, Mr. Ts. Batbold of Beren
Group reported that his company is operating an iron ore mine and 60,000 TPA pelletizing
and DRI plant at Erdenet in Selenge Aimag, about 150 km to the west of Darkhan and about
650 km to the north-west of Sainshand. Mr. Batbold said DRI from this plant is being sold to
an electric arc furnace steel plant in Darkhan. So far as Bechtel is aware, the operation at
Erdenet is the only operating iron ore mine or iron ore processing plant within Mongolia.
This Report assumes that iron ore will be beneficiated to 60% iron on an elemental basis
before it is shipped to Sainshand. No quarrying or beneficiation equipment is included in the
capital cost estimates provided with this Report. Furthermore, it is assumed that the iron ore
is less than 0.1% sulfur, and no Flue Gas Desulphurization (FGD) facilities will be provided
as part of the Iron Ore Pelletizing Plant.
The estimated mineable reserve of 377 million tonnes in Selenge Aimag reported by the
Worley Parsons report prepared for MMRE would supply a 4.5 million TPA iron ore
pelletizing plant for a period of 84 years. Before an iron ore pelletizing project is initiated in
Sainshand, the extent and quality of the reserves in Selenge should be confirmed, first by

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review of the existing records, and second, by a well-planned geotechnical evaluation based
on the review of records18.
The iron ore reserves located nearer to Sainshand should be investigated as a supply of
iron ore for the Sainshand Iron Ore Pelletizing Plant. Using iron ore from these deposits
would reduce the transportation costs of iron ore from the northern Selenge Aimag to
Sainshand19.
Bentonite and Dolomite
In addition to iron ore, these minerals are required in the iron ore pelletizing process.
References reviewed by Bechtel do not indicate either bentonite or dolomite to be present in
Mongolia, but these are not uncommon materials, and the inventory of the mineral wealth of
Mongolia is incomplete. Availability of both bentonite and dolomite within an economical
transportation distance of Sainshand should be confirmed by investigation before the
Sainshand Iron Ore Pelletizing Plant project proceeds20.
2.3.4.

PRODUCT OUTPUTS AND TARGET MARKETS

As explained in the introduction to this Section 2.3, the target market for Sainshand DR
Pellets will be DRI/HBI plants, either within Mongolia or exported.
According to the Worley-Parsons report, and confirmed by discussions with the various
Mongolian ministries during the site visit of June 2011, the existing steel industry in
Mongolia consists of an iron ore mine with 60,000 TPA pelletizing plant and DRI plant in
Erdenet and a 100,000 TPA electric arc furnace steel plant in Darkhan. Because of the
small size of the existing market in Mongolia, Sainshand Iron Ore Pelletizing Plant will have
to export its product from Mongolia until the local market develops to a capacity to absorb
plant production21. The distance iron ore pellets can be exported at a profit will be limited by
the price paid by the buyer at the point of delivery of iron ore pellets as compared to the cost
of production of the iron ore pellets plus the cost of shipping the iron ore pellets to the point
of delivery.
Mongolia is located between China and Russia and either of these countries could be
considered potential markets for Sainshand DR Pellets. Although export of Sainshand DR
Pellets to world markets cannot be excluded out-of-hand, it is beyond the scope of this
Report to compare production and transportation cost of Sainshand DR Pellets to the
market price that might be paid by a world-wide customer.
Russia might be a possible market for Sainshand DR Pellets but the steel industry in Russia
is centered on the Ural region approximately 3,000 km to the west of Mongolia.
Furthermore, Kazakhstan has iron ore reserves, an established steel industry, and is closer
to the established Russian steel industry. Although there is no obvious comparative
advantage that would seem to make iron ore pellets from Sainshand attractive to Russian
steel mills, Russia might offer more competitive freight rates and tariffs than China. The
Russian market for Sainshand DR Pellets should be investigated22.
Geographically, China would appear to be the most logical market for Sainshand DR
Pellets. As mentioned in Section 2.3.1, Wuhan Iron and Steel Corporation (WISCO) is
located in Hubei on the Yangtze River and Baotou Steel has a steel mill at Baotou on the
Yellow River in Inner Mongolia. Both these steel companies have established iron ore
18

Such confirmation is not a part of the scope of this Master Plan Study.
Such confirmation is not a part of the scope of this Master Plan Study.
20
Such confirmation is not a part of the scope of this Master Plan Study.
21
Assuming annual capacity of 4.5 million tonnes DR Pellets.
22
Such investigation is not a part of the scope of this Master Plan Study.
19

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pelletizing plants. In particular, Baotou Steel has announced the construction of a 3.6 million
TPA capacity iron ore pellet plant in Guyang, Inner Mongolia, about 150 km from Baotou.
According to the announcement, this plant will have sales revenue of US $603 million/year.
Comparing capacity against sales revenue as reported indicates a selling price of iron ore
pellets at Guyang of US $167/tonne. This selling price could be compared against the cost
of production of Sainshand DR Pellets plus freight to the steel mill at Baotou23.
Additional details of the steel industry in China are provided in the East Asian Institutes
Background Brief 501, Chinas Steel Industry: An Update (Reference 2.3.iii) and Chinas
12th Five Year Plan: Iron and Steel (Reference 2.1.iv). These references discuss the
current state of the steel industry in China as well as plans for the Chinese steel industry.
These sources indicate that imports of iron ore into China will increase to the range of 50
60% of Chinas total consumption of iron ore.
The Chinese steel industry is reported (References 2.1.iv and 2.3.iii) to produce 500 million
TPA steel and consume 800 million TPA iron ore.
In comparison, Sainshand Iron Ore Pelletizing Plant will produce 4.5 million TPA DR Pellets.
The small size of the production from Sainshand Iron Ore Pelletizing Plant as compared to
the iron ore requirements of the Chinese steel industry offers potential opportunity and
challenge.
Opportunity: Geographically, a significant part of the Chinese steel industry is located next
door to Mongolia. Chinese steel plants are located in Hubei, Hebei and Inner Mongolia, and
these steel plants are closer by rail to Sainshand than they are to the Chinese sea-ports.
Furthermore, iron ore at the Chinese sea-ports is burdened with the cost of sea transport
from Australia or West Africa. Although the sources in References 2.1.iv and 2.3.iii report
that the 12th Chinese 5 Year Plan has a goal of shutting down smaller less productive steel
mills, WISCO and Baotou Steel and similar companies are large productive steel mills and
located close to their customer base. It is likely that large well-established companies with
competitive operations will remain active or perhaps even grow at the expense of smaller
steel companies in China. Large competitive steel companies in central China could
represent a ready market for Sainshand DR Pellets.
Challenge: Price will be controlled by market price in China and cost of transportation.
Production from Sainshand Iron Ore Pelletizing Plant will be small compared to the size of
the Chinese market and it is difficult (if not impossible) to brand or differentiate one source of
iron ore from another. Sainshand DR Pellets will most likely sell at the market price for iron
ore pellets paid by the Chinese steel mill less the cost of transportation from Sainshand to
the steel mill. On that assumpton, the developers of SIP may wish to consider:

Setting a goal of being a high-quality low-cost producer Quality helps obtain a


ready market for the product while low cost helps profit, and

Reducing transportation costs as much as possible. Transportation cost is a burden


on profits.

Concerning transportation costs, several sources have reported on the high cost of
transportation by rail in Mongolia and in particular the cost and difficulty of crossing the
Mongolian-Chinese border at Zamiin-Uud. The report by TERA on Mongolian railway
development (Reference 2.1.v) describes in detail (pages 2 through 8) the current situation
of the border crossing at Zamiin-Uud. It is not the intent of this Section (or this Report) to
address or solve the problem at Zamiin-Uud, but the cost of transiting the border will burden
the profitability of Sainshand DR Pellets (as well as other products) shipped from Sainshand
23

Such investigation is not a part of the scope of this Master Plan Study.

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to China. During the June meetings in Mongolia various Mongolian ministries described
plans for improving the railways in Mongolia, including improvements at the border crossing,
and the potential of using Chinese gauge rail south of Sainshand to eliminate the need to
transfer cargo at the border. If the industries at Sainshand Industrial Project are to be
profitable, then one imperative is that these industries have ready and low cost
transportation to their potentially largest customer, China.
In brief, a full evaluation of the iron and steel market should be made before the Sainshand
Iron Ore Pelletizing Plant is initiated as a project. Reference 2.1.iv and 2.3.iii as well as
similar sources of information about Chinese iron ore imports and consumption should be
studied to develop a marketing plan for the Sainshand Iron Ore Pelletizing Plant. Such a
market evaluation and plan is beyond the scope of this Report.
Although the above discussion sets forth the potential for marketing the output from the
Sainshand Iron Ore Pelletizing Plant as a separate project, Bechtel understands that the
Mongolia governments goal is that Sainshand DR Pellets will be fed into the Sainshand DRI
Plant to produce a direct reduced iron product to be marketed to a developed steel industry
in Mongolia. Because of the integrated nature of the iron steel industry, it might be
advantageous to consider the group of iron related projects as one integrated iron project.
This concept of an integrated iron project is discussed further in Section 2.4.4 of this Report.
2.3.5.

WASTE AND HAZARDOUS PRODUCTS

The chemical analysis of iron ore reserves used as the basis for this report does not indicate
the presence of any recognized hazardous materials such as asbestos, radioactive
materials or mercury. This should be confirmed by the geological investigation of the ore
body as recommended in Section 2.3.3 preceding.
Air and water emissions from the Iron Ore Pelletizing Plant will conform to Mongolian law.
In particular, as stated in Section 2.3.2, no Flue Gas Desulphurization is expected to be
required because of the low sulfur nature of the iron ore. This will require confirmation when
the final analysis of the iron ore is available.
2.3.6.

UTILITY REQUIREMENTS

Electric power, natural gas and water requirements of the Sainshand Industrial Park are
tabulated in Section 2.3.3.
The Sainshand Iron Ore Pelletizing Plant will require communication services including
telephone and broadband internet access.
Drainage will be provided within the Sainshand Iron Ore Pelletizing Plant to direct normally
expected storm water runoff (including roof drains and parking lot runoff) to a storm water
pond located within the Iron Ore Pelletizing Plant. Unusually large precipitation events will
be channeled to emergency overflow for discharge to the Sainshand Industrial Park storm
drainage system.
Sanitary sewer from occupied buildings will be collected and directed to the sanitary sewage
treatment plant in the Sainshand Industrial Park common facilities.

2.4.

DRI/HBI PLANT

The DRI/HBI Plant at Sainshand will process iron ore pellets (DR Pellets) from Sainshand
Iron Ore Pelletizing Plant into a direct reduced iron product (DRI) and subsequently into a
hot briquetted iron product (HBI). Either DRI or HBI is suitable to be fed into an electric arc
furnace for steelmaking but the HBI product (as explained in Section 2.4.5) is more suitable
for transportation to the export market.
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Most of the DRI produced in Sainshand will be exported as HBI until the steel industry in
Mongolia develops to a size that would be a market for the quantity of DRI to be produced at
Sainshand24. As explained in Section 2.3, the existing steel producing industry in Mongolia
consists of one electric furnace steelmaking plant of about 60,000 TPA (tonnes per annum)
capacity located at Darkhan, to the north of Ulaanbaatar. Although it is understood by
Bechtel that the ultimate objective of the Mongolian Government is to develop a steel
industry in Mongolia, development of an electric arc furnace steel industry as a processor of
DRI into steel is not within the scope of this Report.
2.4.1.

DESCRIPTION OF PROCESS TECHNOLOGIES AND LICENSORS

The DRI process is based on reacting iron ore (in the form of the DR Pellet) with hot
hydrogen and carbon monoxide reducing gases in a shaft furnace to produce DRI. This
process is explained in Reference 2.4.i, a presentation package prepared by Posco E&C for
Industrial Corporation Mongolia (ICM), and provided to Bechtel by ICM. As reported there,
the DRI process is well proven with DRI plants established in all steel making areas of the
world. Reducing gases for DRI can be sourced from natural gas or from gas manufactured
from coal. For the Sainshand DRI/HBI Plant, reducing gases will be sourced from the
Sainshand Coal Gasification Plant25.
The Sainshand DRI/HBI Plant will process DRI into an HBI product suitable for
transportation over long distances. Section 2.4.5 explains the advantages of HBI as
compared to DRI for transport26.
In preparing the definition of plant requirements for the DRI/HBI Plant, Bechtel has
investigated the following potential suppliers:

Midrex, a US supplier of DRI plants, based in Charlotte, North Carolina. A Midrex


marketing document reports that Midrex has engineered a total of 75 MIDREX DR
Modules as of December 2010, of which 62 of these are still operating and ten are
under construction. For Sainshand, Midrex is proposing to use the Midrex MXCOL
Plant specifically designed to use coal gas as a reducing gas. A Midrex MXCOL
Plant in the ArcelorMittal steel plant at Saldanha Bay, South Africa, has been
operating since 1999 and a Midrex MXCOL Plant is under construction for Jindal
Steel and Power Limited in Angul, India, and is expected to be operational in 2011.

Danieli is a well-established supplier of steel making equipment such as electric arc


furnaces and rolling mills as well as DRI plants. (Refer to the Danieli web-site,
http://www.danieli.com) Danieli is based in Italy. Danieli, in cooperation with HYL
and Tenova, has built and commissioned DRI plants in Europe, United States and
Mexico.

Bechtel requested budgetary proposals from both Midrex and Danieli. Bechtels E-mail
Request for Proposal (RFP) together with the Scope of Work and the Data Sheet as
technical basis for the RFP are in Reference 2.4.ii. The Scope of Work and Data Sheet
were prepared as a preliminary specification based on NDIC requirements in order to obtain
a budget proposal and as such neither the Scope of Work, Data Sheet nor the budget
responses from the suppliers, are sufficient to be used as a basis for any capital investment
without further information and analysis including detailed studies, front end engineering and
detailed cost estimates and other necessary information as required (and which does not
form part of the scope of this Master Study). Section 10 further refers: pricing is indicative
only.
24

These are assumptions made by Bechtel to meet NDICs stated intent and yield potentially feasible facilities.
These are assumptions made by Bechtel to meet NDICs stated intent and yield potentially feasible facilities.
26
These are assumptions made by Bechtel to meet NDICs stated intent and yield potentially feasible facilities.
25

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Budgetary Proposals for a DRI/HBI Plant at Sainshand have been received from both
Midrex and Danieli. These indicative budgetary proposals are subject to Confidentiality
Agreements, and are thus not included in this report.
If the DRI/HBI Plant should proceed as a project, Bechtel recommends that both Midrex and
Danieli be considered as potential suppliers to the project. Any other suitable and potential
suppliers should also be considered: Bechtel does not represent that the above named
suppliers are the only suitable and potential suppliers.
2.4.2.

PLANT CAPACITY

A Sainshand DRI/HBI Plant of 2.5 million tonnes annual capacity would be comparable in
size to other major DRI/HBI plants around the world. Such a plant is likely to be of sufficient
size to be of interest to the potential suppliers described in Section 2.4.1 preceding. A plant
of such capacity could (subject to confidentiality restrictions) potentially use designs based
on similar size plants already operating.
Product output and target markets are discussed in Section 2.4.4 following.
The Scope of Work for the Budgetary RFP in Reference 2.4.ii requests that the plant be
constructed in two phases: Phase 1 of 1.25 million TPA capacity and Phase 2 of an
additional 1.25 million TPA capacity. The Midrex Budgetary Proposal suggests that there
would be a potential savings in capital cost by constructing one plant of 2.5 million TPA
capacity. The indicative capital cost estimate and execution schedule prepared as part of
this Report assume the DRI/HBI Plant would be constructed as one plant of 2.5 million TPA
capacity.
Although the Midrex Budgetary Proposal states that the capital cost of constructing the
DRI/HBI Plant in one phase is less than the cost of constructing the plant in two phases,
there would be some advantages to constructing the plant in two phases. The advantages
of constructing the DRI/HBI Plant in two phases would be similar to the advantages of
constructing the Iron Ore Pelletizing Plant in two phases as discussed in Section 2.3.2.
The direct monetary cost savings of constructing the plant in one phase instead of two
phases could be substantial and should be investigated before proceeding with the
Sainshand DRI/HBI Plant as a project. Quantification of these costs is not within the scope
of this Report.
2.4.3.

FEEDSTOCK AND PRODUCT INPUTS

According to the Midrex Budgetary Proposal, the DRI/HBI Plant will require,
Iron Ore pellets (DR Pellets from the Iron Ore Pelletizing Plant)3,625,0000 TPA
Process Water3,000,000 TPA
Lime5,000 TPA
Electrical Energy150 kWh/t-DRI (or 46.9 MW)
Oxygen50,000 TPA
Reducing gas (Synfuel gas)650 Nm3/ t-DRI
Low Pressure Steam1,250,000 TPA
Iron Ore and DR Pellets
Sources of iron ore and production of DR Pellets to feed the DRI/HBI Plant are discussed in
Section 2.3.3 of this Report. Based on available information (as referenced in Section
2.3.3), Mongolia would appear to have sufficient suitable quality iron ore to provide feed
stock to the Iron Ore Pelletizing Plant for a period of 84 years. The extent and quality of the
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iron ore reserves should be confirmed before proceeding with either the Iron Ore Pelletizing
Plant or the DRI/HBI Plant at Sainshand27.
2.4.4.

PRODUCT OUTPUTS AND TARGET MARKETS

As explained in the Introduction to this Section 2.4, the direct reduced iron product (either
DRI or HBI) produced at Sainshand is suitable as feedstock to electric furnace steel making.
Because the existing steel industry within Mongolia is small, the direct reduced iron product
produced in the Sainshand DRI/HBI Plant is expected to be exported as HBI until additional
steel making facilities are developed within Mongolia28. Advantages of HBI over DRI in
transport are explained in Section 2.4.5.
The potential market for HBI is similar to the potential market for Sainshand DR Pellets as
discussed in Section 2.3 and these two sections (2.3 and 2.4) should be read together.
Only limited information was made available for this Report in respect of potential output and
markets, but preliminary ranking of possible markets for HBI produced at Sainshand would
be,

27
28

Highest ranked would be China due to proximity of Sainshand to the established


steel companies in Chinese Inner Mongolia, Hebei and Hubei as explained in
Section 2.3.4. Chinas 12th Five Year Plan: Iron and Steel (Reference 2.1.iv)
states that China intends to import 40 50 per cent of its iron ore, up from current 15
percent. At present, all Chinas iron ore imports are by sea and the Five Year Plan
reports transportation from the sea coast to inland steel mills in China averages
about 100 RMB (US $16) per tonne. Additional background of the state of the steel
industry in China is provided in the East Asian Institutes Background Brief 501,
Chinas Steel Industry: An Update (Reference 2.3.iii). The information in these two
references, as well as similar information, should be considered in developing the
market strategy for Sainshand HBI. In particular, plans of the State Council of China
for the steel industry should be considered to see how HBI from Sainshand could be
positioned for market into China. For example, Reference 2.1.iv reports that the 12th
Chinese Five Year Plan (2011 2015) will concentrate on non-blast furnace
technology and clean steel production. Although not specific, this could mean
electric arc furnace steel making shops which could be a market for Sainshand HBI.
The report in Reference 2.1.iv offers additional references for information about the
Chinese Five Year Plan.

Second ranked would be Russia. Russia is less likely than China as a possible
market for Sainshand HBI because the established and well known steel industry in
Russia is in the Urals, about 3,000 km distant from Mongolia. Although less likely as
a market than China, the Russian market should be investigated because a Russian
market would offer an alternative to the Chinese market and Russia might offer more
favorable tariffs and freight rates than China.

Third rank in probability as market for Sainshand HBI would be export to the
established steel industries in Korea, Japan or other countries of Asia. Possibility of
export to other major countries of Asia is ranked lower in probability than either
China or Russia because of the length of railroad transportation from Sainshand to
sea ports in the Russian Far East or through China to sea ports along the Chinese
coast. On the other hand, steel companies in Korea and Japan all import iron ore
some from as far away as west Africa and the cost of HBI shipped by rail from

Such investigation is not a part of the scope of this Master Plan Study.
These are assumptions made by Bechtel to meet NDICs stated intent and yield potentially feasible facilities.

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Sainshand to a sea port and then by sea to Korea or Japan might be competitive if
favorable freight rates and tariffs can be negotiated with either Russia or China.
The above discussion represents suggestions for development of a market for the product
from the Sainshand DRI/HBI Plant and, as stated in Section 2.3, a full evaluation of the iron
and steel market should be made before either an Iron Ore Pelletizing Plant or a DRI/HBI
Plant project is initiated in Sainshand. Such a market evaluation is beyond the scope of this
Report.
As in Section 2.3 for the Sainshand Iron Ore Pelletizing Plant, this Section 2.4.4 sets forth
the potential for marketing output from the Sainshand DRI/HBI Plant as a separate project.
Because of the integrated relationship of the iron ore mines, iron ore pelletizing plant and
direct reduction to iron plant, it might be advantageous to consider this group of iron projects
as one integrated iron project rather than as separate projects. Such an integrated iron
project might be of more interest to a major investor than the individual projects. For
example, a major steel producer in China or one of the other countries of Asia could have
the financial resources and the project execution and plant operating experience to make an
integrated iron project a success.
2.4.5.

WASTE AND HAZARDOUS PRODUCTS

DRI is pyrophoric: in the presence of water, DRI might spontaneously combust if not
properly passivated and ventilated.
Transport of DRI by sea is banned, but DRI can be transported by rail subject to special
precautions discussed in the following paragraph. A complete explanation of the pyrophoric
nature of DRI, as well as the precautions regarding the handling of DRI is provided in the
Handbook of Explosion Prevention and Protection (Reference 2.4.iii).
Transportation of DRI requires extra cost for special precautions and is a safety hazard as
compared to producing, storing and transporting HBI. DRI can be produced and used in an
electric furnace plant located immediately next door to the DRI plant but transportation for
longer distances by rail requires special precautions. These special precautions include
passivation of the DRI and ventilated storage. Special precautions are required not only at
the producer but during transportation and at the receiver and consumer.
The Sainshand DRI/HBI Plant will include the necessary equipment to produce HBI in order
to avoid the possible extra cost and safety hazard of production and transportation of DRI.
Air and water emissions from the DRI/HBI Plant will conform to Mongolian law. It is
assumed that no Flue Gas Desulphurization (FGS) will be required because of the low sulfur
nature of the iron ore and the reducing gas. This will require confirmation when the final
analyses of the iron ore and reducing gas are available29.
2.4.6.

UTILITY REQUIREMENTS

Electric power, natural gas and water requirements of the DRI/HBI Plant as specified in the
Midrex budgetary proposal are tabulated in Section 2.4.3.
The DRI/HBI Plant will require communication services including telephone and broadband
internet access.
Drainage will be provided within the DRI/HBI Plant to direct normally expected storm water
runoff (including roof drains and parking lot runoff) to a storm water pond located within the
DRI/HBI Plant. Unusually large precipitation events will be channeled to emergency
overflow for discharge to the Sainshand Industrial Park storm drainage system.
29

Such verification does not form part of the scope of this Master Plan Study.

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Sanitary sewer from occupied buildings will be collected and directed to the sanitary sewage
treatment plant in the Sainshand Industrial Park common facilities.

2.5.

CEMENT PLANT

The Cement Plant at Sainshand will process limestone and gypsum from the Sainshand
area into Type I or Type II cement, or a Type I/II having a combination of desired properties
from each, for sale within Mongolia30. Type I and Type II cements are general purpose
cements used by the construction industry. There is expected to be a ready market for
Type I and Type II cement within Mongolia for roads and highways and other infrastructure
projects as well as the construction of new buildings and in the mining industry31.
In preparing this Section 2.5, Cement Plant, Bechtel has used information collected during
the site visit of 13 23 June 1132.
In addition to information collected during the site visit, Bechtel has used and relied upon
information from a USTDA financed feasibility study report for a 1.0 MTPA cement plant
(Reference 2.5.i). The feasibility study was prepared by F L Smidth, a U. S. supplier of
cement plant technology and equipment, for Yalguun International, LLC, of Mongolia. The
report of the feasibility study is referred to herein as the FLS Report. According to the FLS
Report, Yalguun International is involved in mineral exploration, processing, sales, and
production of construction materials and holds limestone, clay and basalt deposits within
Mongolia. The FLS Report proposes to locate the Yalguun Cement Plant near the Sugdukh
limestone deposit about 45 km to the south-east of Sainshand. Because of the proximity of
the Sugdukh deposit to Sainshand, Bechtel considers the results and conclusions of the
FLS Report applicable to a cement plant to be built at Sainshand Industrial Park.
Although the results of the FLS Report have been used for this Master Plan Study Report,
Bechtel has not independently confirmed the results of the FLS Report, nor has Bechtel
confirmed that any of the limestone, gypsum or other mineral deposits mentioned within the
FLS Report or referred to by this Report would be available as a supply of raw materials to a
cement plant at Sainshand. Source of raw materials should be verified before proceeding
with a cement plant project at Sainshand Industrial Park33.
The FLS Report is public property and can be obtained from USTDA. The FLS Report is
dated 20th December 2010 but was made available to the public on 15 August 2011.
In addition to the above sources, Bechtel has used and relied upon information from the
document entitled, Mongolia, Land of Opportunities, a production of the Government of
Mongolia, Mineral Resources Authority (MMRA).
2.5.1.

DESCRIPTION OF PROCESS TECHNOLOGIES AND LICENSORS

Cement manufacturing is a well-established and proven process with a number of worldscale operations and suppliers in Asia as well as other parts of the world. In preparing the
definition of plant requirements, Bechtel has investigated the following potential suppliers of
cement plant technology and equipment:

Fives FCB is based in France and has world-wide operations. An example of Fives
FCB projects is the Tula complete green field cement plant for Lafarge in Mexico.
Construction of the 1,500 tonnes per day plant started in January 2004 and was
completed in mid-February 2006 (26 months construction time.)

30

These are assumptions made by Bechtel to meet NDICs stated intent and yield potentially feasible facilities.
Based on information supplied by or on behalf of NDIC or 3rd parties.
32
This comprises information supplied by or on behalf of NDIC and by 3rd parties.
33
Such verification does not form part of the scope of this Master Plan Study.
31

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CBMI based in Beijing has constructed many cement plants in China as well as other
parts of the world.

F L Smidth (FLS), based in Denmark, is a supplier of cement plants and has built
plants in North and South America as well as Europe. FLS prepared the USTDA
Report referred to in the Introduction to this Section 2.5.

Polysius Cement Group is a division of Thyssen Krupp and is based in Germany.


Polysius has built many cement plants and their web-site reports five projects in
progress in the US.

KHD Cement is based in Germany and has built cement plants in Europe as well as
other parts of the world. KHD has been particularly active in Saudi Arabia and other
countries in the Middle East.

During the definition of plant requirements, Bechtel requested budgetary proposals from all
potential suppliers as listed above. The E-mail Request for Proposal (RFP) together with
the Scope of Work and the Data Sheet are in Reference 2.5.ii. The Scope of Work and
Data Sheet were prepared as a preliminary specification based on NDIC requirements in
order to obtain a budget proposal and as such neither the Scope of Work, Data Sheet nor
the budget responses from the suppliers, are sufficient to be used as a basis for any capital
investment without further information and analysis including detailed studies, front end
engineering and detailed cost estimates and other necessary information as required (and
which does not form part of the scope of this Master Study). Section 10 further refers:
pricing is indicative only.
Budgetary proposals have been received from CBMI and Polysius. These budgetary
proposals have been considered, although this Report is based on the FLS Report as
described in the Introduction to this Section 2.5.
If the cement plant should proceed as a project, Bechtel recommends that the above
suppliers be considered as potential suppliers to the project. Any other suitable and
potential suppliers should also be considered: Bechtel does not represent that the above
named suppliers are the only suitable and potential suppliers.
2.5.2.

PLANT CAPACITY

A cement plant at Sainshand with annual capacity of one million tonnes34 would be
comparable in size to other major cement plants around the world. Such a plant should
likely be of sufficient size to be of interest to the potential suppliers described in Section
2.5.1 preceding. A plant of such capacity could (subject to confidentially restrictions) use
designs based on similar size plants already operating.
Target markets for the cement produced at Sainshand are discussed in Section 2.5.4
following.
The Scope of Work for the Budgetary RFP in Reference 2.5.ii requests that the plant be
constructed in one phase of one million TPA. Although no immediate plans are made for an
additional cement plant at Sainshand, space has been allowed in the layout for an additional
one million TPA plant. According to the FLS Report, there would be no significant cost
savings in reducing the size of the cement plant from 1 million TPA.

34

One million tonnes per year is NDICs stated intent.

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2.5.3.

FEEDSTOCK AND PRODUCT INPUTS

According to Section 1.2.3 of the FLS Report, the Cement Plant will produce 3,000 tonnes of
clicker a day and will require:
Limestone3,876 tpd
Clay120 tpd
Slag or Volcanic Ash48 tpd
Iron Ore (Basalt)742 tpd
Gypsum150 tpd
Process Water30.8 m3/h
Potable Water4.2 m3/h
Electrical Supply for Processing Plant17,361 kVA
Electrical Consumption20 kWh/t cement produced
Emergency Electrical Supply 500 kW generator
Coal386.1 tpd (FLS Report assumes 6,083 kcal/kg heating value of coal)
Although Section 1.1 of the FLS Report provides an assessment and quarry plan for the
Cement Plant, the Cost Estimate included with this Report does not include any equipment
or facilities for mining, quarrying or transportation of raw materials from the source to the
Sainshand Cement Plant.
Following is summarized from the FLS Report.
Limestone
About 1.3 tons of limestone is used to produce a ton of cement.
The FLS Study proposes to use limestone from the Sugdukh deposit. The Sugdukh deposit
is located about 45 km south of Sainshand and about 25 km west of the village of Urguun
Soun. An Appendix to the FLS Report provides a report on a geological study performed on
the Sugdukh limestone deposit by the Mongolian Geological Central Expedition (MGCE) in
1989-1990. Borehole logs are included with MGCE Report in the Appendix to the FLS
Report.
Bechtel has not reviewed the MGCE Report for accuracy and has not
independently confirmed the results, but the map in Mongolia, Land of Opportunities
indicates limestone deposits in the area of the Sugdukh deposit.
The FLS Report predicts the Sugdkh deposit to contain about 46.802 million tons of
limestone. This would provide a feed to the Sainshand Cement Plant of about 30 years.
Because a source of limestone is critical to the profitable operation of a cement plant, the
reserves at Sugdukh should be confirmed, first by review of the MGCE Report, and second,
by a well-planned geotechnical evaluation based on the review of records. Furthermore, the
ownership of the Sigdukh deposit should be confirmed. As construction of projects start in
the Sainshand area starts, building materials will be at a premium. Title to the Sugdukh
property should be secured as well as access to the property for mining and retrieval of the
limestone35.
Silica
The FLS Report proposes to use clay and basalt deposits within 20 km of the proposed
plant site as a source of silica. Bechtels own observation during the visit to Sainshand of 16
18 June 2011 indicated that there are clay and basalt deposits within 20 km of Sainshand.
35

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Before the project proceeds, the nature and location of these deposits should be
investigated to confirm that these clay and basalt deposits are suitable for cement
manufacture. The extent and chemistry of the deposits should be examined and the
deposits should be investigated to ensure that the deposits do not have elevated levels of
hazardous materials such as asbestos, radioactive materials or mercury. Title and access
to the properties should be secured as noted above for limestone36.
Gypsum
Second to limestone, a source of gypsum is critical to the success of a cement plant;
requiring about 5% gypsum for the weight of cement produced. The FLS Report proposes
to use gypsum from the Unegt deposit located about 100 km from the proposed Yalgun
Cement Plant. The FLS Report says that it has been reported that transportation and
delivery costs of the gypsum to site would be about $35/tonne. The FLS Report does not
say, but it must be assumed that this includes the cost of the mining of the gypsum. (That is,
gypsum is $35/tonne FOB cement plant site.)
As with the other raw materials, access to the gypsum mine has not been confirmed by
Bechtel. Title and access to a source of raw materials should be confirmed before
proceeding with a cement plant project at Sainshand37.
After the other industries are established in Sainshand, it is assumed that it will be possible
to source gypsum from Flue Gas Desulphurization (FGD) waste from some of the other
industries.
Alumina
Similar to silica, the FLS Report proposes to source the alumina from clay.
comments apply as for silica.

Same

Iron
The FLS Report proposes to source the iron from locally available basalt. Considering that
742 tons of basalt would be required each day, iron might be more economically obtained
from iron ore. Iron ore is readily available in Mongolia as discussed in Section 2.3, Iron Ore
Pelletizing. Sources of iron ore in the Sainshand area should be investigated38.
Slag or Volcanic Ash
A source of slag or volcanic ash is not addressed by the FLS Report. Steel mill slag might
be available from the electric furnace steel mill in Darkhan, about 175 km north of Ulaan
Bator but that would require a transportation of about 575 km to Sainshand. It would be
more economical to source the material from locally available volcanic ash. Observations
by Bechtel during the visit of 16 18 June 2011 to the Sainshand area indicated that such
ash might be available but this should be confirmed39.
2.5.4.

PRODUCT OUTPUTS AND TARGET MARKETS

According to Paragraph 1.3.2 of the FLS Report:


Type I Portland cement is a normal, general purpose cement suitable for all uses.
Type II Portland cement generates less heat at a slower rate and has a moderate
resistance to sulfate attack.

36

The actions described in this paragraph do not form part of the scope of this Master Plan Study.
The actions described in this paragraph do not form part of the scope of this Master Plan Study.
38
Such investigation does not form part of the scope of this Master Plan Study.
39
Such investigation does not form part of the scope of this Master Plan Study.
37

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Type III is a high early strength cement, chemically and physically similar to Type I
except its particles have been ground finer.
The Cement Plant at Sainshand will produce Type I cement, Type II cement, or a Type I/II
cement that combines desired properties of Type I and Type II. Type III cement will not be
manufactured at the Sainshand Cement Plant40.
Provisions will be made for shipment from Sainshand Cement Plant by bulk in bottom
unloading cars and bagged on pallets41.
Initially, domestic consumption will be the target market but, as explained in the following,
market into southern Russia or into Chinas Inner Mongolia province should be considered
as the domestic market matures.
As to the size of the domestic market42 and production of cement in Mongolia, available
information varies widely.
The first paragraph on page 1 of the FLS Report says, . . . total annual demand for cement
in Mongolia in 2010 is estimated at about 1 million metric tons. The paragraph goes on to
say that more than 90% of the cement used in Mongolia is imported from China. The FLS
Report does not give a source for this information.
A paper produced by the Chinese cement industry entitled, A brief introduction of the
Mongolian Cement Industry, available at http://www.cementchina.net [2009-5-19] states,
. . . total (cement) consumption in Mongolia is approximately 1.5 million tons a year. With a
population of 2.63 million, the cement industry (in Mongolia) has not yet hit full capacity. For
reference, consumption in China averages 3 tons per person per year. The four and half
page document goes on to present reasons for the growth of the cement industry in
Mongolia. These reasons include development of the copper and coal mines, infrastructure
projects and domestic housing. The cementchina.net paper is provided in Reference 2.5.iii
for ready reference. Bechtel has not verified the cement production or demand information
in either the FLS Report or the cement.china.net paper.
In addition to a potential increase in domestic demand, both the FLS Report (page 19 of 82
under the heading, Railway) and the cement.china.net paper mention possible export into
the southern Siberia Region of Russia. Reasons cited include Mongolian rail-gage same as
Russian rail-gage, no import duties into Russia from Mongolia and strengthening of the
Chinese Yuan which makes Chinese cement more expensive relative to Mongolian cement.
In addition, it should be mentioned that the southern Siberia region of Russia is experiencing
a resource-fueled boom similar to the economic boom in Mongolia. This is especially true of
the Lake Baikal region about 825 km north of Sainshand. Although such a distance would
not be considered economically feasible in well developed countries, there is a direct rail-link
from Sainshand to the Lake Baikal region and it might be economical to produce cement in
Sainshand and sell it in the Lake Baikal region. The Lake Baikal region should be
investigated as a possible market for cement produced in Sainshand43.
Furthermore, export from Mongolia into Chinese Inner Mongolia might be an economic
possibility if the Chinese Yuan continues to strengthen against the Mongolian Tugrug.
There is a direct rail-link from Sainshand to the economic center of Hohhot, Capital of the
Chinese Semi-Autonomous Region of Inner Mongolia. Hohhot is about 500 km from
Sainshand. Cement exports from Sainshand to Inner Mongolia would be hindered by the

40

As specified by NDIC.
Assumption made by Bechtel to meet NDICs stated intent and yield potentially feasible facilities.
42
Assumption made by Bechtel to meet NDICs stated intent and yield potentially feasible facilities.
43
Such investigation does not form part of the scope of this Master Plan Study.
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changed rail-gage at the Mongolian-Chinese border and any possible Chinese tariffs on
imports. In any case, the possibility of export of cement into China should be investigated.
In brief, the information discussed above indicate that prospects for the marketing of cement
produced in Sainshand could be good both into the domestic market and export into
southern Russia or Chinese Inner Mongolia. These prospects need to be confirmed by
independent market study. Such a market study is beyond the scope of this Master
Planning Study.
2.5.5.

WASTE AND HAZARDOUS PRODUCTS

Ore bodies that contain elevated levels of hazardous materials such as asbestos,
radioactive materials or mercury should not be used as a source of raw materials for the
Sainshand Cement Plant. The geological investigation of the ore body recommended in
Section 2.5.3 preceding should confirm that the source ore bodies do not contain hazardous
materials.
Air and water emissions from the Sainshand Cement Plant will conform to Mongolian law.
Flue gas desulphurization will not be provided for the Sainshand Cement Plant but fabric
filter will be provided to control both combustion and fugitive dust emissions.
2.5.6.

UTILITY REQUIREMENTS

Electric power and water requirements of the Sainshand Industrial Park are tabulated in
Section 2.5.3.
The Sainshand Cement Plant will require communication services including telephone and
broadband internet access.
Drainage will be provided within the Sainshand Cement Plant to direct normally expected
storm water runoff (including roof drains and parking lot runoff) to a storm water pond
located within the Cement Plant. Treated water from the sewage treatment plant will be
directed to process water makeup. Unusually large precipitation events will be channeled to
emergency overflow for discharge to the Sainshand Industrial Park storm drainage system.

2.6.

COAL GASIFICATION PLANT

The Coal Gasification Plant produces synthesis gas, mainly hydrogen and carbon monoxide
with some methane, and medium pressure superheated steam available for use within the
Sainshand industrial complex. The DRI uses synthesis gas for the reduction of iron ore, and
synthesis gas can also be used as fuel gas for power production.
2.6.1.

DESCRIPTION OF PROCESS TECHNOLOGIES AND LICENSORS

Gasification
Potential gasification technology suppliers include:
ConocoPhillips, USA
General Electric, USA
Lurgi, South Africa
Krupp Uhde, Germany
SES, USA
Shell, Netherlands
This Study assumes that the SES technology will be incorporated. A process description
and other information on the SES Gasifier system is included in Reference 2.6.i. Several
factors led to this decision:
Use of this Report is subject to certain restrictions
set forth in the Important Notice.

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The SES technology tolerates the high ash content of thermal coal
It is very flexible with respect to feed stock quality, allowing coals from various
locations to be utilized.
Ash produced in the SES reactor is relatively coarse, has minimal dust, and can be
used as road base or ballast. Many of the other technologies produce some quantity
of fine ash that would pose a problem for disposal.
SES is currently active in the Inner Mongolia area of China.

If the Coal Gasification Plant should proceed as a project, Bechtel recommends that all the
above suppliers be further evaluated as potential suppliers to the project. Any other suitable
and potential suppliers should also be considered: Bechtel does not represent that the
above named suppliers are the only suitable and potential suppliers.
Acid Gas Removal
The synthesis gas produced in the coal gasification reaction contains undesirable acid
gasses, mainly carbon dioxide (CO2) and hydrogen sulphide (H2S), that need to be removed
from the gas product. Several methods are available for the removal of acid gases from
hydrocarbon containing gas streams, primarily either chemical solvents or physical solvents.
Chemical solvents, predominantly aqueous solutions of ethanolamines (MEA, DEA, MDEA,
DGA, etc.), rely on chemical reactions to remove acid gas constituents from sour gas
streams. The regeneration of chemical solvents is accomplished by the application of heat
whereas regeneration of physical solvents can be achieved by reducing the pressure
without the addition of heat energy. The prevalent physical solvents are Dimethyl Ether of
Polyethylene Glycol (DEPG), licensed by UOP LLC and Methanol (MeOH), licensed by
Lurgi AG.
Chemical Solvents:
The choice of the type of amine will affect the required circulation rate of amine solution, the
energy consumption for the regeneration and the ability to selectively remove either H2S
alone or CO2 alone if desired. Each of the ethanolamines has unique envelopes of
pressure, temperature, and concentration of acid gas (H2S and CO2) and unique corrosion
tendencies. There are primary, secondary and tertiary amines that have special acid gas
selectivity and energy requirements. Hydrogen Sulfide removal in many cases requires
selective removal and use of tertiary amines, such as MDEA. Both H2S and CO2 are
corrosive to carbon steel and may require expensive metallurgy to ensure longevity of the
equipment.
Physical Solvents:
Selexol is a physical solvent, unlike amine based acid gas removal solvents that rely on a
chemical reaction with the acid gases. The Selexol solvent is a mixture of the Dimethyl
ethers of polyethylene glycol. Since no chemical reactions are involved, Selexol usually
requires less energy than the amine based processes. In the Selexol process, the
Selexol solvent dissolves (absorbs) the acid gases from the feed gas at relatively high
pressure, usually 300 to 2000 psia (2.07 to 13.8 MPa) and at moderately cold temperatures
(40 to -20 F). However, at feed gas pressures below about 300 psia (2.07 MPa), the
Selexol solvent capacity (in amount of acid gas absorbed per volume of solvent) is
reduced and the amine based processes or the Rectisol process will usually be superior.
The rich solvent containing the acid gases is then let down in pressure and/or steam
stripped to release and recover the acid gases. The Selexol process can operate
selectively to recover hydrogen sulfide and carbon dioxide as separate streams, so that the
hydrogen sulfide can be sent to either a Claus unit for conversion to elemental sulfur or to a
WSA Process unit for conversion to sulfuric acid while, at the same time, the carbon dioxide
can be sequestered or used for enhanced oil recovery.
Use of this Report is subject to certain restrictions
set forth in the Important Notice.

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Rectisol is the trade name for an acid gas removal process that uses refrigerated
methanol as a solvent to separate acid gases from valuable feed gas streams and is
licensed by both Linde AG and Lurgi AG. Rectisol is used most often to treat synthesis
gas (primarily hydrogen and carbon monoxide) produced by gasification of coal or heavy
hydrocarbons, as the methanol solvent is well able to remove trace contaminants such as
ammonia, mercury, and hydrogen cyanide usually found in these gases. In the Rectisol
process, cold methanol at approximately 40 C dissolves (absorbs) the acid gases from the
feed gas at relatively high pressure, usually 400 to 1000 psia (2.76 to 6.89 MPa). The rich
solvent containing the acid gases is then let down in pressure to release and recover the
acid gases. The Rectisol process can operate selectively to recover hydrogen sulfide and
carbon dioxide as separate streams, so that the hydrogen sulfide can be sent to either a
Claus unit for conversion to elemental sulfur or a WSA Process unit to recover sulfuric acid,
while at the same time the carbon dioxide can be sequestered or used for enhanced oil
recovery.
Methanol as a solvent is inexpensive compared to the proprietary Selexol solvents. The
Rectisol process requires more electrical energy for refrigeration to maintain the low
temperatures required but it also requires less steam energy for regeneration. Methanol as
a cold, physical solvent can remove greater percentages of acid gas components providing
a higher purity cleaned gas.
The Rectisol process is very flexible and can be configured to address the separation of
synthesis gas into various components, depending on the final products that are desired
from the gas. It is very suitable to complex schemes where combinations of products are
needed.
Selexol has been selected as the basis for this study and report, as it generally has a
lower capital cost than Rectisol, and is effective for cleaning of coal gasification synthesis
gas for use in gas turbines or combustion processes.
2.6.2.

PLANT CAPACITY

As the Coal Gasification Plant produces no products for export from the complex, the
capacity of the unit is dependent on the consumptions of the other plants. The proposed
configuration of the Sainshand Industrial Park requires four gasifier trains in operation, with
one additional train as spare/stand-by. Four gasifiers are required to satisfy the design
demand, and a spare is required to obtain the necessary reliability. The normal, average
coal consumption is 1.51 million tonnes per year.
The two major uses of the synthesis gas are (a) as DRI reducing gas, and (b) an additional
and back-up fuel source for power production in the event that the primary fuel source
(steam from the Coke Plant) fails. The majority of the steam for power production will be
produced by the Coke Plant, with some contribution from other process plants. In addition,
boilers fired by synthesis gas to produce the remaining steam will be needed to meet the
expected required power capacity. The power plants synthesis gas fired boilers will be
sized to provide sufficient steam to maintain full electrical power production capacity in the
case of three of the four Coke Plant oven batteries operating (one battery down). In this
case, full design production in four gasifier trains results in the industrial complex being 4
MW short of power. To avoid the increased capital cost of an additional gasifier train to
satisfy this upset case, it is assumed that this small, short-term power shortage will be
satisfied by importing the required additional power from the national power grid. The
capacity design case for the Coal Gasification Plant is thus four gasifier trains at full design
capacity. During normal Coke Plant operations, by running the Gasification Plant and the
Power Plant at design capacity, 55 MW of export power could be made available to the
national power grid. The table below shows the normal and design plant capacities.
Use of this Report is subject to certain restrictions
set forth in the Important Notice.

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Coal Gasification Plant Capacity
Normal (Average) Case

Design Capacity Case

Synthesis Gas for DRI

139 tonnes/hour

139 tonnes/hour

Synthesis Gas for Power

25 tonnes/hour

52 tonnes/hour

Total Synthesis Gas

189 tonnes/hour

216 tonnes/hour

Coal Consumption

190 tonnes/hour

218 tonnes/hour

Oxygen Consumption

142 tonnes/hour

163 tonnes/hour

3.5

4.0

Number of Gasifiers Required


2.6.3.

FEEDSTOCK AND PRODUCT INPUTS

The main feedstock for the Coal Gasification Plant is thermal coal. The basis for this study
is coal from Tavan Tolgoi44. A complete and thorough analysis of the Tavan Tolgoi coal was
not available for the study, but the information provided to date from NDIC or third parties
indicates that the Tavan Tolgoi mine is likely to contain and produce coals of a relatively
broad range of qualities and characteristics. The coal characteristics used in this study are
in the table below, and were derived from an analysis of coal from the Sharygol mine in
northern Mongolia for which more complete information was available, and that is assumed
to be compatible with the range of thermal coal from Tavan Tolgoi.

Ultimate Analysis (%)

Coal Analysis Basis for the Coal Gasifier


As Received
65.00

Carbon

Moisture Free
76.65

Moisture and
Ash Free
83.5

Hydrogen

4.67

5.51

6.00

Nitrogen

1.24

1.46

1.59

Sulfur
Oxygen

0.66
6.28

0.78
7.40

0.85
8.06

Ash

6.96

8.20

Moisture

15.19

Air Dried Moisture, weight %

8.37

Heating Value (HHV), kcal/kg

6,571

Ash Fusion Temperature, C

1,277

7,748

Coal with characteristics of coal from the Shivee Ovoo mine near Choir was first simulated
in the SES gasifier simulation model as gasifier feed because of its geographic proximity to
Sainshand. However, the high moisture content of the Shivee Ovoo coal makes it an
impractical and uneconomic feed stock for the Sainshand gasifiers. Combustion of some of
the coal, and a significantly increased amount of oxygen, is required to drive off the water.
The Shivee Ovoo coal would require seven gasifier trains instead of four, and the air
separation plant would be approximately three times as large as the plant for Tavan
Tolgoi/Sharygol coal. When used as the feed in the SES gasifier model, the Sharyngol coal
produced more acceptable results; those that are used in this Report.

44

As specified by NDIC.

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

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In addition to coal, the gasifier consumes oxygen. Oxygen will be produced by an air
separation plant located within the Coal Gasification plot. Oxygen consumption is shown in
2.6.2 above.
2.6.4.

PRODUCT OUTPUTS AND TARGET MARKETS

The synthesis gas produced by the Coal Gasification Plant will be consumed in the
Sainshand Industrial Park, and no export or marketing is included.
The synthesis gas production capacity is provided in 2.6.2, above. As calculated by the
SES gasifier simulation model, the synthesis gas has a heating value (HHV) of 21.4 MJ/kg,
and composition as follows:
Synthesis Gas Composition
Component
Carbon Monoxide
Carbon Dioxide
Hydrogen
Water
Methane
Nitrogen

Mole Percent
39.08
2.65
45.95
0.51
9.54
2.27

Sulfur in the coal is converted to sulfuric acid in the Coal Gasification Plant. With the study
basis coal feed, and at normal capacity, the Coal Gasification Plant will produce 30
thousand tonnes of sulfuric acid per year. It is envisioned that this sulfuric acid will be
marketed with the large quantity of sulfuric acid produced by the Copper Plant.
2.6.5.

WASTE AND HAZARDOUS PRODUCTS

The Coal Gasification Plant will produce ash as a waste product. In the SES gasifier
system, the ash is coarse and sand-like, with less than 1% residual carbon. Fines (small
particles of ash and unreacted coal that are entrained in the gas flow) are eliminated by
being collected and returned to the gasifier for additional carbon conversion, where the fines
are agglomerated into the coarser discharge ash. The ash is suitable for road base material
or fill.
With the study basis coal feed as described in 2.6.4 above, and at normal capacity, the SES
gasifier simulation model predicts that the Coal Gasification Plant will produce 115 thousand
tonnes of ash per year.
As the raw synthesis gas is cooled after leaving the gasifier reactor, water is condensed
from the gas stream. This water is treated in the Coal Gasification Plant to effluent quality,
and then transferred to the utility water systems for further treatment, recovery and reuse.
The SES gasifier simulation model predicts that 1.09 million tonnes per year of waste water
is generated.
2.6.6.

UTILITY REQUIREMENTS

The Coal Gasification Plant consumes 37 MW of electrical power, not including the colocated Air Separation Unit.
The plant requires 3.15 million tonnes per year of boiler feed water. Of the steam produced
in Gasification, some is consumed internally, and 1.55 million tonnes per year are exported
from the plant to be used in the Power Plant for steam generation. The export steam is 48
bar, 316C.
Use of this Report is subject to certain restrictions
set forth in the Important Notice.

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2.7.

POWER PLANT

The power plant produces electrical power from steam turbine driven generators45. The
majority of the power produced is derived from the heat recovery steam from the other
industrial park facilities. The remaining steam required for power production is derived from
synthesis gas fired boilers. The synthesis gas is produced by the coal gasification process.
The process steam comes from the Coke Plant, the Copper Smelter, and the Coal
Gasification Plant. The Power Plant also provides steam for use in the DRI/HBI Plant,
Copper Smelter, and for the building heating hot water system.
The Power Plant is sized to satisfy and balance the electrical power consumption, and the
steam production and/or consumption of the plants in the Sainshand Industrial park.
2.7.1.

PLANT CAPACITY

The Power Plant normal net output is 278 MW. The plant includes three turbine generator
sets of 148 MW (gross) each46. Two turbine generators are sufficient to meet the
requirements, but the plant would normally run with all three turbine generators at reduced
load, resulting in highly reliable power, even when and while one turbine generator is down
for maintenance.
The synthesis gas boilers are sized to supply sufficient steam to meet the power needs of
the Sainshand Industrial Park, both during normal operations and also with one of the four
Coke Plant oven batteries down and not in operation (design case below). In this case, full
design production in four gasifier trains results in the industrial complex being 4 MW short of
power. To avoid the increased capital cost of an additional gasifier train to satisfy this upset
case, it is assumed that this small, short-term power shortage will be satisfied by importing
the required additional power from the national power grid.
With the all coke oven batteries operational, Coal Gasification at maximum production, the
power boilers at capacity, and all turbine generator sets running, the Power Plant could
produce 333 MW, with 55 MW available for export to the national power grid (export power
case below).
Power Plant Capacity Cases
Normal

Design

Export Power

278 MW

310 MW

333 MW

2 x 139 or
3 x 93

2 x 155 or
3 x 104

3 x 111

4 of 4

3 of 4

4 of 4

Synthesis Gas Consumed


(tonnes/hour)

25

52

52

Boiler Steam Produced (tonnes/hour)


Power Export (Import) (MW)

222
0

420
(4)

420
55

Generation Capacity (MW)


Turbine Generator Sets
Coke Oven Batteries Operating

Power Plant steam flows are shown in the table below.

45
46

Assumption made by Bechtel to meet NDICs stated intent and yield potentially feasible facilities.
Assumption made by Bechtel to meet NDICs stated intent and yield potentially feasible facilities.

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

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Power Plant Normal Steam Flows
Component

Rate, tonnes/hour

Inputs
Coke Plant Steam (100 bar)
Copper Plant Steam (60 bar)
Copper Plant Steam (15 bar)
Gasifier Steam (48 bar)
Steam from Synthesis Gas Fueled Boilers (100 bar)
Outputs
DRI Plant Steam (15 bar)
Copper Plant Steam (5 bar)
Steam for Comfort Heating System (5 bar)
2.7.2.

717
60
11
195
194
156
11
154

MAJOR PLANT SCOPE

The power plant includes the following major plant scope items:

Unitized synthesis gas fired forced draft boiler, subcritical, non-reheat, using low
NOx burner technology. The boiler and most all major equipment will be located
indoors in heated structures

Unitized steam turbine generator, extraction, condensing non-reheat type using one
low-pressure heater, a deaerator, and two high pressure heaters

Unitized air cooled heat exchanger to cool the auxiliary equipment using a closed
cooling water system

Unitized air-cooled condenser to condense the turbine exhaust steam

Common No. 2 fuel oil storage tank and truck unloading facility, used for startup fuel
and emergency firing. Total of 340,000 gallons stored, 1.5 days storage at boiler
MCR.

Common demineralized water treatment equipment (water source is the effluent from
the 1st stage RO included with the plant utilities) including reverse osmosis and
electrodeionization equipment

Fire Protection and detection systems

Common demineralized water storage tanks

Common condensate storage tanks

Common condensate filtration system

Common inter-tied instrument and service air systems

Unitized boiler feedwater chemical storage and injection systems

Common wastewater collection with transfer to utilities for treatment and reuse

Building heating, ventilating, and air conditioning (HVAC) systems for the control
rooms and administration offices

Ventilation and heating for warehouse, maintenance areas, and other enclosed
areas

Unitized stack for each boiler


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Final Report

Common DCS

Unitized turbine area crane

Common Auxiliary Boiler

Heat Tracing systems as required for freeze protection

Lighting, grounding, and cathodic protection systems

Unitized electric power distribution systems

Emergency Diesel Generators for black start capability

Common Gas Insluated,220kV Switchyard, breaker and half scheme,- 18 breakers


total, with two tie-lines to the utility grid

2.7.2.1. EQUIPMENT REDUNDANCY


The power plant includes redundant equipment where loss of that equipment will have a
significant negative impact on the overall plant reliability. Examples of redundancy include 3
x 50% capacity boiler feed pumps, 2 x 50% capacity boiler FD Fans, 2. x 100% capacity
condensate pumps, 2 x 100% capacity closed cooling water pumps, one additional
demineralizer train, gas insulated breaker and half scheme for the switchyard components.
2.7.2.2. HEAT SINK
Due to the need to minimize water consumption, an air cooled condenser (ACC)has been
selected as the heat sink for the power plant. The ACC design parameters will be based
upon the heat balances given in the Power Plant block diagram and the local site ambient
conditions.
2.7.2.3. POWER DISTRIBUTION
A gas insulated (SF6), breaker and half scheme has been selected to achieve the high level
of reliability required at Sainshand. This scheme will have the highest overall installed cost,
but will achieve a higher level of reliability when compared to a single breaker, air insulated
switchyard.
2.7.2.4. EMISSIONS CONTROL EQUIPMENT
Based on burning the low sulfur, clean synthesis gas, low NOx burners are required to meet
World Bank standards for power plant emissions.
2.7.2.5. START-UP FUEL
The power plant design is based upon starting up on No. 2 diesel oil and includes a storage
tank and pumping facilities.

2.8.

DRAWINGS AND DATA

The following are included here:


Overall block diagram
Coke Plant block diagram
Copper Plant block diagram
Iron Ore Pelletizing Plant block diagram
DRI/HBI Plant block diagram
Cement Plant block diagram
Use of this Report is subject to certain restrictions
set forth in the Important Notice.

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Final Report

Power Plant block diagram


Material and Utility Consumption (normal operation)
Material and Utility Consumption 1 of 4 Coke Oven batteries down, Gasifier and
Boiler sizing case
Block flow diagram for Water, SIP and Alternate Locations
Overall site plan, overview
Overall site plan, process plants
Coke Plant Layout
Copper Plant Layout
Iron Ore Pelletizing and DRI Plants Layout
Cement Plant Layout
Power Plant Layout

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

2-33

64 TPA

Silver

IRON PELLETS
Iron Ore Pellets

Use of this Report is subject to certain restrictions set forth in the Important Notice.

3.63 MTPA

480 kTPA
91 kTPA
84 kTPA

HP Steam
MP Steam
LP Steam

23 kTPA
194 kTPA

Bentonite
Fuel Gas

160 kTPA
1.3 MTPA

Nitrogen
MP Steam

DIRECT
REDUCTION IRON

115 kTPA
44 kTPA
571 kTPA

47 MW

PLANT INFRASTRUCTURE

Gasifier Ash
Gypsum
Copper Slag

Electrical Power

Industrial Water 3.0 MTPA

50 kTPA

5 kTPA

1.1 MTPA

23 MW

Oxygen

Lime

Reducing Gas

Electrical Power

Industrial Water 700 kTPA

45 kTPA

4.5 MTPA

42 MW

Dolomite

Iron Ore

Electrical Power

Industrial Water 2.8 MTPA

Water

Use of this Report is subject to


certain restrictions set forth in the
Important Notice.

2.5 MTPA

330 kTPA

Oxygen

16 kTPA

Steel Slag

1.2 MTPA
1.3 MTPA

MP Steam
LP Steam

1.5 MTPA
1.5 MTPA
1.1 MTPA
115 kTPA
1.1 MTPA

Thermal Coal
Synthesis Gas
Oxygen
Ash
Waste Water

Thermal Coal
Coking Coal
Copper Conc.
Iron Ore
Limestone
Lime
Basalt
Bentonite
Gypsum
Clay
Dolomite
Silica
Steel Slag

1.6 MTPA
2.9 MTPA
1.0 MTPA
4.5 MTPA
1.3 MTPA
42 kTPA
250 kTPA
23 kTPA
50 kTPA
40 kTPA
45 kTPA
82 kTPA
16 kTPA

74 MW

160 kTPA

Nitrogen

Electrical Power

1.5 MTPA

37 MW

1.6 MTPA

Oxygen

Electrical Power

HP Steam

Boiler Feed Wtr 3.2 MTPA

100 MW

202 kTPA
Waste Heat

Fuel Gas

Industrial Water 4.7 MTPA

Boiler Feed Wtr 8.5 MTPA

7.8 MTPA

280 MW

Electrical Power
HP Steam

22 MW

Electrical Power

Industrial Water 200 kTPA

250 kTPA

40 kTPA

Clay

Basalt

50 kTPA

127 kTPA

Thermal Coal
Gypsum

1.3 MTPA

Limestone

Cement (I/II)

30 kTPA

Flow Legend
Red Rates
Design Basis
Black Rates
Calculated
Main flow
Secondary flow

Utility flows not included.

Sulfuric Acid

100 MW

1.0 MTPA

09 Dec 2011

Community Heating

COAL
GASIFICATION

Iron (DRI)

COPPER SMELTER

870 kTPA

570 kTPA

Slag

Boiler Feed Wtr 670 kTPA

82 kTPA

15 kTPA

1.0 MTPA

13 MW

Silica

Lime

Copper Conc.

Electrical Power

Industrial Water 971 kTPA

Boiler Feed Wtr 5.9 MTPA

5.7 MTPA

44 kTPA

Gypsum (FGD)
HP Steam

22 kTPA

Lime

2.9 MTPA

POWER

Iron Ore Pellets

10 TPA

925 kTPA

Gold

Sulfuric Acid

COKE OVEN

Copper Cathode 300 kTPA

Metallurgic Coke 2.0 MTPA

Coking Coal

SAINSHAND INDUSTRIAL PARK: OVERALL BLOCK DIAGRAM

CEMENT
AIR
SEPARATION

Raw Materials

12 MTPA

Waste Products

2-34

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2-35

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2-36

Use of this Report is subject to certain restrictions set forth in the Important Notice.

2-37

Use of this Report is subject to certain restrictions set forth in the Important Notice.

2-38

Use of this Report is subject to certain restrictions set forth in the Important Notice.

2-39

Use of this Report is subject to certain restrictions set forth in the Important Notice.

2-40

SAINSHANDINDUSTRIALPARKMASTERPLANSTUDY
MATERIALANDUTILITYCONSUMPTION

RAWMATERIALS
ThermalCoal
CokingCoal
CopperConcentrate
IronOre
Limestone
Lime
Silica
Gypsum
Bentonite
Dolomite
Basalt
SteelSlag
Clay

kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA

IronOre DirectReduction
Coal
Copper
Pelletizing
Iron
Gasification Smelter CokeOven Cement
3.5trains

1,523

127


2,900

1,000

4,459



1,310

5
15 22

82



50
23




45



250



16



40

PRODUCTS
DirectReductionIron
Copper
MetallurgicCoke
Cement
SulfuricAcid
Gold
Silver

kTPA
kTPA
kTPA
kTPA
kTPA
TPA
TPA

(2,500)


(300)


(925)
(10)
(64)



(2,000)






(1,000)






(30)

(2,500)
(300)
(2,000)
(1,000)
(955)
(10)
(64)

INTERMEDIATEPRODUCTS
IronOrePellets
ReducingGas
Hydrogen
Nitrogen
Oxygen
AcidGas(asSulfur)

kTPA
kTPA
kTPA
kTPA
kTPA
kTPA

(4,500)




3,625
1,109

160
50

(1,109)

1
1,139
(9.7)




2
333






9.7




(163)
(1,522)

(875)




WASTEPRODUCTS
Ash
Gypsum(FGD)
Slag
WasteWater

kTPA
kTPA
kTPA
kTPA




(25)

(25)

(115)

(1,099)



(571)
(25)


(44)

(25)




(25)




(270)

(4,265)

5,759

(115)
(44)
(571)

UTILITIES
RawWater
BFW/Condensate
IndustrialWater
PotableWater
SanitarySewer
CokeHPSteam(535C100bar)
GasHPSteam(316C48bar)
CopperHPSteam(60bar)
MPSteam(15bar)
LPSteam(5bar)
ElectricalPower
FuelGas
FuelOil

kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
MW
MW
kTPA



700
9.0
(7.2)





22.5
144

3,025
3.8
(3.0)

1,250

46.9

3,177
25
4.3
(3.4)

(1,563)

36.6
(301)


672
2,804
19.3
(15.5)


(478)
(91)
84
41.6
5.9
14


5,908
971
6.2
(5.0)
(5,736)




12.6



198
6.2
(5.0)





22.0


(8,526)
4,678
4.9
(3.9)
5,736
1,563
478
(1,159)
(1,316)
(278)
150



6.1







3.0




4.1
(3.3)





10




1.0
(0.8)





74

11,821

(7,760)
(1,097)
(1.4)

3.0

(5,506)
1.7
1,242

3.0

(1,231)
859
1,036
(1,194)

1,231
3.0

11,821










0.0
14

Unit

Power

SulfurUnit

Bulk
Handling

Air
Separation

Raw
Water

Waste
Water

Community
Facilities

Net

1,650
2,900
1,000
4,459
1,310
42
82
50
23
45
250
16
40

Use of this Report is subject to certain restrictions set forth in the Important Notice.

2-41

SAINSHANDINDUSTRIALPARKMASTERPLANSTUDY
MATERIALANDUTILITYCONSUMPTION1of4CokeOvenBatteriesDown,GasifierandBoilerSizingCase

RAWMATERIALS
ThermalCoal
CokingCoal
CopperConcentrate
IronOre
Limestone
Lime
Silica
Gypsum
Bentonite
Dolomite
Basalt
SteelSlag
Clay

kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA

IronOre DirectReduction
Coal
Copper
Pelletizing
Iron
Gasification Smelter CokeOven Cement
4.0trains
75%

1,741

127


2,175

1,000

4,459



1,310

5
15 17

82



50
23




45



250



16



40

PRODUCTS
DirectReductionIron
Copper
MetallurgicCoke
Cement
SulfuricAcid
Gold
Silver

kTPA
kTPA
kTPA
kTPA
kTPA
TPA
TPA

(2,500)


(300)


(925)
(10)
(64)



(1,500)






(1,000)






(34)

(2,500)
(300)
(1,500)
(1,000)
(959)
(10)
(64)

INTERMEDIATEPRODUCTS
IronOrePellets
ReducingGas(21.4MJ/kg)
Hydrogen
Nitrogen
Oxygen
AcidGas(asSulfur)

kTPA
kTPA
kTPA
kTPA
kTPA
kTPA

(4,500)




3,625
1,109

160
50

(1,109)

1
1,302
(11.0)




2
333






11.0




(163)
(1,685)

(875)




WASTEPRODUCTS
Ash
Gypsum(FGD)
Slag
WasteWater

kTPA
kTPA
kTPA
kTPA




(25)

(25)

(130.8)

(1,252)



(571)
(25)


(33)

(25)




(25)




(284)

(4,335)

5,996

(131)
(33)
(571)

UTILITIES
RawWater
BFW/Condensate
IndustrialWater
PotableWater
SanitarySewer
CokeHPSteam(535C100bar)
GasHPSteam(316C48bar)
CopperHPSteam(60bar)
MPSteam(15bar)
LPSteam(5bar)
ElectricalPower
FuelGas(21.4MJ/kg)
FuelOil

kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
MW
MW
kTPA



700
9.0
(7.2)





22.5
144

3,025
3.8
(3.0)

1,250

46.9

3,631
25
4.3
(3.4)

(1,787)

36.6
(462)


672
2,804
19.3
(15.5)


(478)
(91)
84
41.6
5.9
14


4,431
971
6.2
(5.0)
(4,302)




12.6



198
6.2
(5.0)





22.0


(7,502)
5,013
4.9
(3.9)
4,302
1,787
478
(1,159)
(1,316)
(282)
311



6.9







3.0




4.1
(3.3)





10




1.0
(0.8)





82

11,943

(7,760)
(1,097)
(1.4)

3.0

(5,506)
1.7
1,242

3.0

(1,231)
859
1,036
(1,194)

1,231
3.0

11,943

335







4.3
0.0
14

Unit

Power

SulfurUnit

Bulk
Handling

Air
Separation

Raw
Water

Waste
Water

Community
Facilities

Net

1,868
2,175
1,000
4,459
1,310
36
82
50
23
45
250
16
40

Use of this Report is subject to certain restrictions set forth in the Important Notice.

2-42

SainshandIndustrialPark:WaterBlockFlowforSIPandAlternateLocations
5
28%

67.5%

RawWater(RO)

72%

32.5%

21

12

PotableUse
15

22

6
103%

UWUsers

80%

WasteWater
Treatment

Sewerfrom
Existing

18

19

Demineralizer

99%
1%

20%

20

90%

10%

16

Stream
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23

Description
RawWaterFeed
RawWaterTreatmentProduct
PotableWater
DemineralizerFeed
DemineralizerReject
DemineralizedWater
Demin.WaterUsageLoss
BoilerBlowdownLoss
SteamProduced
ProcessSteamUseLoss
CondensatePolisherReject
CondensateReturn
PotableWaterUsageLoss
SanitarySewer
SanitarySewerfromExistingCommunity
SanitarySewerTreatmentLoss
SanitaryTreatmentProduct
RawWaterTreatmentROReject
ProcessWasteWater
WasteWaterTreatmentLoss
WasteWaterRecycle
UtilityWaterUsageLoss
PlantWashDownUsage

SIP
11,821
8,858
1,099
4,653
1,303
3,350
86
164
10,938
2,855
81
8,002
220
879
365
124
1,119
4,265
1,074
1,377
5,506
8,433
180

StmUsers
Condensers

17

FlowRate,kTPA
Darkhan
TT
6,179 1,156
4,889 841
20 8
3,800 320
1,064 90
2,736 230


40 86
2,656 5,761
2,656

58

5,703
4 2
16 7


2 1
15 6
2,354 405
899
676 121
2,706 484
3,700 946
75 50

50%

Condensate Filter

11

SanitarySewer
Treatment

100%
50%

13

14

23

20%

80%

3%

Boilers

10

OT
3,193
2,206
23
268
75
193
86
9
594
84
5
505
5
18

50litersperdayperperson(20,000)
2
16
1,062

228
914
2,779
50

Use of this Report is subject to certain restrictions set forth in the Important Notice.

2-43

Use of this Report is subject to certain restrictions set forth in the Important Notice.

2-44

SIP CIVIL LAYOUT

NOV. 11, 2011

Use of this Report is subject to certain restrictions set forth in the Important Notice.

2-45

Use of this Report is subject to certain restrictions set forth in the Important Notice.

2-46

Use of this Report is subject to certain restrictions set forth in the Important Notice.

2-47

Use of this Report is subject to certain restrictions set forth in the Important Notice.

2-48

Use of this Report is subject to certain restrictions set forth in the Important Notice.

2-49

Use of this Report is subject to certain restrictions set forth in the Important Notice.

2-50

Sainshand Master Plan Project


Final Report

3.

UTILITIES1

Except where stated otherwise, the design basis contained in this Section is based on data
and design bases provided by NDIC or on behalf of NDIC by other agencies of the
Government of Mongolia contacted by Bechtel at NDICs direction. Where specific data was
not so provided, Bechtel has developed further details from the data that was provided, and
made assumptions to develop the utility parameters. The objective of these assumptions is
to specify an industrial park that meets the overall intent, as conveyed to Bechtel, of NDIC
for the proposed facility. Except where stated otherwise, NDIC has previously approved
such developments and assumptions by approval of previous task reports (including any
changes directed by NDIC) submitted to NDIC as part of the scope of work of this Master
Plan Study.
This report describes the utility plants anticipated at the time of this Report pursuant to
design basis and assumptions outlined in the preceding paragraph. The number and type
and design of industrial plants and anticipated utilities may change as further analysis,
preliminary/ front end engineering, detailed design, further investigations and other
necessary data and services are performed which are not part of the scope of this Master
Plan Report but which are necessary before making any capital investment decisions.
In general, the utility plants described here should make the industrial complex as a whole
more feasible by combining facilities and eliminating the need for redundant utility plants in
each process unit.
A description of overall design basis and the design basis for utility systems follows.
General Considerations:
Operating Schedule: All facilities will be designed for continuous operation.
Process Cooling: Use of evaporative water will be minimized, with a target of complete
elimination. In Sainshand water is a scarce resource, and evaporative cooling would be an
unacceptably large consumer of water. Each megawatthour of heat transferred to the
water would require evaporation of 1.6 tonnes of water. Process cooling is provided by air
cooled heat exchangers and no requirement for evaporative cooling is anticipated.
Design Temperature: Based on historical metrological data provided by NDIC, Bechtel has
derived the following design temperature parameters. All facilities will be specified to meet
rated capacities at ambient air temperatures up to 35C. Plants will also operate
satisfactorily, with potentially some loss of capacity, at ambient temperature between 35C
and 50C.
Minimum design ambient air temperature is 39C.

3.1.

POWER DISTRIBUTION

The distribution of electrical power from the power plant to the other areas within the
industrial park is part of common facilities. Redundant 34 kV power circuits will be supplied
from a switch yard in the power plant to the main transformer primary side of each plant.
Dual, redundant electrical feeders will be direct buried underground with communication and
control cables located along side in concrete duct banks. Common facilities electrical

Except where specifically stated otherwise in this Report, the information contained in this Report was provided to Bechtel or
its affiliates by NDIC as the Client or third parties. In such instances, Bechtel and its affiliates have relied on the information
provided by the Client or third parties without seeking to separately confirm, verify, validate or otherwise examine the
information to determine its accuracy, completeness or feasibility.

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

3-1

Sainshand Master Plan Project


Final Report
distribution does not include other wiring within plants, or any wiring or distribution outside of
the industrial park.
The Power Plant switch yard is also connected to the national power grid via two
interconnects at a voltage level of 220 kV. The power plant switchyard is gas insulated
(SF6) and is a breaker and half scheme, providing a high level of redundancy.

3.2.

RAW WATER

The raw water treatment plant will receive water from a pipeline provided by others, and
produce industrial quality water for use in the industrial park, and the supply for other water
systems. The raw water flow to the plant is 11.8 million tonnes per year (MTPA).
The source of the raw water feed assumed for the study is the Bor Hoovor fossil water
deposit north of Sainshand, that has been reported in a 1988 study to have an available flow
of 487 liters per second, or 15 MTPA. This reserve and capacity have not been proven, and
a water study, including a test well, should be performed in the early stages of the planning
for the development of the industrial park2. An analysis of this water is not available, but
from data contained in Groundwater Assessment of the Southern Gobi Region, World
Bank, April 2010 (provided to Bechtel by NDIC), a conservative assumption for water quality
is: 3000 milligrams per liter total dissolved solids, including 950 milligrams per liter chloride.
Bechtel relies upon the accuracy of this World Bank assessment and has not sought to
verify the same.

Figure 3-1. Typical Ultrafiltration/Reverse Osmosis System


2

This is not a part of the scope for this Master Plan Study.

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

3-2

Sainshand Master Plan Project


Final Report
The raw water stream is first filtered in a pretreatment package consisting of membrane
ultrafiltration preceded by coagulation to provide separation of particulate and organic
impurities. The water is then purified through a twostage reverse osmosis process to
produce water of quality suitable for industrial use, as well as for potable water. Reject
water from the reverse osmosis system is routed to the waste water system for treatment
and reuse.
The treatment package utilizes a low-flux brackish water reverse osmosis (BWRO) system
to provide an energy-efficient process that provides consistent operation. The higher capital
cost of a low flux membrane design is justified by lower power consumption and
maintenance, as low-flux designs operate at lower pressure and require less cleaning to
correct fouling and scaling losses. A membrane flushing system, clean-in-place package,
and chemical injection equipment is provided to minimize fouling and scaling of the
membranes.
The design basis of the raw water treatment system is in the following table: the design flow
is 125% of the normal, average consumption.
Pre-treatment and Reverse Osmosis System Design
3

Flow Rate, m /hr


TDS
pH
Ion, mg/ml
Calcium
Magnesium
Sodium
Potassium
Strontium
Carbonate
Bicarbonate
Sulfate
Chloride
Nitrate
Carbon Dioxide

Raw Water
1807
3000
7.6

RO Feed
1627
2996
7.2

RO Product
1220
86.7
5.9

RO & Filter Reject


587
11,724
7.6

125
30
856
25
1.0
0.9
225
755
950
20
7.96

125
30
856
25
1.0
0.2
207
769
950
20
22.7

0.877
0.210
28.4
1.03
0.007
0.001
12.5
6.58
32.2
4.63
22.7

497
119
3340
96.9
3.98
0.6
792
3060
3700
66.1
22.7

The reverse osmosis product water is split into three streams: utility water for general
industrial use, feed to the potable water treatment system, and feed to the boiler feed water
preparation system located in the Power Plant.

3.3.

POTABLE WATER

Water from the Raw Water Treatment for potable water is further treated by:
Cartridge filtration
Ultraviolet sterilizer
Limestone contactor
Sodium hypochlorite dosing
The potable water is then stored and is distributed throughout the industrial park for use in
the individual plants, as well as in the new community. No capacity has been included for
the existing city of Sainshand, as it is assumed that its potable water needs are currently
Use of this Report is subject to certain restrictions
set forth in the Important Notice.

3-3

Sainshand Master Plan Project


Final Report
satisfied. Storage, pumping, and distribution piping to each plant fence line is for potable
water is included in the common facilities. Piping internal to individual plants is included in
those plants. For potable water supply to the new community, piping is included in the
industrial park common facilities up to the industrial park boundary. Community facilities
include piping from the industrial park to the community, and all distribution piping.
The potable water capacity requirements for the industrial park have been estimated based
on the assumed average anticipated personnel on duty at the park, with each allotted 189
liters per day. For the new community, 114 liters per day per person is included.
Potable Water Consumption
Area
Community
Iron Ore Pellets Plant
DRI/HBI Plant
Copper Smelter
Coke Plant
Cement Plant
Coal Gasification
Power Plant
Common Facilities
Total

3.4.

Average Head Count


25,000
130
55
280
90
90
77
71
110

Liters/day/person
114
190
190
190
190
190
190
190
190

Potable Water, m3/day


2840
25
10
53
17
17
15
13
24
3010

INDUSTRIAL WATER

From the Raw Water Treatment discharge, the utility water stream is further treated with
limestone contactors to restore alkalinity and pH to the product water, eliminating the
potentially corrosive properties of desalinated water, and maintaining the quality targets for
total dissolved solids (TDS), pH, and Langelier saturation index (LSI). Water recovered from
the Waste Water Treatment Plant is combined with the RO product stream to create the
source for general industrial use. Storage, pumping, and distribution piping to each plant
fence line is for the industrial water is included in the common facilities. Piping internal to
individual plants is included in those plants.
Process use of utility water is summarized in the table below. This includes an allocation of
22.5 m3/hour (180 MTPA), spread to the plants, for plant wash-downs; which flow is
recovered in the waste water system for treatment and reuse. The remaining quantity of
water is consumed in the process plants and not returned for recovery and treatment.
These quantities do not include the water used for production of boiler feed water and
steam.
Utility Water Usage
Plant
Iron Ore Pellets Plant
DRI/HBI Plant
Copper Smelter
Coke Plant
Cement Plant
Coal Gasification
Common Facilities
Total

Utility Water Consumption, m3/hour


88
378
351
121
25
4
109
1076

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

3-4

Sainshand Master Plan Project


Final Report
The common facilities usage includes a leakage allowance in the hot water heating system
of 5 percent of the circulating flow.

Figure 3-2. Limestone Contactor

3.5.

BOILER FEED WATER, CONDENSATE

A stream of water from the Raw Water Treatment Plant Boiler is further treated in a
demineralization plant to produce boiler feed water for steam production. The demineralizer
is located in the Power Plant plot, and includes an additional reverse osmosis package and
an electro-deionization step. Reject water from this treatment is returned to the raw water
treatment system and combined with the raw water feed for recovery. The demineralizer
has a processing capacity of 650 m3/hour feed, with design production of 470 m3/hour of
boiler feed water. The demineralizer includes a total of 6 trains to meet the total capacity, of
which one is an installed spare for redundancy. Of the steam produced from the boiler feed
water, some is lost in process plant uses, and the remainder is condensed and returned for
reuse after a filtration step mainly to remove any metal particles. An allowance has been
made for three percent of the boiler feed water rate to be lost in boiler blow down. Half of
this blow down amount is returned to water treating for recovery, and the other half is
assumed lost during flashing and handling.

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

3-5

Sainshand Master Plan Project


Final Report
Boiler feed water users include:
Boiler Feed Water Usage
Plant
Copper Smelter
Coke Plant
Coal Gasification
Power Plant
Total

3.6.

Normal (m3/hr)
84
739
397
199
1419

Design (m3/hr)
84
739
454
410
1687

FIRE PROTECTION

The fire water system will store and supply water for fire protection to each facility in the
industrial park. Industrial water will be received, stored, and distributed to fire suppression
equipment in each plant via pressurized underground firewater loop. The scope of the
common facilities will take water to each plant fence line; the process unit scope will include
all fire water piping and equipment within the process plant boundary.

3.7.

COOLING WATER

No common cooling water system is provided, as evaporative cooling is to be minimized.

3.8.

CENTRAL UTILITY HEATING SYSTEM

A hot water circulation system is provided for comfort heating in buildings in the industrial
complex and the existing and new Sainshand communities. The existing central heating
system for Sainshand will be replaced and decommissioned. The capacity of the system is
set at 100 MW, based on the capacity of the old system of 40 MW. Hot water is supplied at
90C, with the return at 50C. The water is heated by heat exchange with low pressure
steam extracted from steam turbines in the Power Plant.
With the duty of 100 MW and differential temperature of 40C as stated above, the water
circulation rate is 2,150 m3/hour. An allowance has been made for the loss of 5% of the
circulating flow, or 107 m3/hour, due to leakage.
The central heating facility includes facilities for storage, pumping, and treatment of the
circulating water. Common facilities include distribution piping to the fence line of each
process plant and to the industrial park boundary for community heating.

3.9.

STEAM SYSTEMS

Common Facilities include interconnecting piping systems to transfer steam between the
various plants. As shown on the material balance, steam is produced in several of the
process plants and sent to the Power Plant to be utilized in power generation.

3.10.

FUEL GAS

Fuel gas used in the Sainshand Industrial Park is synthesis gas from the Coal Gasification
Plant. The synthesis gas has a heating value (HHV) of 21.4 MJ/kg, and composition as
follows:

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

3-6

Sainshand Master Plan Project


Final Report
Fuel Gas (Synthesis Gas) Composition
Component
Carbon Monoxide
Carbon Dioxide
Hydrogen
Water
Methane
Nitrogen

Mole Percent
39.08
2.65
45.95
0.51
9.54
2.27

Much of the synthesis gas is consumed in the DRI Plant for reduction of iron ore to iron.
Fuel gas users are tabulated below:
Fuel Gas (Synthesis Gas) Consumption
Plant
DRI
Pelletizing Plant
Copper Smelter
Power (normal)
Power (design)
Total (normal)
Total (design)

Tonnes/hour
139
24
1.0
25
52
189
216

MW (HHV)
824
144
5.9
150
311
1125
1286

The design case above is maximum operation of the Coal Gasification Plant and the Power
Plant boilers to either replace the steam production of one of four Coke Plant oven batteries,
or to produce export power.
Common facilities include piping from the Coal Gasification Plant boundary and distribution
piping to the fence line of each process plant.

3.11.

FUEL OIL

Fuel oil is used in the Copper Smelter, and in the Power Plant as fuel for limited emergency
and startup power generation. Fuel oil will be received by truck in the Copper Smelter and
Power Plant, and storage and delivery of the fuel oil is included in the scopes of these two
plants. No common utility system is included for fuel oil.
The Copper Smelter is the only normal user of fuel oil, and consumes 14 thousand tonnes
per year.

3.12.

OXYGEN

An Air Separation Plant (ASU) is provided in the common facilities to produce oxygen and
nitrogen for use in the process plants. The Coal Gasification Plant is the major user of
oxygen, and the ASU is located in the Coal Gasification Plant to minimize oxygen piping.

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

3-7

Sainshand Master Plan Project


Final Report
Oxygen Consumption
Plant
DRI
Copper Smelter
Coal Gasification (normal)
Coal Gasification (design)
Total (normal)
Total (design)

Tonnes/hour
6.3
42
142
163
190
211

The design case above is maximum operation of the Coal Gasification Plant and the Power
Plant boilers to either replace the steam production of one of four Coke Plant oven batteries,
or to produce export power.
Air separation is accomplished by cryogenic separation driven by compression and autorefrigeration through pressure reduction. The ASU is a large consumer of power to drive the
compressors and air cooled heat exchangers. The ASU consumes 74 MW of power at
normal oxygen production rate, and 82 MW at design rate. The plant in this study users
electric motors to drive the compressors.
Consideration should be given during
development to use of steam turbine drivers. Turbines would be more energy efficient, but
have a higher capital cost and maintenance cost.
Common facilities include piping from the Coal Gasification Plant boundary and distribution
piping to the fence line of each process plant.

3.13.

NITROGEN

The Air Separation Plant will produce nitrogen as a byproduct to oxygen production. A
sufficient quantity of nitrogen will be compressed and distributed to process plants for both
quantified process use and non-quantified use where an inert gas is required.
Quantified Nitrogen Consumption
Plant
DRI
Copper Smelter
Coal Gasification
Total

Tonnes/hour
20
0.27
0.13
20

Common facilities include piping from the Coal Gasification Plant boundary and distribution
piping to the fence line of each process plant.

3.14.

WASTE WATER TREATMENT

Waste water from each of the industrial park process plants, the reject water from Raw
Water Treatment, and recovered water from the Sanitary Sewer Treatment Plant are further
treated in the common Waste Water Treatment Plant. Treated water is returned for use as
industrial water.
Quantified flows include recovered wash-down water, boiler blow downs, condensate filter
backwash from the Power Plant, the reject water from the Raw Water Treatment Plant,
recovered water from the Sanitary Sewer Plant, and recovered water condensed from the
Coal Gasification Plant.

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

3-8

Sainshand Master Plan Project


Final Report
Quantified Water Flows
Source
Raw Water Treatment Reject
Recovered Water from Sanitary Sewer
Coal Gasification Recovered Water
Wash Down Water
Boiler Blowdown
Condensate Filter Backwash
Total

Flow Rate, m3/hour


533
140
134
23
21
10
860

Additionally, each plant will collect and impound any rain that falls, intermittent water flows,
and any oily water generated. Each process plant will include water treatment facilities as
required for its specific contaminants, and will discharge effluent quality water to the
common facilities.

3.15.

STORM WATER

Rainfall that falls on the industrial park (except that which falls into potentially contaminated
process areas), and any runoff that enters the park boundary will be collected in common
facilities. Any collected water will be tested, sent to the Water Treatment Plant if necessary,
and used to supplement the industrial water supply.

3.16.

SANITARY WASTE WATER

Sanitary sewer streams will be collected from throughout the industrial park, and streams
from both the existing and new Sainshand communities will be sent to the Sainshand
Industrial Park for treatment. The existing Sainshand sewer treatment system will be
decommissioned. The allocation for sewer flow from the existing community is 20,000
persons at 50 liters per person per day. For the industrial park and the new community, the
capacity is based on 80% of the potable water flow being returned as sanitary sewer.
Sanitary Sewer Flows
Source
Existing Sainshand Community
New Sainshand Community
Industrial Park
Total

3.17.

Flow Rate, m3/hour


46
104
6
156

TELECOMMUNICATIONS

Sainshand Industrial Park is a very large, remote project Greenfield site that is an ideal
candidate for broadband wireless solutions for telecommunications requirements. Data,
voice and other specialized services can all reside on the same 100% Internet Protocol (IP)
based network. The most critical aspect of this project is connectivity to the world wide fiber
network (big pipes). Initial connectivity at the site will need to be satellite based with the
bandwidth based on the number of users on site.
With a mobile phone penetration rate of 98%, the Mongolian mobile telecommunication
providers are obviously well developed, and it is assumed that they will be able and willing
to provide service and connectivity by increasing their existing coverage or installing new
facilities to accommodate our needs. The wireless carriers currently providing service in
Mongolia are:
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MobiCom
SkyTel
Unitel
G-Mobile

The following design criteria are utilized in this Report.

100 % IP Network, in a ring architecture in the park.

Standard IP architecture with single mode fiber connecting all facilities on the main
project site and nearby facilities i.e. construction trailers & camps. Utilize point-topoint microwave to facilities where it is not economically feasible to run fiber. Run
multimode fiber inside all facilities where access points are installed for wireless
access to the network.

Dedicated Local Area Network (LAN) connectivity to be reserved for those locations
where data rates are considered excessive for wireless access points, for example engineering groups utilizing CAD applications. Also, it is used for those locations
where a dedicated line is required for safety, security or where the industrial
architecture does not allow for wireless connectivity.

Distances for fiber are based on ducts to be installed with the electrical service; fiber
is the medium for the backhaul of data & voice traffic.

Switches are based on the estimated number of end users. For the Sainshand
Industrial Park, for 5000 subscribers, the wireless system includes a GSM core
network, integrated HLR and SMSC, 2 BTSs. The EVDO solution includes the
packet data core network & 2 BTS.

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4.

MATERIAL HANDLING AND TRANSPORTATION SYSTEMS1

Except where stated otherwise, the design basis contained in this Section is based on data
and design bases provided by NDIC or on behalf of NDIC by other agencies of the
Government of Mongolia contacted by Bechtel at NDICs direction. Where specific data was
not so provided, Bechtel has developed further details from the data that was provided, and
made assumptions to develop the material handling and transportation systems parameters.
The objective of these assumptions is to specify an industrial park that meets the overall
intent, as conveyed to Bechtel, of NDIC for the proposed facility. Except where stated
otherwise, NDIC has previously approved such developments and assumptions by approval
of previous task reports (including any changes directed by NDIC) submitted to NDIC as
part of the scope of work of this Master Plan Study.
This report describes the material handling and transportation systems anticipated at the
time of this Report pursuant to design basis and assumptions outlined in the preceding
paragraph. These parameters may change along with other aspects of the SIP as further
analysis, preliminary/ front end engineering, detailed design, further investigations and other
necessary data and services are performed which are not part of the scope of this Master
Plan Report but which are necessary before making any capital investment decisions.

4.1.

RAIL SYSTEM

4.1.1.

INTRODUCTION AND BACKGROUND

Currently, rail facilities in Sainshand consist of the Mainline from Altainbulag to Zamin-Uud
that runs north to south from the Russian border to the Chinese border and a spur off this
line that runs west to the oil fields at Zuunbayaan. There is an existing passenger terminal
off the Mainline from Altainbulag to Zamin-Uud in Sainshand and an industrial rail yard for
off-loading commercial goods and coal for the Sainshand heating plant.
The Mainline from Altainbulag to Zamin-Uud predominantly carries freight to and from Ulan
Bataar from the interchange terminal of Erenhot (Erlian) in China, south of Zamin Uud. Both
the Mainline from Altainbulag to Zamin-Uud and the Zuunbayan spur are built using Russian
wide gauge track (1,520 mm) carrying predominantly Russian rolling stock pulled by
Russian diesel locomotives. Both lines are essentially single track with passing sidings at
regular intervals along the railroad corridor.
Shipments of goods into and out of China require trans-shipment to Chinese standard
Rolling Stock at Erenhot, south of the border (Zamin Uud). Currently, freight shipments are
unloaded from Mongolian railcars and reloaded on Chinese railcars. Bulk shipment of
copper concentrate from Oyu Tolgoi is now shipped by trucks in two ton supersacks to both
facilitate transloading at the border and to reduce the loss of product during transportation
on Chinese rolling stock. Once the industrial park is operating, the copper concentrate
would go by gondola railcars from Oyu Tolgoi to the smelter in Sainshand. Mongolian rolling
stock can make border crossings into Russia without transloading.
The scope of the master planning services for rail transportation consists of the rail
infrastructure within the limits of the Sainshand Industrial Park from the mainline junction,
including the mainline turnouts. The major elements of infrastructure include track, special
trackwork, wayside signaling, bridges, fueling facilities, sanding facilities, on-track inspection
1

Except where specifically stated otherwise in this Report, the information contained in this Report was provided to Bechtel or
its affiliates by NDIC as the Client or third parties. In such instances, Bechtel and its affiliates have relied on the information
provided by the Client or third parties without seeking to separately confirm, verify, validate or otherwise examine the
information to determine its accuracy, completeness or feasibility.

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and maintenance facilities, full car repair facilities, locomotive shop, receiving yard,
marshalling yard, yard office and crew facilities.
4.1.2.

MONGOLIAN RAIL NETWORK

4.1.2.1. OVERVIEW OF EXISTING AND PROPOSED NETWORK


As mentioned briefly above, there are several rail lines existing in the country currently, as
shown in Figure 4-1. One is a north-south line from the Russian border at Suhbaatar,
through Ulanbaatar and on south to Sainshand and the Chinese border at Zamin-Uud.
Another rail line is in the far eastern area from Ereentsav at the Russian border and south to
Choybalsan.
The Government of Mongolia has set out a three phase expansion of the countrys rail
system. Phase 1 would require construction of 1,040 km of rail and would link the Tavan
Tolgoi coal deposit to the Mainline from Altainbulag to Zamin-Uud at Sainshand and then on
to the northeast at Choybalsan. This would link with the existing rail to the Russian border
and then to the Manchurian railroad going to the Chinese port of Dalian via Harbin after first
transloading at the Manzhouli yard. The timing of this Phase 1 rail construction is expected
to be coordinated with the development of the mine facilities at Tavan Tolgoi. In order to
make it possible to connect the Sainshand Industrial Park railroad system to the Phase 1
railroad, it is suggested that the Phase 1 railroad be built parallel to and on the north side of
the railroad from Zuunbayan to Sainshand and cross over to the south side west of the SIP
site. An alternate to this would be to locate the yard facility north of Sainshand and bring
leads south into the SIP with grade separated crossings over the rail line from Sainshand to
Zuunbayan, but this would significantly increase both the capital cost and operating costs of
the SIP and is not recommended.
Phase 2 of the rail plan would link Mongolia with China in several locations. As shown in
Figure 4-1, Phase 2 includes the construction of four rail links totaling about 892 km:
45 km rail line form Naryn Sukhait to the Sekhe border crossing
276 km line from Tavan Tolgoi to the Ukhaa Khudag/Gashuun Sukhait border
crossing
200 km line from Khuut to the Chinese border at Bichigt
380 km line from Khuut to Numrug
Phase 3 of the plan would focus on the construction of 3,600 km of rail in the west of the
country. The route is conceptual and is subject to change.
4.1.2.2. MINE SITES AND PRODUCT SOURCES
Several different ores and minerals are expected to be transported to Sainshand for
processing via rail. According to the Boston Consulting Group, and as shown in Figure 4-1,
some of the primary ores and minerals identified include:
Tavan Tolgoi Coal
Tavan Tolgoi is the worlds largest deposit of coking coal used to make steel. The deposit
contains more than six billion tons of coal, comprising about 4.5 billion tons of thermal coal
and 1.5 billion tons of higher-priced coking coal for the steel industry. Initial estimates have
indicated Tavan Tolgoi would produce 30 million tons of coking coal annually for the next
30 years.

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Figure 4-1. Map of Rail Network and Mine Sites


Note: Phase 3 as shown is conceptual and subject to change

Oyu Tolgoi Copper


The Oyu Tolgoi mine is a combined open pit and underground mining project about 130 km
south of Tavan Tolgoi.
The Oyu Tolgoi deposits contain 79 billion pounds
(35,833,000 tonnes) of copper, and 45 million ounces (1,275 metric tonnes) of gold.
Production is scheduled to begin in 2013 and to reach full capacity in 2018. Over the
anticipated life of the mine (45 years), Oyu Tolgoi is scheduled to produce 450,000 tonnes
of copper per year, an amount equal to three percent of global production. Oyu Tolgoi is
also expected to produce 330,000 ounces of gold annually.
Tomortei Iron Ore
Tomortei is located near the Russian border about 200 km north of Ulaan Baatar. The
reserves contain about 230 million tonnes of ore with about a 53% Fe content. This ore
would travel to Sainshand via the existing north-south rail line and proposals to upgrade this
line to dual track have been suggested.
The following table summarizes some of the major mining sites currently known in the
country and these are shown on Figure 4-1, above.
Reserves Tons
(000)

Mining Sites

Mineral

Tavan Tolgoi

Coking and thermal coal

Nariin Sukhait

Coal

125,000

Baganuur

Brown coal

600,000

Shivee Ovoo

Brown coal

646

6,420,000

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Reserves Tons
(000)

Mining Sites

Mineral

Mardai

Uranium

925

Dornod

Uranium

16,467

Gurvan Bulag

Uranium

10,560

Tomortei

Iron Ore

230,000

Tsagaan Suvraga

Copper

10,640

Molybdenum

240,000

Erdenet

Copper

1,200,000

Burenhaan

Phosphorite

Boroo

Gold

25

Tomortein Ovoo

Lead

7,690

192,000

Asgat
Silver
Source: Boston Consulting Group, December 2009

6,400

Table 4-1. Major Mongolian Mining Sites

4.1.3.

RAIL STANDARDS

4.1.3.1. RAIL STANDARDS


Introduction: Most of the existing Mongolian rail lines were built during the Soviet era, and
some of the rolling stock remains from this era as well. The existing standards, adopted by
the Mongolian Ministry of Transportation, define, among other things, the gauge, maximum
axle loads, train length, and clearance plates of the trains operating today.
It is assumed therefore that these standards would be followed for Phases 1, 2, and 3 of the
new expansion program shown in Figure 4-1.
The yard facilities at Sainshand Industrial Park should be capable of handling an ultimate
capacity of 400 cars per day. This is in direct keeping with the State Policy on Railway
Transportation (Reference 4.1.i), Section 1 General Provisions, paragraph 1.1.1 which
states:
The Purpose of the State Policy on Railway Transportation is to increase the railway
capacity to transport and carry, broaden an Unified National network of efficient state
railway directed at satisfying the ever growing future transport demand both
effectively and reliably, and further to improve the national transit capability, advance
the legal environment, structure and organization of the sector, utilize the large
mineral deposit, expedite the national economic and social development through
exporting and exporting after processing and ensure sustainable development for the
future.
4.1.3.2. DESIGN AND OPERATING STANDARDS FOR SIP
Russian Gauge: 1520 mm and is used throughout the former Soviet Union including the
Baltic States and Mongolia.
Standard Gauge: 1435 mm and is used in China and much of Europe. Currently freight
trains at the border with China are unloaded and reloaded on Chinese railcars at Erenhot
(Erlian).

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Maximum Axle Load: the maximum axle load would be 25 tonnes, consistent with existing
Mongolian standards.
Train Length: On the existing north-south line, most passing sidings are suitable for trains
up to 850m long which corresponds to freight trains with up to 60 cars and two locomotives.
On the new east-west lines, it is suggested to use sidings long enough to accommodate
80 car trains with three locomotives or a maximum length of 1,200 m. This train size
corresponds to 8,000 gross tonnes trailing load, which is also the limit of the existing SA-3
couplers.
Rolling Stock: The materials transported by rail include amounts of solid bulk material like
thermal coal, coking coal, copper concentrate, iron ore, limestone and other minerals which
would travel by open top railcars, either gondolas or bottom
dump hoppers. Most of the outgoing products would also
be bulk materials like metallurgical coke, iron pellets and
hot briquetted iron (HBI) (see section 2.4.5 for special
precautions for shipping DRI/HBI product) which would also
travel by open top railcars. Other out-going products would
require specialized railcars, like tank cars for sulfuric acid,
pneumatically loaded cars for bulk cement, and container
cars for copper anodes.
Because of the axle load limitation, railcars can carry only
up to 75 tonnes of solid bulk. To move solid bulk
commodities efficiently, unit train operation is generally
used with railcars loaded and unloaded mechanically,
without un-coupling. Gondola cars or hoppers cars
are used for this type of operation. Each has some
advantages and disadvantages.
Gondola cars (Figure 4-2) are more compact (no
wasted space) and therefore can carry the same
load in a shorter train. Gondola cars are also less
expensive and require less maintenance than
bottom dump hopper cars. They are typically

Figure 4-2. Gondola Cars

Figure 4-3. Hopper Car

unloaded using a rotary dumper. The rotary


dumper provides very efficient train unloading and
it is able to empty a car even if the load is frozen.
Hopper cars (Figure 4-3) can be emptied over a
trestle or over a grate into a funnel as the train is
moving. This results in a significant amount of dust
and spread of the material. Also if the load should
be frozen, a car shaker is needed, which slows
down the operation and impacts maintenance and
the life of the car.

Figure 4-4. Sulfuric Acid Tankcar

The sulfuric acid, which is produced by the copper


smelter, would travel in specialized tank cars either
in unit trains or in general freight trains (Figure 4-4).
The copper anodes would move in containers on
flatcars. In addition, it is assumed that at least one
80 cars train of general freight (boxcars, flatcars,
containers) per day would supply the various and
sundry needs of the industrial park.

Figure 4-5. Cement Rail Cars

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Cement would be loaded pneumatically in special airtight cars, moving in unit trains or in
general freight trains (Figure 4-5).
Coupler Types: Soviet Automatic Couplers (SA3) are currently used on most freight rolling
stock in Mongolia (Figure 4-6). This coupler can
handle a maximum trailing load of about 8,300
tonnes. However, there seems to be a higher failure
rate for these couplers compared to the Janney
coupler used in many other heavy freight rail
operations. Failures of the SA3 are attributed to 1)
lower quality of steel used in manufacturing 2) a
lower quality of maintenance and 3) coupling at
higher speeds than the coupler is designed for. In
addition, the SA3 is not available as a rotary coupler,
making it unsuitable for efficient unit train operations
at SIP.
In contrast, Janney couplers have been thoroughly
tested and can handle coal trains in excess of
25,000 tons. This coupler is also available as a
rotary coupler and may be used in rotary dump
operation without a train being uncoupled. There is
also a Janney to SA3 converter wagon which would
allow Janney couplers to be coupled on one end and
Figure 4-6. SA3 Coupler
SA3 couplers on the other end. This would allow the
use of SA3 equipped motive power to be used, although the tonnage limit would then again
be reduced to the tested 8,300 tonnes.
Given the above, it is proposed that a Janney to SA3 converter wagon be placed in each
unit train directly behind the locomotive and that all cars being used to haul coal, iron ore
and copper concentrate be equipped with Janney couplers. The converter wagon would
have a Russian standard coupler on one end and a Janney coupler on the other, allowing
the Russian standard locomotives to be coupled to the unit trains, the cars of which are
equipped with rotating Janney couplers. This would allow ultimate flexibility in the use of
locomotives and cars in unit train operations.
Track Geometry: The following design criteria (Table 4-2) have been used as basis for this
Study.
Design Element
Civil Works Design Speed (Mainline)
Yards, Terminals
Railroad Gauge
Design Loading
Track Centers Double tracks
Turnouts
Sidings (Main line)
Yards and Back Tracks
Siding Length
Roadbed Sections
Roadbed Width (fill)
Roadbed Width (cut)
Subballast Depth

Recommend Standard
100 kph
50 kph
1,520 mm
Max allowable axle load = 25
tonnes
4.6 m sidings and yards

Comments
Infrastructure design, not operations.

No. 20
No. 10
850 m 1,200 m

AREMA
AREMA
(existing on the Mainline from Altainbulag
to Zamin-Uud )

4.7 m from CL, 9.45 m total


18.9 m total
min. 15 cm (TBD)
90 cm typical

Reference typical Class 1 - North American


Railroad standard main line with concrete
ties

Russian gauge
Russian Axle load limit
AREMA

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Design Element
Depth of Ditches
Vertical Grades
Maximum (Allowable)
Horizontal Curves
Maximum Degree of Curve
Yards and Sidings
Unit Train maximum curvature
Tangent Lengths
(between Horizontal Reverse Curves)
Rail weight
Ties
Clearances for Highway Overpass
Vertical
Horizontal from Track CL to Face of
Pier
Lateral Clearance Mainline (to fixed
object).

Recommend Standard

Comments

1.5% (curve compensated)


empty trains 1.0% for loaded
trains
195 m (9 Deg.) Yards and
Sidings
233 m (7.5 Deg.) Unit trains

Mainline grades on curves must be


compensated at 0.04% per deg of curve.

90 m (Main Line)
45 m (Yards, Sidings and Back
Tracks)
136 lb/yard (AREMA)
68 kg/m (UIC)
Prestressed concrete with
resilient fasteners
7 m minimum
7.6 m minimum

15 m tangent between reverse curves

Ballast rock
Arterials and collectors
All other Public Roads

Grade Separated
Crossing at Grade

4.1.4.

Premium rail (head hardened) on curves


radius 450 m and under

Above Top of Rail (TOR)


3.05 m minimum (from
centerline)
2.75 m on thru plate bridges
76 mm maximum

Clearance Envelope

Suitable for 80 kph operation of unit trains

2.4 m 2.9 m on curved track.


46 cm shoulders, 3:1 slopes; 30 cm
minimum depth below bottom of tie
Automatic Crossing protection (warning
system) may be warranted on a case by
case basis for Crossing-at-Grade Public
Roads.

AAR Plate F
Table 4-2. Sainshand Railroad Design Basis Elements

PRODUCT FLOWS AND RAIL VOLUMES

4.1.4.1. INBOUND AND OUTBOUND PRODUCT FLOWS


Feedstock supplying the different facilities would arrive in unit trains of up to 80 gondola cars
for solid bulk from the new east-west line and 60 gondola cars from the existing north-south
line. To stay within the 25 tonnes axle load, payload per car would be a maximum of
75 tonnes or 6,000 tonnes per unit train. Trains would be unloaded via twin-car rotary
dumpers without uncoupling the railcars. Various products of bulk materials would be
stockpiled in a storage yard so that different facilities of Sainshand can be supplied for up to
two months, should rail traffic be interrupted that long. Main products that would be shipped
by rail to the industrial park are:
Thermal Coal
Coking Coal
Copper concentrate
Iron ore
Limestone
Annual quantities in millions of tonnes (MTPA) as well as the properties of these different
products are summarized in Table 4-3. The volumes of these products for a two month
supply are also translated in the dimensions of a linear stockpile. The same is done for the
outbound products in Table 4-4. Solid bulk materials that would be stockpiled in the storage
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yard for up to two months are coke and iron pellets. Cement would be stored at the cement
plant in silos and loaded pneumatically in cement cars at the factorys own siding.
Products Unloaded

MTPA

Density

Angle of

Storage

kg/m3

Repose (deg)

Volume (m3)

Solid Bulk

Pile Dimensions (m)


Width

Height

Length

2 Months

Thermal Coal (Power+Cement)


Thermal Coal (CTG)
Coking Coal (Coke+CTL)
Copper Concentrate
Iron Ore
Limestone
Lime Pebbles
Silica
Gypsum
Bentonite
Dolomite

0.127
1.801
2.900
1.000
4.459
1.310
0.042
0.082
0.050
0.023
0.045

830
830
770
2250
2590
1440
960
1200
1200
1123
1200

35
35
30
40
35
40
40
40
35
40
40

25,502
361,647
627,706
74,074
286,937
151,620
7,292
11,389
6,944
3,413
6,250

65
70
70
70
70
70
40
47
42
31
38

22.9
24.5
20.2
29.4
24.5
29.4
17.0
19.7
14.8
13.2
16.1

65
455
921
105
368
181
40
47
42
31
38

Basalt
Steel Slag
Clay

0.250
0.016
0.040

1280
3000
1122

40
45
40

32,552
889
5,942

67
19
38

28.0
9.5
15.9

67
19
38

Total

12.145

1,602,157

2418

Table 4-3. Inbound Product Volumes

Copper anodes would be stored at the copper smelter site and loaded there on flat cars.
Sulfuric acid is also produced at the copper smelter and would be stored in special tanks.
Acid would be shipped in special tank cars which would be loaded on site.
All the liquid bulk would be stored in tank farms on the premises of the copper smelter and
loaded in tank cars via pipelines, manifolds and loading arms, on their own siding.
4.1.4.2. RAIL MOVEMENTS VOLUME
The number of trains needed to supply Sainshand, based on the balance of materials data
(which is itself based on information supplied by or on behalf of NDIC and relied upon by
Bechtel), is summarized in Table 4-5. These are the movements in the loaded direction.
The same number of trains would move in the opposite direction when returning empty. A
total of 12.24 million tonnes per year (MTPA) of mostly solid bulk material is moved in unit
trains to Sainshand. On the new east-west line from Oyu Tolgoi (copper) and Tavan Tolgoi
(coal) 80-car trains would be dispatched. On the existing north-south line from Darkhan
(iron ore) 60-car trains would be dispatched.
MTPA

Products Loaded

Density
kg/m

Angle of
Repose (deg)

From Bulk Storage Area

Storage

Pile Dimensions (m)


3

Width

Height

Length

520,833
66,288
143,678

70
70
70

20.2
24.5
24.5

770
111
201

Volume (m )
2 Months

Metallurgical Coke
Iron Ore Pellets
Iron (HBI)

2.000
0.875
2.500

640
2200
2900

30
35
35

Cement

1.000

1507

110,595

Copper Anodes
Sulfuric Acid

0.300
0.892

8800
1728

5,682
43,017

Bottom Ashes (5% of thermal coal)

0.097

962

16,805

From Individual Industries

Table 4-4. Outbound Product Volumes

Train movements translate into 63 trains per week or nine trains per day, based on
10 months of operation per year. Two months of interruption are assumed due to extreme
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winter weather or potential track repair work. Ten months of operation should make it
possible to accumulate two months reserve materials in commodity stockpiles. Trains are
assumed to operate seven days a week, and when their frequencies are not a multiple of
seven, they are dispatched on days such that the daily traffic is leveled, as shown in Table
4-5.
Products Unloaded

Mode

MTPA

Carload

Train

Train/truck

MT

(cars)

per year

Solid Bulk

Train /Trucks

Mo

Tu

We

Th

Fr

Sa Su

per week
for 10 months

Thermal Coal (Power+Cement)


Thermal Coal (CTG)
Coking Coal (Coke+CTL)
Copper Concentrate
Iron Ore
Limestone
Lime Pebbles
Silica
Gypsum
Bentonite
Dolomite

Rail
Rail
Rail
Rail
Rail
Rail
Truck
Truck
Truck
Truck
Truck

0.127
1.801
2.900
1.000
4.459
1.310
0.042
0.082
0.050
0.023
0.045

75
75
75
75
75
75
30
30
30
30
30

80
80
80
80
60
40
1
1
1
1
1

21
300
483
167
991
437
1,400
2,733
1,667
767
1,500

8
12
4
23
11
33
64
39
18
35

1
2
1
3
2
5
11
6
3
6

Basalt
Steel Slag
Clay

Truck
Truck
Truck

0.250
0.016
0.040

30
30
30

1
1
1

8,333
533
1,333

193
13
31

32
2
6

Boxcars, containers

Rail

0.650

35

80

232

1
1
4
2
5
11
7
3
6

1
2
1
3
1
5
11
6
3
6

32
2
5

33
2
5

1
2
3
2
6
11
7
3
5

2
1
1
4
1
6
10
6
3
6

3
2
6
10
7
3
6

32
2
5

32
3
5

32
2
5

1
2

1
2
1
3
1

Total Rail - Trains

12.247

2,631

63

Total Truck

0.548

18,267

426

71

71

71

71

71

71

Table 4-5. Train Traffic with Inbound Products

Outbound train movements are shown in Table 4-6. From the copper smelter, one train of
sulfuric acid leaves each day as well as two trains a week of copper anodes in containers
loaded on flatcars. From the cement plant, half the production is distributed locally by truck
and the other half goes north on two trains a week. Lastly, it is assumed that five trains of
general freight would arrive each week and their cars would be delivered by a switch
locomotive to each factorys industrial siding as needed.
Products Loaded

Mode

MTPA

Carload

Train

Train/truck

MT

(cars)

per year

From Bulk Storage Area


Metallurgical Coke
Iron Ore Pellets
Iron (HBI)

Train /Trucks

Mo

Tu

We

Th

Fr

Sa Su

per week
for 10 months

Rail
Rail
Rail

2.000
0.875
2.500

75
75
75

60
60
60

444
194
556

Cement (50% )

Rail

0.500

75

60

111

Cement (50% )
Copper Anodes
Sulfuric Acid

Truck
Rail
Rail

0.500
0.300
0.892

25
75
60

1
60
60

20,000
67
248

Bottom Ashes (5% of thermal coal) Truck

0.097

30

3,233

11
5
13

1
1
2

1
1
2

2
1
2

1
1
2

462
2
6

77
1
1

77

77

77

75

12

13

12

13

2
1
1

77
1

77
1

12

13

From Individual Industries


3

Total Rail - Trains

7.067

1620

40

Total Truck

0.597

23233

537

89

90

89

90

89

90

Table 4-6. Train Traffic with Outbound Products

4.1.5.

SIP RAIL SYSTEM AND LAYOUT

4.1.5.1. OVERVIEW OF THE SYSTEM


General Yard Operations
Trains arrive at the Yard which is made up of a receiving yard, classification yard and
departure yard (see Figures 4-7 and 4-8). The Yard receives trains, unloads trains, loads,
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makes up trains, and has receiving, departure tracks, loops and repair facilities. The Yard is
designed for directional movements of incoming and outgoing freight trains to and from the
Sainshand Industrial Park as well as other regional commerce in the Sainshand area.

Figure 4-7. Schematic Rail Layout

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Figure 4-8. Rail Marshalling Yard

Unit Train Operations


Unit trains delivering raw materials would arrive from the National Railway Network via the
E/W Mainline and be received via the Siding. They would then be deposited on Unit Train
Receiving/Departure track where the receipt inspection would be performed. The mainline
locomotives (and Mainline Crew) would be decoupled and a yard locomotive (and Shunting
Crew) coupled for transport to the Bulk Material Storage Yard via Industry Lead 1 and Loop
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Lead 1. The Unit Trains would proceed through the Rotary Dumping Facility via Loop 1 or 2
and back to Unit Train Receiving/Departure via Loop Lead 1 and Industry Lead 1*. The yard
locomotive (and Yard Crew) would decouple and a Mainline locomotive (and Crew) would
pick up the train for return to the mine.
Unit trains transporting finished products from Sainshand Industrial Park would load on
Loop 1. Empty trains would enter the loop and travel empty through the car dumping facility
and arrive under the Loading Tower from the east. They would be loaded as they travel out
of the loop and back to Unit Train Receiving/Departure via Industry Lead 1.
*If the Unit Train is to be loaded with product for shipment out of the SIP, it would arrive and
depart the Bulk Material Storage Yard via Loop 1. If it is returning empty, it would arrive and
depart on either Loop 1 or 2.
General Freight Operations
Inbound general freight deliveries would arrive from the National Railway Network via E/W
Mainline and be received via Lead 1 into General Freight Receiving/Departure. The
mainline locomotives (and Mainline Crew) would be decoupled and a yard locomotive (and
Sorting Crew) coupled for sorting. Inbound freight deliveries would normally be sorted on
North Trim. Sorted cars would be deposited in the Bowl and made up into trains for delivery
to the individual industries via Industry Lead 1 by the Delivery Crew. Outbound general
freight deliveries would be picked up by the Delivery Crew and brought General Freight
Receiving/Departure via Industry Lead 1. The Sorting Crew would normally sort outbound
deliveries using South Trim.
Intermodal and Break Bulk Operations
Intermodal and break bulk freight deliveries would arrive from the National Railway Network
via E/W Mainline and be received via Lead 1 into IM/Break Bulk. The mainline locomotives
(and Mainline Crew) would be decoupled and a yard locomotive (and Sorting Crew) coupled
for unloading operations. Intermodal offloading operations would be performed using a
mobile container handler or reachstacker. Break bulk deliveries would be offloaded from a
loading dock using forklifts for palletized shipments and RT cranes for bagged shipments.
Both intermodal and break bulk deliveries would be loaded on to customers highway trucks
for delivery into the Sainshand Industrial Park.
Major Components of the SIP Rail System
The SIP rail system would be composed of these major components (see Figure 4-9):
Connection to the Mainline: The SIP rail system would be linked to the Mainline from
Altainbulag to Zamin-Uudrail network and would provide connectivity to the existing northsouth line and to the Phase 1 east-west expansion line.
Marshalling Yard: In the marshalling yard, switch locomotives would move and sort the
railcars as well as form the outgoing trains of general freight. An intermodal yard with
mobile stackers or reach stackers would be available for loading/unloading cars and
transferring containers between railcars and highway trucks.
Rail Repair/Fueling Facilities: The SIP rail system would have a full maintenance and
repair facility. The facility would include all normal and routine maintenance capabilities but
also provide full car and locomotive repair facilities and services. The facility would serve as
Mongolias major rail repair facility in the southern part of the country. The fueling system
will require 500,000 gallons of diesel fuel to supply a weeks volume of fuel for rail
operations.
Access to Industrial Sites: The SIP rail system would include a loop around the stockyard
with facilities to unload incoming unit trains (dumphouse) and load outgoing trains (loading
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tower). Industrial sidings to specific plants that require different railcar type would also be
provided. These would be to the cement plant where bulk cement would be pneumatically
loaded in closed hopper cards and to the copper plant which will transport product In
containers.
Bulk Handling and Storage Yard: This facility would be the loading and storage facility for
bulk materials arriving at the SIP and for bulk products leaving the site. Products would
include products such as metallurgical coal, thermal coal, iron ore, iron pellets and copper
ore.
4.1.5.2. BULK HANDLING AND STORAGE YARD
The stockyard would store solid bulk materials that would be unloaded from unit trains
arriving in the SIP, as well as the products that would be loaded on outgoing trains. Unit
trains would be unloaded using rotary dump equipment and the ores and bulk products
would be segregated in individual stockpiles using stacker/reclaimer equipment. The
separate stockpiles would be big enough to supply the SIP for up to two months, should
there be an interruption of the rail service for that duration. A system of conveyor belts would
enable the movement of this material between the stockyard and the different industries of
the SIP.
Concept: The storage yard is a linear arrangement of two rows of product stockpiles about
500 m wide by 4000 m long, as shown in Figure 4-10. A double track loop circles around
the arrangement, allowing two trains to be unloaded simultaneously. Each stockpile row is
70 m wide and separated from the next one by 100 m on centers. Between the rows there
are two conveyor belts each one serving one stacker/reclaimer. These stacker/reclaimers
move on two rails, straddling the conveyor belts, two on the run between the two rows.
Thus, two stackers can pile up the products of two trains being unloaded or two reclaimers
can feed the surge piles of two plants on the site after the trains have been unloaded.
The conveyor belts are fed by two dump houses with twin-car rotary dumper each. Each
dump house unloads trains on one of the two loop tracks.
At the opposite end of the yard, the conveyor belts cross the loop tracks and feed a system
of belts serving each of the plants in the industrial park that requires bulk material.
Trains that must be loaded with outgoing products would pass under a loading tower at the
other end of the track loop. The tower would receive the products via a conveyor belt fed by
a reclaimer from the appropriate stockpile.
Several receiving and sending tracks are provided for trains arriving at and leaving from the
storage yard, as shown in the lower portion of Figure 4-10. Trains on the receiving tracks
wait for their turns to unload at one of the dump houses, while trains on the sending tracks
have their cars and locomotives inspected and wait for their scheduled dispatch time.
A freight car repair and overhaul facility would also be available near these tracks to service
all the trains going to/from or passing by Sainshand. A locomotive repair shop would also be
available there. This would enhance the role of Sainshand as a major rail hub for the entire
country.
The ideal location for the bulk storage yard would be on one of the edges of the industrial
park. This would leave open the opportunity of expanding the yard by adding more stockpile
rows, as needed. The location for the sending/receiving tracks is more flexible. They can be
placed where convenient, near or at some distance from the storage yard. They can be
arranged in a straight line or be placed along a curve, to best suit the site.

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Figure 4-9. Sainshand Rail Facilities

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Figure 4-10. Bulk Handling and Storage Facility

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Dump House: The dump house shelters a
rotary dumper such as the one shown in Figure
4-11. It is assumed that a dual-car dumper
would be used at SIP for higher productivity.
Under the dumper, there is an unloading
hopper, about the length of two cars. At the
bottom of the hopper, a hydraulically operated
gate controls the flow of material onto the
collecting conveyor. This belt then drops the
material onto a transverse belt that exits the
dump house via a tunnel and feeds the
stockyard conveyor belts.
The dump house has a mechanism to
automatically pull the string of cars into the
Figure 4-11. Coal Car Unloaded in a Rotary Dumper
rotary dumper, clamp the two cars securely and
rotate them to dump their load. This requires the
cars to be equipped with Janney couplers with rotating shaft. This whole cycle of pulling the
cars, positioning them, securing them, rotating and dumping their load, and releasing them
takes 1.5 to 2 minutes. Without these couplers, the cars would have to be uncoupled
manually and re-coupled. This would be labor intensive, dangerous, and would more than
double the cycle time.
The dump house is a large structure (Figure 4-12, about 25 m from top to bottom, with twothirds of it underground, and 40-45 m long. As an alternative, the track can be elevated
4-8 m from the surrounding ground on a trestle. This would reduce the amount of
excavation needed for the dump house.

Figure 4-12. Dump House with Rotary Car Dumper

The rotary dumper is recommended for operations at Sainshand because it performs more
reliably through extremes of temperature and it offers a better control of the dust problem.
Also, its operating performance is more predictable in cold climates where frozen loads are
expected than using bottom-dump hopper cars. An 80 car train could be unloaded in 1.5 to
two hours through a rotary dumper.
Bucketwheel Stacker/Reclaimers: A traveling slewing stacker serves stockpiles to the
left and right of the stockpile yard conveyor. Controlled remotely, it can build a stockpile in
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chevron, coneshell, or windrow
stockpiling modes. This type of stacker
(Figure 4-13) is the most versatile
since it is able to slew from a stockpile
to the other side of the yard conveyor
and build equal stockpiles on both
sides of the yard feed conveyor. The
tripper is connected to the traveling
stacker and serves to transfer material
from the longitudinal stockyard
conveyor onto the boom conveyor.
The stacker (Figure 4-13) consists of a
rigid box girder design of a three-point
system connecting to a slewable
Figure 4-13. Slewable Bucketwheel Stacker/Reclaimer
upper carriage design by way of slew
bearing, slew gear and slew drive
pinions. The upper carriage also has the box girder design and carries the boom pivot. The
luffing motion is often done by hydraulic cylinder and balanced by concrete counterweight
designed to slew and pass under the tripper car. Stackers and trippers are designed for
variable speed travel and can be quickly relocated from one place of the stockpile to
another. This machine can be operated in a manual mode, semi-automatic mode or fully
automatic mode from a central control station.
Bucketwheel reclaimers, traveling on a rail track alongside the piles of material, can reclaim
stockpile sections selectively. This is carried out in four quadrants (directions) on both sides
of the track. Within the traveling limits and operation radius, active stockpiles can be
deposited and reclaimed up to both boundary zones, and the bucket-wheel can cut into
them from both ends.
Loading Tower: The loading tower is basically
a silo, supplied by a conveyor belt from above,
straddling the rail track and containing about a
full trainload of material (Figure 4-14). The
bottom of the silo is controlled by a strong
bottom gate that feeds the material into a surge
hopper. At the bottom of the surge hopper
there is a very fast and accurately operated
gate that allows the flow of material to be
quickly stopped at the end of a car and quickly
restarted at the beginning of the next car, while
the train moves continuously under the tower at
0.5 to 1.0 kph. The whole loading operation
can take about an hour and a half for an 80 car
train.

Figure 4-14. Loading Tower

Under the track there is a set of load cells which measures accurately the weight of the car
and stops the flow of material to ensure that the proper load has been reached and that the
maximum axle load is not exceeded. The loading space under the tower is also equipped
with a dust control system.
Conveyor Belts: The main stockyard belts are high capacity 1.5 m wide belts that can
handle some 4000 to 5000 tonnes per hour at five m/s. The belt has a trough in the middle
third and the sides are inclined at a 300 angle. This matches the capacity of a twin-car
rotary dumper, processing two cars (150 tonne load) every two minutes.
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The other belts that distribute the solid bulk material to the different plants (see
Figure 4-10), can have half that capacity because they essentially replenish the surge piles
of each plant during most of the day.
4.1.6.

OWNERSHIP AND OPERATING ASSUMPTIONS

4.1.6.1. OWNERSHIP ASSUMPTIONS


It is assumed that ownership of the railroad infrastructure inside the boundary of the SIP
would be between the Owner of the SIP complex and the individual Industries, with the
Industry property boundary being the delineation between owners.
Ownership of the captive rolling stock (that rolling stock that is specifically dedicated to a
single industry or point of origin) would be by the industry or originating entity (i.e. mine, oil
field, etc.). Ownership of undesignated rolling stock (that which is assigned by the railroad
for small shipments to different industries) would be by the operating railroad.
4.1.6.2. OPERATION AND MAINTENANCE OF FACILITIES
It is assumed that operation and maintenance of railroad infrastructure would follow
ownership for the most part. However, it is possible that track maintenance on SIP owned
tracks as well as individual industry owned tracks may be performed by the operating
railroad Maintenance of Way (MOW) forces and charged to the track owners. The
operating railroad would have authority to cause maintenance to be done if, in its opinion,
such maintenance is required for safe operation of its rolling stock over the tracks in
question. Typically, the division of responsibility for track ownership and maintenance
occurs at the clearance point at the turnout on the lead, siding or spur track, but in some
cases, ownership is setback from the clearance point in order for the operating railroad to
ensure it can clear its mainline tracks with a delivery.
4.1.6.3. ENVIRONMENTAL CONSIDERATIONS
Environmental impacts of the rail system will be those which are normally associated with
rail systems in general. These include primarily noise, diesel exhaust, spillage of product
along the route, disruption of migratory paths for animals, localized changes to the
topography and drainage patterns and interference with grazing patterns for indigenous
people. An evaluation of the impact of the rail system on the environment must be made
against the consideration of the alternatives to rail transportation for raw and finished
material into and out of the Sainshand Industrial Park. Clearly the only alternative to rail
transportation is by truck and the relative environmental impact of these two modes of
transportation clearly favors rail over trucks. Rail transportation uses 5 times less fuel and
generates one third the CO2 per ton-km than trucking. Rail traffic generates significantly
less dust and noise than trucks as well.
Railroads do a very good job in addressing hazardous waste generation, industrial
wastewater, stormwater and air pollutants including at fixed facilities. These programs are
well developed, understood and implemented as part of the design & execution process. It
starts with a design that considers environmental issues, such as hazardous and solid waste
management, industrial water discharge, storage tanks, stormwater runoff, used oil and
battery recycling. Oil water separators, retention basins for runoff, spill dikes for storage
tanks, on track spill mats all become part of an environmental strategy that minimizes their
effects on the environment .
Impacts to migratory paths of animals are mitigated through the use of animal crossings
located strategically along the railroad where they cross known animal migration routes.
Impacts to grazing patterns for herder populations can be mitigated in a similar manner by
providing animal crossings for use by herders to traverse the railroad without being
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interrupted or interfered with by train traffic. All of these impacts and more will be the focus
of comprehensive project Environmental Impact Assessment which will include mitigation
measures to be in place during the development and operation of the railroad infrastructure.

4.2.

HIGHWAYS

4.2.1.

INTRODUCTION AND BACKGROUND

Ground access is an integral part of the plan for the new industrial site. The ground access
system would consist of roadways, interchanges, and intersections, gates, parking and
loading/unloading facilities. The system would provide access from the existing road
network to site lots and would include necessary circulation lanes. The system must be
safe, efficient, convenient for use, and designed for optimum cost. To meet these
objectives, the ground transportation system would provide:

Ease of operation through adequate capacity for peak-period demands

Reduction of conflicts by separating different traffic functions and minimising weaving

Clarity of path to minimise driver decisions, simplify signage, and minimise driver
confusion and error

Proper geometry suitable for the adopted roadway design speeds (for safety), and
for an aesthetically pleasing design of the transportation system that is compatible
with other facilities and systems

Optimal initial construction cost through the use of existing highways and staged
construction

Flexibility for future development options by establishing and retaining clear rights-ofway to accommodate increases in capacity, providing expansion for transit services,
and providing for a complete system within the project.

4.2.2.

EXISTING HIGHWAYS AND CONDITIONS

Some of the streets in Sainshand are paved, especially from the rail station through the
recently developed part of town, where brick and block buildings are typical. In the
residential area, there are mostly enclosed plots with one or more gers, and unpaved
streets.
Intercity highways towards Ulaan Baatar, Zamin Uud, and Zuunbaayan are simple desert
trails with no pavement. They are basically construction and haul roads that follow the
railroad tracks.
4.2.3.

HIGHWAY STANDARDS

As design standards specific to Mongolia were not made available, for planning purposes,
roadway design criteria have been based on the American Association of State Highway
and Transportation Officials standards (Reference 4.2.i). The general criteria include
functional classification, design vehicle considerations, traffic characteristics and level of
service (LOS).
4.2.3.1. GENERAL CRITERIA
Functional Classification
The hierarchy of the functional system consists of principal arterials, collectors, and local
roads and streets.
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Principal Arterial System: The urban principal arterial system serves the major
centers of activity of an urbanized area, the highest traffic volume corridors, and the
longest trip desires and carries a high proportion of the total urban area travel.
Arterials are expected to provide a high degree of mobility for the longer trip length.
Therefore, they should provide a high operating speed and level of service.

Collector System:
Collector routes are routes on which travel distances
predominately are shorter than on arterial routes. The collector road system
provides land access service and traffic circulation within residential neighborhoods,
commercial and industrial areas. Collectors serve a dual function in accommodating
the shorter trip and enhance mobility. They should provide some degree of mobility
and also serves abutting property. Thus, an intermediate design speed and level of
service is appropriate.

Local roads and street system: The local street system constitutes all roads not
classified as principal arterials, or collector roads. It primarily permits direct access
to abutting lands and connections to the higher order systems. It offers the lowest
level of mobility. Local roads and streets have relatively short trip lengths, and
because property access is their main function, there is little need for mobility or high
operating speeds. This function is reflected by use of a lower design speed and
level of service.

Design Vehicles
Highway geometry must be based around the physical characteristics and proportions of the
vehicles using the highway. Four general classes of design vehicles have been established:
(1) passenger cars, (2) buses, (3) trucks, and (4) recreational vehicles. The design vehicle
for industrial roads, turning paths and turning lane width shall be determined from truck turn
templates for the proposed design vehicle WB 50 (AASHTO).
Traffic Characteristics

The Peak Hour Factor is the accepted unit for expressing flow rate in a one-hour
period. It is customary to design highways with a sufficient number of lanes and with
features that will enable highways to accommodate the forecasted DHV (Design
Hourly Volume) for the design year. The peak hour factor (PHF) is used to convert
the rate of flow during the highest 15-minute period to the total hourly volume.

The design hourly volume (DHV) is the traffic volume for the peak hour of the
average day of the peak month.

The design traffic volumes shall be based on design year traffic as determined.

The level of service, shown in Table 4-7, characterizes the operating conditions of
the facility in terms of traffic performance measures related to speed and travel time,
freedom to maneuver, traffic interruptions, and comfort and convenience. The level
of service ranges from level-of-service A (least congested) to level-of-service F
(forced or breakdown flow).

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Level of Service

General Operating Conditions

Free flow

Reasonably free flow

Stable flow

Approaching unstable flow

Unstable flow

Forced or breakdown flow


Table 4-7. Level of Service - LOS

The proposed level of service (LOS) for Sainshand for initial development is B and for
limited peak times LOS D is acceptable.
The functional classification of the roadway system, the design vehicle, the traffic
characteristics and the LOS provides the context in which the roadway design criteria
elements are to be applied.
Typical Geometric Cross Sections
Geometric cross sections showing components for typical roadways are illustrated In
Figure 4-15, below.
4.2.3.2. DETAILED DESIGN CRITERIA
After the functional classification, design vehicle, traffic characteristics and desired level of
Service (LOS) are established then the specific detailed design criteria for roadway design
can be applied. Specific design criteria include but are not limited to the following:
Stopping Sight
Distance shall be in accordance with AASHTO policy. See Table 4-8 below for Stopping
Sight Distances.

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Figure 4-15 Typical Cross Sections


METRIC
Stopping Sight Distance

Design Speed
(km/h)

Brake Reaction
Distance (m)

Braking Distance
On Level (m)

Calculated (m)

Design (m)

20

13.9

4.6

18.5

20

30

20.9

10.3

31.2

35

40

27.8

18.4

46.2

50

50

34.8

28.7

63.5

65

60

41.7

41.3

83.0

85

70

48.7

56.2

104.9

105

80

55.6

73.4

129.0

130

90

62.6

92.9

155.5

160

100

69.5

114.7

184.2

185

110

76.5

138.8

215.3

220

120

83.4

165.2

248.6

250

130

90.4

193.8

284.2

285

Table 4-8. Stopping Sight Distance


Note: Brake reaction distance predicated on a time of 2.5 sec: deceleration rate of 3.4 m/s [11.2 ft/s] used to
determine calculated sight distance.

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Crest Vertical Curves
Crest Vertical Curves shall be in accordance with AASHTO policy. See Table 4-9 below for
design controls for stopping sight distance and Crest Vertical Curves.
METRIC
Rate of Vertical Curvature, K*

Design Speed
(km/h)

Stopping Site Distance


(m)

Calculated

Design

20

20

0.6

30

35

1.9

40

50

3.8

50

65

6.4

60

85

11.0

11

70

105

16.8

17

80

130

25.7

26

90

160

38.9

39

100

185

52.0

52

110

220

73.6

74

120

250

95.0

95

130

285
123.4
124
Table 4-9. Design Controls for Stopping Sight Distance and Crest Vertical Curves

*Rate of vertical curvature, K, is the length of curve percent algebraic difference in intersection grades (A).
K=L/A

Sag Vertical Curves


Sag vertical curves shall be in accordance with AASHTO policy. See Table 4-10 below for
Sag vertical curves.
METRIC
Rate of Vertical Curvature, K*

Design Speed
(km/h)

Stopping Site Distance


(m)

Calculated

Design

20

20

2.1

30

35

5.1

40

50

8.5

50

65

12.2

13

60

85

17.3

18

70

105

22.6

23

80

130

29.4

30

90

160

37.6

38

100

185

44.6

45

110

220

54.4

55

120

250

62.8

63

130

285
72.7
Table 4-10. Design Controls for Sag Vertical Curves

73

*Rate of vertical curvature, K is the length of curve (m) per cent algebraic difference intersecting grades (A),
K=L/A

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Horizontal Curves
Horizontal Curves shall be in accordance with California Department of Transportation
(Caltrans) policy (Reference 4.2.ii). See Table 4-11 below for Caltrans standards for curve
radius.
Design Speed

Minimum Radius

K/h (m/h)

Of Curve m (ft)

32 (20)

40 (130)

48 (30)

92 (300)

65 (40)

168 (550)

80 (50)

260 (850)

97 (60)

350 (1,150)

112 (70)

640 (2,100)

128 (80)

1190 (3,900)
Table 4-11. Standards for Curve Radius

Additional elements of roadway design criteria are noted below:

Maximum Grade: The maximum grade for the roadways shall be six percent.

Standard Lane Width: The standard lane width for all roads is 3.65 m.

Vertical Overhead Clearance:


The minimum vertical clearance for highway
structures shall be 4.6 m (15 feet) over the traveled way and 4.42 m (14 feet,
6 inches) over the shoulders of all portions of the roadbed.

Minimum Curve Radius: The minimum curve radius for right turns in intersections is
15 m.

Vertical Clearance for Railroad Structures: The minimum vertical clearance for
railroad structures shall be 7.0 m (23) feet for non-electrified rail systems.

Pavement Surface Type: The selection of pavement type is determined based on the
traffic volume and composition, soil characteristics, weather, performance of
pavements in the area, availability of materials, energy conservation, initial cost, and
the overall annual maintenance and service-life cost. The structural design of
pavements is addressed in the AASHTO Guide for Design of Pavement Structures
(Reference 4.2.iii).

Roadway Drainage: While drainage design considerations are an integral part of


highway geometric design, specific drainage design criteria are not included in
AASHTO policy. However the AASHTO Highway Drainage Guidelines should be
referred to for general discussion of drainage, and the AASHTO Model Drainage
Manual should be referred to for guidelines on major areas of highway hydraulic
design.

4.2.4.

SIP HIGHWAY SYSTEM

4.2.4.1. BASIS OF DESIGN


The methodology used for deriving trip production, attraction, distribution and traffic
assignment is the conventional four-step transportation planning model. Traffic zones,
associated trip data, and the road network for the SIP site, are entered in a spreadsheet
model. The trips are then assigned to the road network following the shortest paths. The
peak hour traffic volumes are then tallied up for each road segment and direction, as well as
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for all turning movements of the most important intersections. For ease of interpretation,
this data is plotted on a layout of the site showing all the roads and their intersections
(Figure 4-16).
Origins and Destinations
To study the internal traffic movements, the site is divided into a number of traffic zones,
from which traffic is generated (origins) and/or attracted (destinations). For personnel trips
each plant of the site is a destination but is also an origin on the return trip. All the personnel
trips are assumed to start in the new community. For simplicity, these trips would assume as
originating at the sites West Gate (node WG). The following identifies the traffic zones that
are used in the study (Table 4-12):
Traffic Zones

Codes

Cement Plant

CMP

Iron Pellets

IRP

DRI Plant

DRI

Coke Plant

CKP

Power Plant

PWP

Gasification

GAS

Copper Smelter

CPS

Copper Refinery

CPR

S. Mongolian Railway

SMR

Common Area Facility


CAF
Table 4-12. Origins and Destinations

Each zone has one or more interfaces to the network, called the connector. It is generally
the gate or entrance to the zone. The traffic inside the zone is not represented, but is
assumed to follow the connector to the point of origin or destination of the trip (centroid). In
Figure 4-16, the codes of the zones are placed where the access road (connector) to the
gate or entrance intersect the nearest road segment.
Trips Generated by the Plant Personnel
For each plant, an estimate for the number of employees was developed, using information
provided by technology providers of the individual plants, and Bechtels industrial experience
data base for plant areas not specifically covered by technology providers. Table 4-13
below summarizes the estimated number of employees for all of the plants. It is assumed
that the plants would operate around the clock and every day of the year (24/7 365) and
would run several shifts in addition to the day shift to make continuous operation possible.
The day shift is likely to have the largest number of employees and will generate the
highest traffic volume.
Within each shift the estimated number of employees is broken down into the type of
employees required for operations, maintenance, engineering, administration and security.
Furthermore, they are classified in one of three categories: Blue collar, Professional, or
Management employees. This in turn will determine their expected mode of transportation
and time of travel.

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GAS

Figure 4-16. Origin, Destinations and Network Nodes

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Day
Shift

Operational Shifts
(3 shifts)

Total
Employees

Administrative

Process

Engineering

Operations

227

1,337

1,564

318

318

Administrative

101

101

Process

38

38

Engineering

28

28

Operations

51

51

Maintenance

64

64

TOTAL

509

1,655

2,164

Plant Personnel

Category

Shift Staff

Maintenance
Day Staff

Blue Collar (B)

67%

341

1109

1450

Professionals (P)

22%

112

364

476

Management (M)

11%

56

182

238

TOTAL

509
1655
Table 4-13. Summary of Plant Personnel by Shift and by Category

2164

In addition to the number of employees working for each plant, there are a number of other
personnel that will be engaged in administration, services, operations and maintenance of
the common areas of the site, including the rail classification yard and maintenance
facilities. Table 4-14 summarizes these non-plant personnel and categorizes them in the
same way to determine their mode of transport and time of commute. They are assumed to
be equal to 20% of the employees of the site.
Day visitors to the site will add a small percentage of traffic to the total number generated by
daytime employees on site. As shown in Table 4-15, it is estimated that the number of daily
visitors will be about 10% of the total day shift employees (plant and non-plant).
20%

Day
Shift

Operational
Shifts (3 shifts)

Total
Employees

Blue Collar (B)

67%

68

222

290

Professionals (P)

22%

22

73

95

Management (M)

11%

11

36

48

Non- JV Employment (% of all employees)

Total Non JV Employees


101
331
Table 4-14. Summary of Non-Plant Personnel by Category and by Shift

Day Visitors
Percent of Total Day Shift Employees
10%
Table 4-15. Estimate of Day Visitors

433

Day

Total

61

61

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Trips Generated by the Truck Traffic
All the products and commodities needed for the operation of the plants are estimated and
described in the Balance of Materials spreasheet, together with all the estimated industrial
outputs. These quantities were developed based on information provided by technology
suppliers as described in Section 2 above. Most of them are large quantities of solid bulk
material and move by unit trains on the railroad. Based on those that are moving by surface
modes, an estimate of yearly tonnage and truck movements within the site was established.
Table 4-16 below lists the estimated total number of trucks for each of the plants. Traffic
volumes are presented per year, per week and per day for the ultimate production. The
volumes assume that the shipments within the site occur throughout the year, based on a 6day week. The biggest traffic generator is expected to be the cement plant, with various
minerals from local quarries which are located primarily east of the site, such as:
Limestone (brought in by rail cars)
Basalt
Clay
Silica
Steel Slag (provided internally)
Industries Truck Movements to the Site

Truck
per year

Truck
per week

Truck
per/day

Cement Plant

To/From the East Gate

31867

738

123

Iron Pellets

To/From the East Gate

2267

53

DRI Plant

To/From the East Gate

168

Coke Plant

To/From the East Gate

728

17

Copper Smelter

To/From the East Gate

3237

76

13

To/From the East Gate


38267
888
Table 4-16. Summary of the Truck Movements (Supplies) for each Plant

TOTAL

148

Modal Split for Personnel and Freight Movements


The traffic mix within the site includes cars, vans, buses, small, medium and heavy goods
vehicles which all occupy different spaces on the traffic lanes. In order to add up these
vehicles, they must first be converted to a number of car equivalents or Personal Car Units
(PCU). For a car, the PCU factor is 1.0 by definition. For longer, heavier vehicles it is
greater than one and can reach two for semi-trailers.
For personnel, the vehicle used would depend on their employee category. Managers,
Professionals and, visitors are likely to travel almost exclusively by passenger vehicles.
Blue collar workers will travel in 40-seat buses. These modal splits are summarized in
Table 4-17, below. Average assumed vehicle occupancy or load is shown to the right of the
modal split column.
Cars (PCU = 1)

Buses (PCU = 1.5)

Modal
Split

Average
Occupancy

Modal
Split

Average
Occupancy

Managers

100%

1.2

0%

20

Professionals

100%

1.5

0%

40

0%

3.0

100%

40

Blue Collars

Visitors
100%
1.5
0%
20
Table 4-17. Employees/Visitors Movements Modal Split and Occupancies

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It is assumed that trucks would all be semi-trailers carrying minerals and aggregates from
the local quarries. Each truck is assumed to have a 30 tonne load and dump it in a yard of
the appropriate plant. The only product that will be distributed from the site is bulk cement in
special trucks which are pneumatically loaded. These will carry an assumed 25 tonne load.
Traffic Distribution
The employees will arrive at the west gate where they will proceed through a controlled
security gate. Once within the site the personnel will move to their final destination on the
same vehicles. The distribution of the personnel traffic within the site can be represented by
desire lines connecting their origin to their destination. As shown in Figure 4-17, the desire
lines represent the peak hour for personnel vehicles which occurs in the morning commute
from the West Gate to their individual plant in the site.
The truck trips are assumed to come from the local quarries to the east. For simplicity, they
will be assumed to start from the East Gate. The only output product will be bulk cement
which will move from the cement plant to the East Gate, and from there, they will fan out to
Sainshand and other locations where cement is needed for construction. Figure 4-18 shows
the distribution of truck traffic using desire lines.
Assignment of Movements to the Network
The next step is to assign the traffic to the road network within the site. The road network
was presented in Figure 4-16 and it consists of the nodes that are connected by segments
to represent the intersections and roads respectively. Traffic is assigned assuming vehicles
will take the shortest path from their origin to their destination. Given that the peak hour for
personnel movements and truck movements do not overlap they will be considered
separately.
Personnel Trips. In the case of personnel trips we consider the morning commute as the
peak hour. In this case we assume that works hours would not be staggered and that all
plants start work at the same time. Figure 4-19 shows the assignment of the morning
personnel commute assuming 100% of these day employees arrive within the same hour. A
staggered work schedule would help reduce the traffic to almost half. However even with all
the commute occuring in the same hour, the traffic is still light, and the need for staggered
shifts is not required.
Truck Trips. For the truck traffic the peak hour occurs at a different time of day than the
personnel peak traffic. Therefore the truck trips are considered separately and assigned to
the network with no personnel movement. During the trucking peak hour we are assuming
15% of the day traffic will move within the site. The volumes for each segment of the road
during the peak hour are shown in Figure 4-20.
Traffic Management
As illustrated in the previous section, the expected peak hour traffic volumes are relatively
light and manageable. In the case of the personnel trips the busiest intersections are after
the West Gate, going to the first access corridor. The traffic entering this intersection is less
than 300 vehicles per hour.
In the case of truck traffic the busiest section is the road just after entering the East Gate
with less than 100 vehicles in the peak hour. The first intersection after the East Gate
serving the second access corridor has the highest number of turning movements, with
almost all the trucks going to the cement plant.
Given the light traffic volumes within the site, signalized intersections are not warranted.
Instead the intersections can be controlled with the use of stop signs. Four-way stop signs at
intersections are adequate to regulate the flow of traffic. For some intersections where
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through traffic is higher than the traffic from a side street, two-way stop signs can be
combined with yield signs to give priority to certain traffic.

GAS

Figure 4-17. Desire Lines Morning Peak Hour Personnel Vehicles (PCU)

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GAS

Figure 4-18. Desire Lines Peak Hour Trucking (PCU)

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GAS

Figure 4-19. Peak Hour Traffic Volumes for Personnel (PCU)

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GAS

Figure 4-20. Peak Hour Traffic Volumes of Trucks (PCU/hr each way)

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4.2.5. DESCRIPTION OF THE SYSTEM
The standards used for the road capacities, speed and geometry are shown in Tables 4-18
and 4-19, below.
Standard
Lane width

Standard
Level of service

Arterials and Collectors

3.65 m

Local access roads

3.65 m

Plant access roads

B or C*

Minimum right-of-way width


1-lane, one-way road

9m

800 - 1,200 veh/hr

2-lane road, no median

14 m

Local access roads

400 - 500 veh/hr

4-lane road with median

23 m

Other service roads

400 - 500 veh/hr

Lane volume
Arterial and collector roads

Stopping sight distance

Design speeds
Arterial and Collector roads

100 km/hr

40 km/hr

50 m

Plant access roads

40 km/hr

100 km/hr

200 m

Other service roads

40 km/hr

Decision sight distance

Maximum longitudinal grades

40 km/hr

150 m

Arterial and Collector roads

3%

100 km/hr

400 m

Plant access roads

4%

Ramps

6%

Minimum vertical clearances


Roadways under structure

5.5 m

Car Parking garage

2.2 m

Minimum Ramp Spacing


Entrance-to-exit (weave) on road
Arterial and Collector roads

600* m

Plant access roads

480* m

Table 4-18. Roadway Planning Standards

Table 4-19. Roadway Operating Standards

*Weaving analyses may show needs for longer distances

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4.2.6. DESCRIPTION OF THE HIGHWAY SYSTEM LAYOUT


The existing roads are shown in solid
orange in Figure 4-21 while the new
roads are in dashed orange. The
existing roads are largely unpaved
desert roads. In the existing Sainshand
settlement, some of the streets are
paved.
From Sainshand, going north, is the
Ulaan Bataar section (left of Figure 420). From Sainshand, going south, is
the section going to the Chinese border
city of Zamin Uud (top and right of the
figure). The third road goes southwest
from Sainshand to Zuunbayan (bottom
of the figure). These roads will become
national highways and will be eventually
paved and designed for inter-city and
international traffic.
The SIP is located between the road to
Zamin Uud and the road to Zuunbayan.
A new road will bisect it, and connect to
each of these roads with a full at-grade
intersection. This will give the flexibility
of accessing the site from two directions,
should one direction be blocked by an
accident or road work. Where the road
enters the site, there will be a security
gate, both on the west boundary and the
east boundary.
Depending on the
security procedures and on the time
needed to clear each vehicle, a number
of security lanes will be planned so that
the queue length per lane should not
exceed four vehicles.
Access to the communities will require
the road to go across the classification
yard, either through a tunnel or an
overpass.
Whether the Community
Alternative A or B is chosen, there will
be at least two access roads to reach
the community from different directions.
Road and rail crossing are minimised by
having the rail enter the site on the
southern boundary. It will cross the road
Figure 4-21: Existing and New Highways Servicing the Sainshand Industrial Park
to Zuunbaayan, which will have very
light traffic. A simple at-grade crossing
will then be sufficient. The track loop for unloading the unit trains will be on the southern end of the site and will not cross any roads. Another track will follow the same right-of-way, but will then turn into the site to
provide industrial sidings to the cement plant and the copper smelter. These industrial sidings will be parallel to the roads in the central corridors of the site and will cross them at the point of entry in the plants.
Switch engines will come once a day or less to drop-off or pick up railcars from these plants, usually outside shift changing times. Conflicts between road and rail will be at a minimum.
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SITE DEVELOPMENT1

5.

Except where stated otherwise, the design basis contained in this Section is based on data
and design bases provided by NDIC or on behalf of NDIC by other agencies of the
Government of Mongolia contacted by Bechtel at NDICs direction. Where specific data was
not so provided, Bechtel has developed further details from the data that was provided, and
made assumptions to develop the Site development parameters. The objective of these
assumptions is to specify an industrial park that meets the overall intent, as conveyed to
Bechtel, of NDIC for the proposed facility. Except where stated otherwise, NDIC has
previously approved such developments and assumptions by approval of previous task
reports (including any changes directed by NDIC) submitted to NDIC as part of the scope of
work of this Master Plan Study.
This report describes the Site development parameters anticipated at the time of this Report
pursuant to design basis and assumptions outlined in the preceding paragraph. These
parameters may change along with other aspects of the SIP as further analysis, (including
site conditions), preliminary/ front end engineering, detailed design, further investigations
and other necessary data and services are performed which are not part of the scope of this
Master Plan Report but which are necessary before making any capital investment
decisions.

5.1.

INTRODUCTION

Site Development is a crucial early works activity for the new industrial site at Sainshand
Industrial Park. Site Development includes the early preparation activities of clearing and
grubbing, cut and fill works for grading the pad site, rail yard, road and rail networks,
material handling facility areas, installation of drainage elements and stormwater detention
ponds. The objectives of the site development task are to provide a baseline infrastructure
platform from which to construct follow on works including the development of the industries,
facilities, and transportation at-grade as well as above grade infrastructure. To meet these
objectives, the system would provide:

Elevated and level pad site of sufficient surface area to handle follow on
development activities identified herein, including near term and mid-term identified
industrial development goals.

Level material handling area of sufficient size to handle activities identified herein,
including unit train rail operations, storage, loading and unloading of raw materials
and product.

Rail yard site of sufficient size to handle required trackwork, facilities, rolling stock for
a fully functional and operational yard site.

The ability to meet the American Railway Engineering and Maintenance-Of-Way


Association (AREMA) design criteria, Chapters 5 and 14, for Rail Yard, Unit Train
and Mainline Operations (Reference 5.1.i), respectively, for proposed trackwork
design grades, cross-section and geometry.

The ability to meet the American Association for State Highway and Transportation
Officials (AASHTO) design criteria, Chapters 3 and 4, Elements of Design and Cross

Except where specifically stated otherwise in this Report, the information contained in this Report was provided to Bechtel or
its affiliates by NDIC as the Client or third parties. In such instances, Bechtel and its affiliates have relied on the information
provided by the Client or third parties without seeking to separately confirm, verify, validate or otherwise examine the
information to determine its accuracy, completeness or feasibility.

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Sections (Reference 5.1.ii), respectively, for proposed roadway design grades,
cross-section and geometry.

On-site, low maintenance, stormwater conveyance and detention facilities of


sufficient sizing to convey the 100 year storm event2 without risk of site inundation, or
damage to proposed rail and roadway infrastructure.

Off-site by-pass routing of adjacent watershed stormwater to convey the 100 year
storm event1 without risk of site inundation, or damage to proposed rail and roadway
infrastructure.

Adequate, low maintenance site erosion and sediment controls to prevent damage to
all site developed road and rail infrastructure.

Adequate, low maintenance water quality measures for site surface water runoff.

5.2.

EXISTING TOPOGRAPHY

Topography for the Sainshand Industrial Project site was extracted from Google Earth Pro
Computer Software, Version 6.1.0.4857, Build Date 10/01/2011. Data extracted through
Google Earth Pro is SRTM 90 m point data originally co-produced by USGS and NASA.
Stated accuracy of this data in the vertical datum is limited to plus/minus 16 m. Bechtel has
relied upon this data for the topographical content of this section 5
The proposed Sainshand Industrial Complex site sits in what is essentially an undeveloped
basin immediately to the south of the Town of Sainshand, Mongolia. The region lies in the
eastern Gobi desert steppe region. The area is very arid with reported average yearly
rainfall of approximately 110 mm (Table 5-3). Granulated well-draining sandy soils are
prevalent, and the area is considered lightly vegetated with patchy grasses and short
shrubs. A ridge line of hills border the site to the north and south. The site lies at the
bottom of a dry lake basin, approximate elevation 892 m and roughly 20-30 kilometers
square, which drains the nearly 450 square kilometer watershed to the proposed site from
all directions (including the town of Sainshand). Evidence in publically available imagery
suggests that the basin fills with up to several meters of water during major, yet historically
infrequent storm events. Elevation differential between the basin and nearby hills of the
watershed perimeter is approximately 150 m, suggesting gently sloping terrain (+/- 1%
gradient) with localized small ridges, hills and dunes. To the south of the basin appears to
be a naturally occurring spillway at approximate elevation 897 m, should the basin fill to
such levels. Refer to Figure 5-2 for additional details of the existing site.

Reliable records do not exist prior to 1976. Assumption based on recorded single maximum event in 1976 (See Reference
5.4.i).

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Figure 5-1. Proposed Sainshand Industrial Park Location


Source: SRTM 90 m Digital Elevation Database v 4.1, Consortium for Spatial Information (website).

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Figure 5-2. Existing Contours for Sainshand Industrial Park Site

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5.3.

GRADING

5.3.1.

SIP GRADING CONCEPT

The Sainshand Industrial Park grading concept consists of several individual parts including
the individual plant areas, Material handling and Storage area, Rail Yard, Stormwater
Detention Ponds, and Off-Site re-grading.
For the core SIP areas, including the plants areas and material handling and storage, the
site was graded as a level pad to accommodate the build out of the planned industry. As rail
service is being provided to select industries, it was determined that a level pad would best
meet the requirements for industrial siding track geometry. The level pad approach also
allows for future expansion of rail sidings without major site works. The site was graded to
an elevation, 898.64 m which appears to best suit the objective of balancing cuts and fills,
allow for installation of the drainage infrastructure on modest gradients, while also elevating
the southern and western areas of the site in order to minimize flood risk from the naturally
occurring drainage basin. The Eastern most portion of the site within the industrialized area,
which is elevated slightly above the prepared site was not graded since no identified plants
require the use of this space in the currently proposed plan.
The material handling and storage area is also a level pad serviced by unit train operations
in a double loop configuration. The area is located immediately adjacent to, and south of,
the industrial park zone. In order to facilitate site integration with roadway infrastructure and
conveyor operations, the material handling area was placed at the same elevation as the
SIP industrial plants.
The Stormwater Detention Ponds were designed to maximize the available remaining space
on the western end of the site. Natural topography dictated the logical placement of these
facilities in the area of the low point of the drainage basin in order to minimize required
excavation. Pond 1 (northwesterly) is the main collection pond placed at elevation 893 m.
All stormwater conveyed from the developed site, as well as naturally occurring watersheds
to the North and Northwest discharge directly into Pond 1. Pond 2 (southwesterly) is
considered the overflow pond, graded at elevation 892 m. In addition to site overflows from
Pond 1, Pond 2 also collects discharge from the natural watersheds to the West and South.
The Rail yard pad site concept is designed to meet AREMA standards for trackwork
geometry. Rail yard trackwork longitudinal grade are required to be essentially flat, and so
the Rail yard pad site mimics this criteria. Due to the site topographical constraints from the
existing mainline rail route (Sainshand-Zuunbayan) elevations, entrance and exit grades, the
rail yard site was elevated to 912 m, necessitating over 16 million cubic meters of fill
material. Elevating the Rail Yard also provides the additional benefit of alleviating flood risk
from offsite stormwater flows.
The offsite area re-grading sits immediately East of the designated SIP parcel. It is a large
area encompassing approximately three square kilometers at the base of the eastern
primary watershed. The concept entails re-grading this area and development of a
boundary berm area to re-channelize the offsite stormwater runoff into a diversion culvert for
conveyance through and beyond the site boundaries to a southerly discharge point.
Figure 5-3 identifies the proposed cuts and fills areas for the SIP site:

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Figure 5-3. Estimated Cut and Fill Areas for Proposed Sainshand Industrial Park Site Concept

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5.3.2. CUT/FILL REQUIREMENTS


An objective of the site development task is to provide, as nearly as possible, a balanced
quantity of excavated cut and fill while simultaneously addressing the other concerns noted
above. The estimated cut and fill requirements are noted in Table 5-1.
QUANTITIES
Sainshand Civil
Quantities

Earthwork:
Cut

CM

30,458,330

4,905,663

13,886,608

Fill

CM

41,636,300

Imported Fill*

CM

Imported Fill
Required

Rail Yard

Off-Site Area

Pond 2

Unit

Pond 1

ITEM

SIP Pad Site

AREA

TOTAL

128,990

50,360,078

2,228,492 16,816,145

60,680,942

980,487

10,320,864

10,320,864
-

*Local On-Site Material from <8km haul distance

Table 5-1. Estimated Cut and Fill Quantities for Sainshand Industrial Park Site

The site is not completely balanced primarily due to the large fill required at the Rail Yard.
However, it is assumed that all imported fill would be excavated from local sources
surrounding the parcel and hauled no further than 8 km distant.

5.4.

DRAINAGE

5.4.1. SIP DRAINAGE CONCEPT DRAINAGE


The Sainshand Industrial Park Drainage Concept is sub-divided into two separate design
approaches, Off-site stormwater runoff which must be collected or by-passed and SIP
developed site runoff which must be collected, detained and discharged as required. The
selected location for the SIP sits at the low point of a large watershed (>450 sq km) on top of
a dry lake bed (approx 20-30 sq km). The stormwater runoff during a maximum event
(100 year storm) will collect from all directions and collect in the basin area. Aside from a
few currently installed cross culverts and channeling berms installed to convey flows under
the existing railroad lines to the east and west of the site, the site is wholly undeveloped with
natural channels. Due to a relatively mild gradient in the watershed (approx 1% slope), very
wide, shallow washes develop in the main channelization area carrying the runoff. The main
channel is poorly defined and appears to concentrate and disperse regularly as water
traverses to the main basin.
Figure 5-4 highlights the size of the Sainshand Drainage Watershed, as well as some of the
major defined stormwater runoff channels:

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Existing Drainage Basin

Figure 5.4. Approximate Watershed Map and Flow path Delineation

The proposed SIP site would be graded higher than the basin elevation to alleviate flood risk
and allow for a collection system to be installed at the required gradients. The offsite flows
from the main eastern watershed (approximately 200 sq km) will be collected and by-passed
through the site in a large underground box culvert (3,600 mm x 3,600 mm) installed
adjacent to the material storage facility and rail loop. The discharge point for the by-passed
flow would be located at a point south of the SIP site where natural elevations are
significantly lower than SIP. The town of Sainshand proper lies within the limits of the SIP
basin watershed, and it is assumed that the discharge flows from the town of Sainshand
eventually are received in the basin area, and as such are included in the Stormwater pond
sizing calculation. Development of the rail yard cuts through the natural drainage patterns
for the watershed areas to the North and West and the SIP access road and railway loop
track cuts through the watershed area to the South. The offsite flows from those areas are
conveyed directly to SIP detention pond areas through a series of box culverts installed
under the SIP infrastructure (roadways, rail yard, etc.).
The Detention Ponds are volumetrically sized to handle the flows generated from the
developed and undeveloped SIP as well at the off-site discharges from the North, West and
South. Detention Pond 1 is elevated one meter higher than Detention Pond 2 to allow for an
overflow scheme should Pond 1 detained volume reach the elevation of the installed
spillway. Pond 2 would also be tied into the bypass box culvert to the south to allow
overflow to exit out of the detention area and discharge to the south.
Stormwater received on site at SIP would be collected in area drains installed at the various
pad sites and channeled through underground piping to a network of reinforced concrete
storm sewer pipes and eventually routed to a main collection channel. The main collection
channel would be located adjacent to the main highway running East-West through the site.
The main collection channel would be an unlined trapezoidal section 2.5 m deep and 35 m
wide, installed at a shallow slope, and designed to handle peak 100 year storm flows from
the entire SIP site. The network would be sized to handle the fill development of the heavy
Use of this Report is subject to certain restrictions
set forth in the Important Notice.

5-8

Sainshand Master Plan Project


Draft Final Report
industrial area, including the future areas not yet planned for development. Future SIP
development would be able to connect additional storm piping directly to the existing
infrastructure without the need for upsizing. Note that this conveyance design concept does
not accommodate the northern SIP area designated for Future Light Industrial use, which
will have to be designed separately in the future.
5.4.2. RAINFALL DATA AND 100 YEAR STORM DESIGN BASIS
Design parameters utilized for the Grading and Drainage concept are outlined in Table 5.2:
Parameter

Project Design Basis

Comments

Mean Annual precipitation

30.3 to 151.4 mm/year

Source: Hong Kong


Observatory (Reference 5.4.i)

Maximum rain intensity and


duration, 100yr Storm Event

50mm/hr for 60 minutes

Assumption based on
recorded single maximum
event in 1976, AIACC Working
paper No.13 Observed
Climate Change in Mongolia,
June 2005 (Reference 5.4.ii)

100mm for 24hrs

Off-site Stormwater drainage (see Reference 5.4.iii)


Peak Flows

NRCS Peak Flow Method

Natural Resources
Conservation Method

Time of Concentration

NCRS Equations

Natural Resources
Conservation Method,
Maximum value of 10 hours,
watershed is subdivided

Hydrological Soils Group

Type A, High Infiltration


(>7.6 mm/hr), Deep Sands
and Gravels

Source: USDOT, Federal


Highway Administration

Pre-Existing Soil Conditions

ARC I, Dry Conditions

Soil Cover Type

Bare Soil

Storm Event Type

Type II

Sainshand Industrial Park (Developed)


Coefficient of Imperviousness

C = 0.6

Pipe Sizing

Mannings Equation for Full


Flow

Channel Sizing

Mannings Equation

Pipe Flow Velocity

Between 0.6m/s and 3m/s

Graded Side Slopes

Maximum 3:1 (H:V)


Table 5-2. Design Parameters

Categorized Heavy Industrial,


(Reference 5.4.iii)

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

5-9

Sainshand Master Plan Project


Draft Final Report
Sainshand Mongolia Average Precipitation

Source: Hong Kong Observatory

Figure 5-5. Average Monthly Precipitation for Sainshand, Mongolia


Climate Data for Sainshand
Month
Average high C

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year
-11.8 -6.7 3.0 14.1 22.5 27.5 29.4 27.5 20.8 12.0 -0.6 -9.8 10.66

Daily mean C

-18.1 -13.7

-4.2

5.9

14.5

20.4 22.7

20.9

13.6

4.4

-7.0 -15.6

3.65

Average low C

-22.8 -19.5 -10.9

-1.1

7.2

13.6 16.8

15.0

7.5

-1.4

-12.3 -20.4

-2.36

3.1

8.1

16.1 31.0

30.9

10.9

4.6

Precipitation mm

0.5

1.1

1.5

Source: Hong Kong Observatory

2.1

1.4

111.3

[3]

Table 5.3. Climate Data for Sainshand, Mongolia

5.4.3. CATCHMENT AREA AND STORMWATER CALCULATIONS


The entire watershed for Sainshand was divided up into smaller catchment areas for
calculation of Time of Concentration values. Due to the size of the watershed, values over
10 hours were treated separately and later superimposed to obtain the estimated Peak
Discharge values for the off-site areas, determination of the peak flow value for the bypass
box culvert as well as the estimated volume required for the two detention ponds. Figure
5-6 delineates the approximate catchment areas from existing aerial imagery and elevation
contours (Source: Google Earth) utilized in the development of peak flow values:

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

5-10

Sainshand Master Plan Project


Draft Final Report

Figure 5-6. Approximate Watershed Map Catchment Areas

Table 5-4 correlates with the above graphic, highlighting the estimated travel times for runoff
to reach the discharge points for the catchment areas as well as overall travel time to the
basin area. This information was utilized in determining the peak low rate at the bypass box
culvert as well volumetric flows into the stormwater detention areas.

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

5-11

Sainshand Master Plan Project


Draft Final Report
Calculation of Shallow Concentrated Flow Travel Time
Using the NCRS Method - S.I. units
Equations for NCRS Method for Shallow Concentrated Flow
where:

t2 = L/(60V)

For unpaved surface:


V = 4.9178S0.5
t2 = shallow concentrated flow runoff travel time, min
L = length of the flow path, m
V = shallow concentrated flow velocity, m/sec
S = surface slope, m/m

Calculations

Flow Velocity,

Length 2

Slope 2

Flow Velocity,

Length 3

Slope 3

Flow Velocity,

Total Length

Average Ground Slope,

Travel time, t2a =

Travel time, t2b =

Travel time, t2c =

Total Travel time, t2 =

m/m

m/s

L, m

m/m

m/s

L, m

m/m

m/s

Ltot, m

m/m

HR

HR

HR

HR

V=

Slope 1

L, m

V=

Length 1

km 2

V=

Watershed Size

Watershed ID

S=

Inputs

EAST WATERSHED
39.95
EN1

"Mini" Watershed 1
3000

2100
2400
1600

0.017
0.027
0.025
0.033

5400
2000
7100
2500
2300

0.019
0.027
0.016
0.026
0.019

0.69
0.81
0.63
0.79
0.68

3400
3400
13300
4400
4700

0.002
0.002
0.004
0.004
0.017

0.22
0.22
0.31
0.31
0.65

2700
7500

0.032
0.019

0.88
0.68

9800
1900

0.004
0.006

0.30
0.39

8900

0.015

0.59

1200

0.006

0.38

1700
2800
2600
850
450
3530
8400
400

0.022
0.025
0.024
0.047
0.091
0.019
0.014
0.088

0.74
0.78
0.76
1.07
1.48
0.68
0.59
1.45

10600

0.006

0.38

4070

0.008

0.45

2000
5000

0.019
0.016

0.67
0.63

4070

0.008

0.45
0.00

3300

0.022

0.73

1000

0.011 0.52

WM1
WS1
WS2b
WS3
WS5
WN1
WN3

1500
2600
2000
500
1500
1270
900

0.044
0.025
0.057
0.102
0.049
0.035
0.047

1.03
0.78
1.17
1.57
1.08
0.92
1.06

4500
4100
5170
3000
1580
4800
2000

0.011
0.010
0.008
0.014
0.034
0.005
0.013

0.52
0.48
0.44
0.59
0.90
0.36
0.55

8500
8500
5950
5950
3760

0.006
0.006
0.005
0.005
0.004

0.38
0.37
0.33
0.33
0.32

2950
5500

0.014
0.008

0.59
0.43

WN3a

4000

0.019

0.68

11500

0.007

0.40

2560
2500
750
3250
2860

0.046
0.045
0.041
0.018
0.016

1.06
1.04
1.00
0.66
0.63

3000
3000
4600

0.010
0.013
0.011

0.48
0.55
0.51

1500
1500

0.003
0.003

0.28
0.28

1700

0.003

0.27

1500

0.003

0.28

ES1
ES2
EN2

0.64
0.81
0.77
0.90

1000
3900
4700
3100

0.004
0.007
0.003
0.003

61.68
ES3
EN3
ES4
EN4
ES5

ES6
ES7-12
EN6-8
ES13

22900
22900
18700
18700

0.003
0.003
0.003
0.003

0.27
0.27
0.28
0.28

26900
28900
25800
23400

0.005
0.005
0.005
0.005

1.3
0.7
0.9
0.5

0.9
2.7
4.9
3.1

23.7
23.7
18.6
18.6

25.9
27.2
24.4
22.2

14500
14500

0.004 0.30
0.004 0.30
0.004 0.30
0.004 0.30

0.007
0.006
0.008
0.007
0.010

2.2
0.7
3.1
0.9
0.9

4.2
4.2
11.9
4.0
2.0

13.4
13.4

9800
9800

23300
19900
20400
16700
16800

9.0
9.0

19.8
18.3
15.0
13.9
12.0

12500
15900

0.010
0.011

0.9
3.1

, flo
1.4

6.5

0.9
10.9

10100

0.014

4.2

0.9

16370
2800
2600
6920
5450
3530
8400
4700

0.008
0.025
0.024
0.016
0.022
0.019
0.014
0.025

0.6
1.0
1.0
0.2
0.1
1.4
4.0
0.1

7.8

2.5

0.8
2.2

2.5

1.3

0.5

14500
15200
13120
9450
6840
6070
5850
5500
15500

0.011
0.010
0.014
0.013
0.021
0.012
0.019
0.008
0.010

0.4
0.9
0.5
0.1
0.4
0.4
0.2

2.4
2.4
3.3
1.4
0.5
3.7
1.0

6.3
6.4
5.0
5.0
3.3

1.6

7.9

7060
7000
5350
3250
6060

0.022
0.022
0.015
0.018
0.009

0.7
0.7
0.2
1.4
1.3

1.7
1.5
2.5

1.5
1.5

1.8

1.5

"Mini" Watershed 2

101.55
EN5

0.31
0.40
0.27
0.28

"Mini" Watershed 3

6500

0.003 0.28

ALL CONCENTRATION TIMES ASSUMED <10 HR


5.0

NORTH WATERSHED
62.9

NM
N1
N2

NW1
NW2
NE1
NE2
NE3

10.9
1.0
1.0
3.6
2.3
1.4
4.0
1.9

WEST WATERSHED
106.17

1.4
3.6

9.1
9.7
8.7
6.5
4.1
4.1
2.6
3.6
9.6

SOUTH WATERSHED
21.19

S4
S5
S1
S2
S4a

3.9
3.6
2.7
1.4
4.5

SITE WATERSHED (NON-INDUSTRIAL)


16.81
AREA IS CONSIDERED UNDEVELOPED AND PART OF DRY-LAKE BED, NO CONCENTRATION TIMES CALCULATED
(For Use With Storage Volume Calculation Only)

Table 5-4. Approximate Time of Concentration Values for Sainshand Watershed Catchments

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

5-12

Sainshand Master Plan Project


Draft Final Report
For the SIP on-site areas, the total development area was subdivided into smaller catchment areas, and pipe sizing was estimated using a uniform
gridded layout, flowing from the sub-catchment areas into the larger collection storm sewers and finally into the trapezoidal channel. The channel runs
the length of the developed zone, 3,200 m long, and discharges into Pond 1 for detention. Approximate representative pipe sizing is provided below
utilizing Mannings formulas for full pipe and open channel flow. The following graphic correlates the table with the proposed site locations for various
typical conveyance flows on site.
STORM SEWER COMPUTATION SHEET
Location:

Sainshand Industrial Complex, Mongolia

Subdivision or Locality:
Calculated By:

Date:

Revised By:

Date:

12/2/2011

Checked By:

Pipe Material:

"n" Factor:

0.012 RCP

RCP

RCP

100 Year Frequency

Required
Overland

Upstream

Total

Flow

Pipe Flow

Flow

Inc.

Equiv.

Total

Pipe

Pipe

Pipe

Flow

Pipe

Area

Area

Area

Tc

Qi

Slope

Dia.

Area

Length

Time

Cap.

m3/s

m3/s

m/m

in

ft2

m/s

min.

m3/s

1.31

3200

41.00

98.28

Location

From

To

HA

HA

HA

min

mm/hr

m3/s

SIP-TZ

P-3

POND

1170.00

0.60

702.00

702.00

120.0

50.00

97.50

97.50

0.00020

2.5m H x 35m W***

SIP-1

P-5

P-6

4.25

0.60

2.55

2.55

10.0

50.00

0.35

0.35

0.01000

24

2.37

100

0.70

0.69

SIP-2

HW

P-1

6.75

0.60

4.05

4.05

10.0

50.00

0.56

0.56

0.02200

30

4.09

100

0.41

1.87

SIP-3

P-1

P-2

30.00

0.60

18.00

18.00

12.0

50.00

2.50

2.50

0.00037

72

28

0.95

1000

17.48

2.51

SIP-4

P-2

P-3

30.00

0.60

18.00

18.00

28.0

50.00

2.50

2.50

5.00

0.00065

84

38

1.40

1000

11.89

5.01

SIP-5

P-3

P-4

30.00

0.60

18.00

18.00

44.0

50.00

2.50

5.00

7.50

0.00040

108

64

1.30

1000

12.81

7.69

SIP-6

P-6

P-7

60.00

0.60

36.00

36.00

12.0

50.00

5.00

5.00

0.00065

84

38

1.40

1000

11.89

5.01

SIP-7

P-7

P-8

60.00

0.60

36.00

36.00

28.0

50.00

5.00

5.00

10.00

0.00070

108

64

1.72

1000

9.68

10.18

SIP-8

P-8

P-9

60.00

0.60

36.00

36.00

44.0

50.00

5.00

10.00

15.00

0.00053

**

132

95

1.71

1000

9.73

15.13

*Note: Pipe Size is an equiavlent RCP Circular Pipe Size - Actual Pipe is RCP ARCH Pipe 88"R x 138"S
**Note: Pipe Size is an equiavlent RCP Circular Pipe Size - Actual Pipe is RCP ARCH Pipe 106"R x 168"S
***Note: Unlined Trapezoidal Channel with 3:1 side slopes and Manning's Roughness "n" = 0.025

Table 5.5. Approximate Representative Pipe Sizings for Sainshand Industrial Park Drainage Concept

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

5-13

Sainshand Master Plan Project


Draft Final Report

Figure 5-7. Approximate Representative Pipe Layout for Sainshand Industrial Park Drainage Concept

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

5-14

Sainshand Master Plan Project


Final Report

6.

ALTERNATE SITES1

Except where stated otherwise, the design basis contained in this Section is based on data
and design bases provided by NDIC or on behalf of NDIC by other agencies of the
Government of Mongolia contacted by Bechtel at NDICs direction. Where specific data was
not so provided, Bechtel has developed further details from the data that was provided, and
made assumptions to develop the potential alternative sites parameters. Except where
stated otherwise, NDIC has previously approved such developments and assumptions by
approval of previous task reports (including any changes directed by NDIC) submitted to
NDIC as part of the scope of work of this Master Plan Study.
This Report describes the potential alternative sites looked at by Bechtel as anticipated at
the time of this Report pursuant to design basis and assumptions outlined in the preceding
paragraph. These parameters may change along with other aspects of the SIP as further
analysis (including site conditions), preliminary/ front end engineering, detailed design,
further investigations and other necessary data and services are performed which are not
part of the scope of this Master Plan Report but which are necessary before making any
capital investment decisions.
Part of the Sainshand Industrial Park Master Plan Study is a differential economic analysis
of locating selected plants at other sites within Mongolia closer or adjacent to the major raw
material source for such plant. This analysis does not examine the entire industrial
complex, but rather the effect on each selected plant of locating that plant at an alternate
location instead of in the Sainshand Industrial Park. The selected plants and the alternate
locations are:
The Iron Ore Pellets Plant and DRI/HBI Plant located near Darkhan, adjacent to an
existing iron based industrial area. The major proven reserves of iron ore are in
northern Mongolia near Darkhan.
The Copper Smelter located adjacent to the Oyu Tolgoi mine where the copper ore
is mined.
The Coke Plant located adjacent to the Tavan Tolgoi mine where the metallurgical
coal is mined.
The plant facilities at each of locations are summarized in the Alternate Locations Block
Diagram, the Material and Utility Consumption tables.

6.1.

IRON ORE PLANTS AT DARKHAN

The Darkhan alternate site would include Iron Ore Pelletizing Plant, DRI/HBI Plant, and
facilities necessary to support the iron based plants, including Coal Gasification to supply
reducing gas for DRI, power generation using synthesis gas as fuel, Air Separation Plant to
support Coal Gasification, and other utilities as required.
6.1.1.

IRON PROCESSING PLANTS

The Iron Ore Pelletizing Plant and the DRI/HBI Plant as described in sections 2.3 and 2.4
are also applicable for the alternate Darkhan site without modification.

Except where specifically stated otherwise in this Report, the information contained in this Report was provided to Bechtel or
its affiliates by NDIC as the Client or third parties. In such instances, Bechtel and its affiliates have relied on the information
provided by the Client or third parties without seeking to separately confirm, verify, validate or otherwise examine the
information to determine its accuracy, completeness or feasibility.

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

6-1

Sainshand Master Plan Project


Final Report
6.1.2.

COAL GASIFICATION PLANT

The Coal Gasification Plant would be as described in section 2.6, but would utilize Coal from
the Sharyngol mine, and would have a smaller capacity due to no power being generated
from synthesis gas.
Darkhan Location Coal Gasification Plant Capacity
Darkhan

Sainshand

139 tonnes/hour

139 tonnes/hour

25 tonnes/hour

Total Synthesis Gas

163 tonnes/hour

189 tonnes/hour

Coal Consumption

164 tonnes/hour

190 tonnes/hour

Oxygen Consumption

123 tonnes/hour

142 tonnes/hour

99,000 tonnes/year

115,000 tonnes/year

Boiler Feed Water

2.74 MTPA

3.15 MTPA

Steam Export

1.35 MTPA

1.55 MTPA

Waste Water

924 kTPA

1.09 MTPA

3.0

3.5

Synthesis Gas for DRI


Synthesis Gas for Power

Ash

Number of Gasifiers Required


6.1.3.

POWER PLANT

No power is generated at the Darkhan site; the plant imports 175 MW from the grid. The
power is to be available from planned future projects.
6.1.4.

UTILITIES AND COMMON FACILITIES

Common facilities and utilities as described in section 3 are included with capacities as
required to support the Darkhan iron ore processing facility, with the following exceptions:

Rail and material handling facilities are provided as needed to handle the needs of
the plants. No rail maintenance facility is included.

No community facilities or services for community facilities is included

No central comfort heating system is included

Sanitary sewer treatment, without the load from a local community, is a small
package system

Utility capacities are as follows:


Raw Water
Raw water average consumption is 772 m3/hour, or 6.2 MTPA. Raw Water Treatment
design input flow rate is 970 m3/hour.

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

6-2

Sainshand Master Plan Project


Final Report
Potable Water
Darkhan Location Potable Water Consumption
Area
Iron Ore Pellets Plant
DRI/HBI Plant
Coal Gasification
Common Facilities
Total

Average Head Count


130
55
77
30

Liters/day/person
190
190
190
190

Potable Water, m3/day


25
10
15
6
56

Industrial Water
Darkhan Location Utility Water Usage
Plant
Iron Ore Pellets Plant
DRI/HBI Plant
Coal Gasification
Common Facilities
Total

Utility Water Consumption, m3/hour


88
378
4
2
472

Boiler Feed Water


The Demineralizer produces 342 m3/hour from a feed of 475 m3/hour industrial water. All of
the demineralized water is consumed by the Coal Gasification Plant, with no returned
condensate.
Fuel Gas
Darkhan Location Fuel Gas (Synthesis Gas) Consumption
Plant
DRI
Pelletizing Plant

Tonnes/hour
139
24

MW (HHV)
824
144

163

968

Total
Oxygen

Darkhan Location Oxygen Consumption


Plant
DRI
Coal Gasification
Total

Tonnes/hour
6.3
123
129

Nitrogen
Darkhan Location Quantified Nitrogen Consumption
Plant
DRI
Coal Gasification
Total

Tonnes/hour
20
0.13
20

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

6-3

Sainshand Master Plan Project


Final Report
Waste Water Treatment
Darkhan Location Quantified Water Flows
Source
Raw Water Treatment Reject
Recovered Water from Sanitary Sewer
Coal Gasification Recovered Water
Wash Down Water
Boiler Blowdown

Flow Rate, m3/hour


294
2
112
10
5

Total

423

Sewage Treatment
Average flow to the sanitary sewer is 2.0 m3/hour.
Telecommunications
Switches are based on the estimated number of end users. For the Darkhan Alternate Site,
for 2000 subscribers, the wireless system includes a GSM core network, integrated HLR
and SMSC, 2 BTSs. The EVDO solution includes the packet data core network & 2 BTS.
The number of TXRs is reduced from those in Sainshand.

6.2.

COPPER SMELTER AT OYU TOLGOI

The Oyu Tolgoi alternate site would include the Copper Smelter Plant and facilities
necessary for support, including a Power Plant, Air Separation Plant, and other utilities as
required.
6.2.1.

COPPER SMELTER

The Copper Smelter would be as described in section 2.2.


6.2.2.

POWER PLANT

The Power Plant would be a turbine generator set to convert the Copper Smelter export
steam to electrical power. This would produce 15 MW of the 64 MW required for operation
of the facility. The balance of 49 MW would be imported from the power grid in the area. It
is expected that a power generation plant will be installed near Oyu Tolgoi to supply power
requirements for the mine and supporting facilities. This potential power plant is not a
subject or consideration of this Report.
6.2.3.

UTILITIES AND COMMON FACILITIES

Common facilities and utilities as described in section 3 are included with capacities as
required to support the Oyu Tolgoi copper concentrate processing facility, with the following
exceptions:

Copper concentrate is received by conveyor directly from the mine and ore
concentrator facility. Rail is included to transport products and supply other raw
materials as needed. No rail car dumping and management facilities are included.
No rail maintenance facility is included.

Fuel gas will either be obtained from the Oyu Tolgoi mine facilities, or the fuel gas
users in the Copper Smelter will be eliminated by converting to fuel oil or other
available heat source.

No community facilities or services for a community are included


Use of this Report is subject to certain restrictions
set forth in the Important Notice.

6-4

Sainshand Master Plan Project


Final Report

No central comfort heating system is included

Sanitary sewer treatment, without the load from a local community, is a small
package system

Utility capacities are as follows:


Raw water average consumption is 399 m3/hour, or 3.2 MTPA. Raw Water Treatment
design input flow rate is 500 m3/hour.
Potable water average consumption is 2.9 m3/hour.
Industrial water average consumption is 354 m3/hour.
The Demineralizer produces 24 m3/hour from a feed of 34 m3/hour industrial water.
Boiler feed water average consumption is 76 m3/hour.
An Air Separation Unit is included to provide 42 tonnes per hour of oxygen, and nitrogen for
inerting as needed.
Waste Water Treatment
Oyu Tolgoi Location Quantified Water Flows
Source
Raw Water Treatment Reject
Recovered Water from Sanitary Sewer
Wash Down Water
Boiler Blowdown
Total

Flow Rate, m3/hour


133
2
6.3
1.1
143

Sewage Treatment
Average flow to the sanitary sewer is 2.3 m3/hour.
Telecommunications
Switches are based on the estimated number of end users. For the Oyu Tolgoi Alternate
Site, for 1500 subscribers, the wireless system includes a GSM core network, integrated
HLR and SMSC, 2 BTSs. The EVDO solution includes the packet data core network & 2
BTS. The number of TXRs is reduced from those in Sainshand.

6.3.

COKE PLANT AT TAVAN TOLGOI

The Tavan Tolgoi alternate site would include the Coke Plant and facilities necessary for
support, including a Power Plant and other utilities as required.
6.3.1.

COKE PLANT

The Coke Plant would be as described in sections 2.1.


6.3.2.

POWER PLANT

The Power Plant would be a turbine generator set to convert the Coke Plant export steam to
electrical power. This would produce 212 MW (at 35C ambient temperature) of electrical
power, with 17 MW consumed in the facility and 195 MW exported to the power grid in the
area.

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

6-5

Sainshand Master Plan Project


Final Report
6.3.3.

UTILITIES AND COMMON FACILITIES

Common facilities and utilities as described in section 3 are included with capacities as
required to support the Tavan Tolgoi coke production facility, with the following exceptions:

Coal is received by conveyor directly from the mine, and coke product is returned to
the mine for loading onto rail cars in the mines rail car loading facility. No rail or rail
maintenance facility is included.

No fuel gas is required.

No Air Separation Unit is required.

No community facilities or services for a community are included

No central comfort heating system is included

Sanitary sewer treatment, without the load from a local community, is a small
package system

Utility capacities are as follows:


Raw water average consumption is 145 m3/hour, or 1.2 MTPA. Raw Water Treatment
design input flow rate is 180 m3/hour.
Potable water average consumption is 1.0 m3/hour.
Industrial water average consumption is 125 m3/hour.
The Demineralizer produces 29 m3/hour from a feed of 40 m3/hour industrial water.
Boiler feed water average consumption is 742 m3/hour.
Waste Water Treatment
Tavan Tolgoi Location Quantified Water Flows
Source
Raw Water Treatment Reject
Recovered Water from Sanitary Sewer
Wash Down Water
Boiler Blowdown
Condensate Filter Backwash
Total

Flow Rate, m3/hour


51
1.0
6.3
11
7.3
76

Sewage Treatment
Average flow to the sanitary sewer is 1.0 m3/hour.
Telecommunications
Switches are based on the estimated number of end users. For the Tavan Tolgoi Alternate
Site, for 500 subscribers, the wireless system includes a GSM core network, integrated HLR
and SMSC, 1 BTS. The EVDO solution includes the packet data core network & 1 BTS.
The number of TXRs is reduced from those in Sainshand.

6.4.

MATERIAL HANDLING AND TRANSPORTATION SYSTEMS

Three alternate sites have been developed at a conceptual level to enable a comparative
analysis to the baseline Sainshand Industrial Park. Quantities derived for the civil works
estimate are based on the following modifications to plant, rail operations, and community
assumptions:
Use of this Report is subject to certain restrictions
set forth in the Important Notice.

6-6

Sainshand Master Plan Project


Final Report

All plant sizes shall remain similar in size and capacity at the alternate locations

The Copper Smelter is relocated from SIP to the mine site at Oyu Tolgoi

The Coking Plant is relocated from SIP to the mine site at Tavan Tolgoi

The Iron Ore Pelletizing and the DRI/HBI plant are relocated from SIP to the
industrial area near Darkhan

Rail Infrastructure is required on-site at Darkhan and


utilize existing site infrastructure and only require
(conveyors, etc.). Rail length is summarized from an
to site from the National Rail Network, East-West
Phase II), as well as local rail required on-site.

Oyu Tolgoi, while Tavan Tolgoi would


additional material handling facilities
estimate of length required for access
Rail Line Phase I (and a portion of

The Rail yard facility should remain at Sainshand to service the Industrial build-out at the
three sites, although it is assumed that some locomotive and rolling stock servicing would be
done locally in Darkhan utilizing the existing rail yard there. In addition, a smaller car
servicing facility with rail sidings would be located at Oyu Tolgoi capable of handling minor
repairs to rolling stock.
Site civil earthworks quantities for the three-sites analysis are calculated directly using
Inroads surface modeling software, locating a level pad site of the appropriate size and
elevation to balance cut/fill as nearly as possible.
Drainage infrastructure and stormwater detention facilities are estimated using a factoring
technique based on perceived local terrain and existing infrastructure, combined with
relative sizing of the alternate sites in direct comparison to the Sainshand Industrial
Complex on a square meter basis. Highways are similarly estimated on a kilometer length
basis, summarized from an estimate of highway access to site and access required on-site.

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

6-7

Sainshand Master Plan Project


Final Report
Concept Sketches
Figures 6-1 to 6-4 show the three alternate locations and the facilities to be located at each
site.

Figure 6-1. Site Locations of Sainshand Industrial Park (SIP) & Alternative Processing Plants

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

6-8

Sainshand Master Plan Project


Final Report

Figure 6-2. Darkhan Iron Ore Mining Site

Figure 6-3. Tavan Tolgoi Coal Mining Site

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

6-9

Sainshand Master Plan Project


Final Report

Figure 6-4. Oyu Tolgoi Copper Mining Site

6.5.

ALTERNATE LOCATIONS DRAWINGS AND DATA

The following are included here (water block diagram is included in Section 2):
Overall Block Diagram for each alternate location
Material and Utility Consumption for Darkhan alternate
Material and Utility Consumption for Oyu Tolgoi alternate
Material and Utility Consumption for Tavan Tolgoi alternate
Location and Site Plan for Darkhan alternate
Location and Site Plan for Oyu Tolgoi alternate
Location and Site Plan for Tavan Tolgoi alternate

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

6-10

Iron Ore Pellets


3.63 MTPA
2.5 MTPA

IRON PELLETS
194 kTPA

23 kTPA

1.3 MTPA

160 kTPA

50 kTPA

5 kTPA

1.1 MTPA

23 MW

6.2 MTPA

Use of this Report is subject to certain restrictions set forth in the Important Notice.

Electrical Power

Thermal Coal
Iron Ore
Lime
Bentonite
Dolomite

Electrical Power

Nitrogen

Oxygen

Electrical Power

Waste Water

Raw Materials

Gold
10 TPA

Silver
64 TPA

180 MW

DIRECT
REDUCTION IRON

Metallurgic Coke 2.0 MTPA

COPPER
SMELTER

925 kTPA

AIR SEP.

1.3 MTPA
4.5 MTPA
5 kTPA
23 kTPA
45 kTPA

50 MW

160 kTPA

1.0 MTPA

37 MW

920 kTPA

Copper Conc.
1.0 MTPA

Copper Cathode 300 kTPA

175 MW

Waste Products

Lime
15 kTPA

Silica
82 kTPA

Slag
570 kTPA

Raw Water
1.2 MTPA

Coking Coal
2.9 MTPA

Lime
22 kTPA

Gypsum (FGD)
44 kTPA

Red Rates
Black Rates

Design Basis
Calculated

Utility flows not included.

8.3 kTPA

14 Dec 2011

Main flow
Secondary flow

POWER
ISLAND

Sulfur

Electrical Power

Use of this Report is subject to


certain restrictions set forth in the
Important Notice.

1.3 MTPA

99 kTPA

980 kTPA

1.3 MTPA

1.3 MTPA

Industrial Water 3.8 MTPA

MP Steam

Ash

Oxygen

Synthesis Gas

Thermal Coal

Sulfuric Acid

POWER
ISLAND

Electrical Power

99 kTPA

47 MW

Water

Gasifier Ash

Electrical Power

Industrial Water 3.0 MTPA

MP Steam

Nitrogen

Oxygen

Lime

Reducing Gas

Electrical Power

Industrial Water 700 kTPA

Fuel Gas

Bentonite

45 kTPA

4.5 MTPA

AIR
SEPARATION

COKE OVEN

Iron (DRI)

870 kTPA

Iron Ore Pellets

Dolomite

Iron Ore

SIP MASTER PLAN STUDY: ALTERNATE LOCATIONS BLOCK DIAGRAMS

COAL
GASIFICATION

Raw Water
3.2 MTPA

49 MW

6-11

SAINSHANDINDUSTRIALPARKMASTERPLANSTUDY
MATERIALANDUTILITYCONSUMPTIONDARKHANALTERNATELOCATION

RAWMATERIALS
ThermalCoal
IronOre
Lime
Silica
Bentonite
Dolomite

kTPA
kTPA
kTPA
kTPA
kTPA
kTPA

IronOre DirectReduction
Coal
Pelletizing
Iron
Gasification
3.0trains


1,312
4,459


5



23

45

PRODUCTS
DirectReductionIron
Sulfur

kTPA
kTPA

(2,500)


(8.3)

(2,500)
(8.3)

INTERMEDIATEPRODUCTS
IronOrePellets
ReducingGas
Nitrogen
Oxygen
AcidGas(asSulfur)

kTPA
kTPA
kTPA
kTPA
kTPA

(4,500)



3,625
1,109
160
50


(1,109)
1
981
(8.3)

8.3



(161)
(1,031)

(875)



WASTEPRODUCTS
Ash
Gypsum(FGD)
Slag
WasteWater

kTPA
kTPA
kTPA
kTPA




(25)




(25)

(99)


(924)




(40)




(2,354)




3,368

(99)


UTILITIES
RawWater
kTPA
BFW/Condensate
kTPA
IndustrialWater
kTPA
PotableWater
kTPA
kTPA
SanitarySewer
GasHPSteam(316C48bar kTPA
MPSteam(15bar)
kTPA
ElectricalPower
MW
FuelGas
MW
FuelOil
kTPA



700
9.0
(7.2)


22.5
144



3,025
3.8
(3.0)
1,250

46.9


2,736
25
4.3
(3.4)
(1,346)

36.6
(144)


(2,736)
3,825






3.0




0.7
(0.6)


10




1.0
(0.8)


50

6,179

(4,869)
(19)
(0.6)


3.0



(2,706)
0.7
16


3.0

6,179


(0.0)

(96.3)

175.0

Unit

Demin
Water

Sulfur
Unit

Bulk
Handling

Air
Separation

Raw
Water

1,312
4,459
5

23
45

Use of this Report is subject to certain restrictions set forth in the Important Notice.

Waste
Water

Net

6-12

SAINSHANDINDUSTRIALPARKMASTERPLANSTUDY
MATERIALANDUTILITYCONSUMPTIONOYUTOLGOIALTERNATELOCATION
Unit

Copper
Smelter

RAWMATERIALS
CopperConcentrate
Lime
Silica

kTPA
kTPA
kTPA

1,000
15
82

1,000
15
82

PRODUCTS
Copper
SulfuricAcid
Gold
Silver

kTPA
kTPA
TPA
TPA

(300)
(925)
(10)
(64)

(300)
(925)
(10)
(64)

INTERMEDIATEPRODUCTS
Nitrogen
Oxygen

kTPA
kTPA

2
333

(2)
(333)

WASTEPRODUCTS
Slag
WasteWater

kTPA
kTPA

(571)

(25) (39)



(1,062) 1,126

(571)

UTILITIES
RawWater
BFW/Condensate
IndustrialWater
PotableWater
SanitarySewer
CopperHPSteam(60bar)
MPSteam(15bar)
LPSteam(5bar)
ElectricalPower
FuelGas
FuelOil

kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
MW
MW
kTPA

670
2,804
19.3
(15.5)
(478)
(91)
84
41.6
5.9
14

0.3
(0.3)

18

3,193

(2,183)
(22)
(0.3)



1.0

3,193


(0.0)




48.6
5.9
14

Power


(670)
293
0.8
(0.7)
478
91
(84)
(15)

Bulk
Handling

Air
Separation

Raw
Water

1.4
(1.1)

Use of this Report is subject to certain restrictions set forth in the Important Notice.

Waste
Water



(914)
0.3
18



1.0

Net

6-13

SAINSHANDINDUSTRIALPARKMASTERPLANSTUDY
MATERIALANDUTILITYCONSUMPTIONTAVANTOLGOIALTERNATELOCATION
Unit

Coke
Oven

RAWMATERIALS
ThermalCoal
CokingCoal
Lime

kTPA
kTPA
kTPA


2,900
22


2,900
22

PRODUCTS
MetallurgicCoke

kTPA

(2,000)

(2,000)

WASTEPRODUCTS
Ash
Gypsum(FGD)
Slag
WasteWater

kTPA
kTPA
kTPA
kTPA


(44)

(25)




(169)




(405)




599


(44)

UTILITIES
RawWater
BFW/Condensate
IndustrialWater
PotableWater
SanitarySewer
CokeHPSteam(535C100bar)
ElectricalPower

kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
MW


5,908
971
6.2
(5.0)
(5,736)
12.6


(5,908)
345
0.8
(0.7)
5,736
(200)




0.7
(0.6)

2

1,156

(832)
(8)
(0.3)

1.0



(484)
0.3
6

1.0

1,156


(0.0)


(183)

Power

Bulk
Handling

Raw
Water

Use of this Report is subject to certain restrictions set forth in the Important Notice.

Waste
Water

Net

6-14

Use of this Report is subject to certain restrictions set forth in the Important Notice.

6-15

Use of this Report is subject to certain restrictions set forth in the Important Notice.

6-16

Use of this Report is subject to certain restrictions set forth in the Important Notice.

6-17

Sainshand Master Plan Project


Final Report

7.

COMMUNITY FACILITIES1

Except where stated otherwise, the design basis contained in this Section is based on data
and design bases provided by NDIC or on behalf of NDIC by other agencies of the
Government of Mongolia contacted by Bechtel at NDICs direction. Where specific data was
not so provided, Bechtel has developed further details from the data that was provided, and
made assumptions to develop the potential community facilities requirement parameters.
The objective of these assumptions is to specify an industrial park that meets the overall
intent, as conveyed to Bechtel, of NDIC for the proposed facility. Except where stated
otherwise, NDIC has previously approved such developments and assumptions by approval
of previous task reports (including any changes directed by NDIC) submitted to NDIC as
part of the scope of work of this Master Plan Study.
This report describes the community facilities estimated and anticipated at the time of this
Report pursuant to design basis and assumptions outlined in the preceding paragraph.
These parameters may change along with other aspects of the SIP as further analysis and
further investigations including environmental assessments and other necessary data is
compiled or developed and other services are performed which are not part of the scope of
this Master Plan Report but which are necessary before making any capital investment
decisions.

7.1.

INTRODUCTION

Sainshand is the capital of Dornogobi Province (East Gobi) and is located about 200 km
north of the Chinese border. The city includes government administration buildings,
commercial areas, apartments and private houses. The city also includes many private
walled lots with ger homes located within them. The city of Sainshand has an estimated
population of about 20,000 and is split into three sections.
The oldest section is called Ar Shand and is located in the northern part of town. This is
also the location of the train station. A kilometer south is the location of the citys main
stores, restaurants, hotels, banks, and government offices. Another kilometer to the south is
the district known as Denj. Denj is adjacent to the hospital and some of the more modern
housing developments are located here.
7.1.1. PROJECT VICINITY
The area surrounding Sainshand and the SIP includes gentle sloping terrain with a number
of steep ridge areas. There are also two coal-fired power plants, one of which is
abandoned. An area to the northwest of Sainshand includes the remnants of a large
abandoned Soviet military complex. The Sainshand Airport is located 14 kilometers to the
north and, as mentioned above, there is a train station serving Sainshand that links to
Ulaanbaatar.
7.1.2. CLIMATE
This area of the East Gobi province is the driest in Mongolia. The average annual
precipitation is 111 mm. The primary source of water for Sainshand is from wells. The daily
mean temperature fluctuates from minus 18.1 degrees C in January to plus 22.7 degrees C
in July.
1

Except where specifically stated otherwise in this Report, the information contained in this Report was provided to Bechtel or
its affiliates by NDIC as the Client or third parties. In such instances, Bechtel and its affiliates have relied on the information
provided by the Client or third parties without seeking to separately confirm, verify, validate or otherwise examine the
information to determine its accuracy, completeness or feasibility.

Use of this Report is subject to certain restrictions


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7-1

Sainshand Master Plan Project


Final Report

Figure 7-1. Sainshand looking South

7.2.

Figure 7-2. Sainshand Civic Auditorium

POPULATION

A population assessment has been developed based on estimated employment figures for
each of the industrial plants. The total employment is projected to be about 2,700
employees plus families and this translates into a total estimated direct population of about
10,500 people.
However, the SIP will stimulate population growth much greater than the direct population
numbers and this indirect growth has been roughly estimated by the World Bank* to equal
the total for direct employees plus family members, giving a total estimated community
population of about 21,000. These projections are shown below in Table 7-1, using the
following assumptions:
Average Mongolian Household Size: 4.12
Percentage of Mongolian Employees:
90%
Percentage of Mongolian Employees with families: 100%
Percentage of Expatriate Employees:
10%
Percentage of Expatriate Employees with families: 0%
Influx population ratio: 1.0*
*Data from AusAID/World Bank Study: Southern Mongolia Infrastructure Strategy, 2009.
(Reference 7.2.i)
Total
Employees

Expatriate
Employees
(10%)

Mongolian
Employees
(90%)

Mongolian
Family
Members

Total
Population

Cement Plant

270

27

243

756

1026

Iron Pellets Plant

295

30

265

827

1122

DRI Plant

136

14

122

383

519

Coke Plant

270

27

243

756

1026

Project

Data from AusAID/World Bank Study: Southern Mongolia Infrastructure Strategy, 2009. (Reference
7.2.i). The 2010 Population and Housing State Census reports that the average number of family
members in Mongolian is 3.6. Were this value used for the community projection, the size and cost of
the community would be reduced 10%-15%.

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7-2

Sainshand Master Plan Project


Final Report

Total
Employees

Expatriate
Employees
(10%)

Mongolian
Employees
(90%)

Mongolian
Family
Members

Total
Population

Power Plant

161

17

144

451

612

Gasification Plant

122

12

110

346

468

Copper Smelter

515

52

463

1442

1957

Copper Refinery

395

40

355

1106

1501

Rail Repair Facil.

100

10

90

285

385

Common Facilities

453

45

408

1404

1857

2717

275

2448

7756

10,473

Project

20% of above
Total Direct Population
Influx Population @ 1.0

10,473

Total Community
Population

20,946
~ 21,000
Table 7-1. Population Estimate

More detail on the population data is included in Appendix 7A at the end of this section.

7.3.

HOUSING

Dwelling units have been determined by taking the estimated population figures and
assigning housing types to them. Table 7-2 identifies the dwelling unit quantities required
for the projected future estimated population of 21,000.
Single Family Detached

Number of
Units

Unit Size
(M2)

Lot Size
(M2)

2 bedroom

488

185

700

3 bedroom

319

205

700

% of total housing

11%

Attached Houses
1 bedroom

550

100

420

2 bedroom

550

120

420

3 bedroom

550

135

420

% of total housing

23%

Apartments
1 bedroom

1620

80

100

2 bedroom

1620

90

100

3 bedroom

1620

105

100

% of total housing

66%

Total Units

7317
Table 7-2. Housing Requirements

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

7-3

Sainshand Master Plan Project


Final Report
Dwellings are classified into three types:

Single Family Detached Houses with 2 or 3 bedrooms. The single family detached
houses are allocated primarily for executive and management level workers.

Single Family Attached Houses with 1, 2 or 3 bedrooms. The attached duplex


houses are primarily for mid-level management and supervisory workers.

Apartments with 1, 2 or 3 bedrooms.

The apartments are allocated for the majority of the community population and would
generally be two or a maximum of three stories high. The sizes of these dwelling units have
been determined by comparison with sizes for similar dwelling types in Ulaanbaatar. Hence,
housing proposed for Sainshand is equivalent to sizes available in urban Mongolia. The
housing proposed is expected to be primarily modular unit construction, built off-site,
transported to Sainshand by truck or rail and then assembled on site. More detail on the
housing data is included in Appendix 7A at the end of this section.

7.4.

COMMUNITY FACILITIES

In addition to housing, the community will have schools, health facilities, and government
services. These are shown in Table 7-3. More detailed data is included in the Appendix at
the end of this section.
Facility Required

Number

Ratio per Population

Day Care

1: 4,000

Primary School

1: 6,250

Middle School

1: 11,000

High School

1: 11,000

Clinic

1: 3,000

Hospital

1: 15,000

Library

1: 10,000

Community Center

1: 10,000

Post Office

1: 5000

Police Station

1: 7500

Fire Station

1: 15,000

Government Offices

1: 7,500

1: 6,000

Local Merchants

70

1: 300

Local Markets

1: 3,000

Education

Health

Social Institutions

Public Institutions

Recreation
Sports/Athletic Center
Shops and Retail

Use of this Report is subject to certain restrictions


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7-4

Sainshand Master Plan Project


Final Report
Facility Required
Neighborhood Market
City-wide Mall

7.5.

Number

Ratio per Population

1: 5,000

1
Table 7-3. Community Facilities

1: 20,000

COMMUNITY SITE SELECTION

7.5.1. EXISTING CONDITIONS


As shown in Figure 7-3, the area around Sainshand includes roads (shown in yellow) and a
rail line (shown in red). The rail line is part of the north-south line running to Ulaanbaatar
and Sainshand is served by a passenger rail station in the north part of the town.
Sainshand and its surroundings are northwest and upwind (prevailing wind) of the proposed
industrial area. The terrain in the region is gently sloping. However there are several
pronounced ridges in the vicinity of Sainshand and the town is about 40-50 meters higher
than the proposed industrial development area.
7.5.2. POTENTIAL SITES FOR COMMUNITY DEVELOPMENT
There are five areas (as shown in Figure 7-4) in the vicinity of Sainshand which have been
identified as potential community sites using the evaluation method set out in section 7.5.3.
These sites are large enough to accommodate a community of about 21,000 people and are
within close proximity to the SIP. The five sites are compatible with and largely defined by
the existing topography in the area.
Site A. This site is integrated with the existing town of Sainshand. The site then extends to
the west, occupying a south-facing slope with a mild grade change. There is little or no
development in this area and the site benefits from proximity to the existing community.
New housing, roads and commercial areas could be related to the existing community and
its infrastructure.
Site B. This site runs parallel to the west side of the proposed Industrial development area.
Its Eastern edge is defined by an existing rail line and the future rail marshalling yard that is
proposed to be located in this area. The location lends itself to a stand-alone community
solution.
Site C. This area is located in a semi-protected valley between long ridges running to the
northwest of Sainshand. However, this area includes an abandoned former Soviet military
compound and there are concerns that significant residual contaminants or other harmful
materials may exist.
Site D. This area is located north of Sainshand. The primary benefit of this location is that it
is close to the existing train station. However, there are concerns about residual pollution
impacts from the abandoned coal fired power plant in this area and that the new community
would be further from the future industrial area.
Site E. The area directly east of Sainshand is relatively flat and the north and south edges
are defined by elevated ridges. While the site is close to Sainshand, the property is
separated by both the main north/south roadway and the rail line. An additional rail link
bisects the site as well.

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

7-5

Sainshand Master Plan Project


Final Report

Figure 7-3. Existing Conditions

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

7-6

Sainshand Master Plan Project


Final Report

Figure 7-4. Potential Sites for Community

7.5.3. SITE EVALUATION


The five alternatives were rated based on a series of criteria including suitability for
community development, environmental compatibility, and security concerns. The ratings
are shown in Table 7-4, with 1 as the highest/best score and 5 as the lowest/worst. Site A
was ranked the best and Site B was ranked the second best. Both of these sites are
considered to be viable for community development. The other three sites rank significantly
lower and are therefore not considered suitable.
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Criteria

Site A

Site B

Site C

Site D

Site E

Expandable

Industrial impact

Views, recreation

Access to amenities

Access to transportation

Avoids Sensitive Areas

Potential Solar/Wind

Control/Access

Sense of safety

TOTAL

16

22

25

27

29

RANKING RESULTS

Community

Environmental

Security

Table 7-4. Site Evaluation

7.6.

COMMUNITY CONCEPTS

In this section Site A and Site B have been developed as community concepts. Site A
represents an integrated community concept and Site B represents a stand-alone concept.
7.6.1. SITE A: INTEGRATED COMMUNITY
As shown in Figures 7-5 and 7-6, Community Site A is located directly west of Sainshand.
The location is set in a valley formed by two ridges running east to west. The configuration
of the community is long and narrow, with the limitations of the existing ridges defining a
north and south edge.
In this option, workers are housed in proximity to the existing Sainshand community and are
seen as an extension of it. The integrated community model potentially provides benefits to
the existing town and greater interaction between workers and the existing population.
However, greater interaction may also lead to tension with the local population, particularly if
large numbers of single men without families are attracted to work in the SIP. Careful
attention to this issue will be required to make this option work well.
The benefits of being adjacent to Sainshand are primarily related to the increased customer
base for commercial activities in the existing town. There are also potential overlaps in
police and fire protection coverage for the adjacent expansion and the potential for new
schools serving both community populations. This overlap may mean that some of the
emergency service facilities may not need to be as big or that the existing emergency
services of Sainshand could be expanded to support part of the population increase.
7.6.2. SITE B: STAND-ALONE COMMUNITY
As shown in Figures 7-7 and 7-8, Community Site B is located south of the existing town of
Sainshand and west of the SIP and rail marshalling yards. This stand-alone community is
located at the foot of two local peaks. The open terrain does not set many limitations on the
layout possibilities and this allows for a very efficient layout of the overall community.
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In this option, the proposed community site is 5-7 km from Sainshand and no opportunity
exists to physically integrate them. As a result, the new community will function
independently and will generally provide facilities dedicated only to the new population. This
means, however, that the potential for sharing resources and providing positive benefits for
both communities will also be reduced.
There is also the possibility that the new community will be seen as being unfairly favored
with new housing and services, while the existing community remains underdeveloped. This
could potentially lead to tension with the existing community and attention to this issue will
be required to minimize such concerns.
7.6.3. CIRCULATION
Vehicular System
The site will be served with a primary and secondary road system. The primary roads
connect the site with the existing community of Sainshand as well providing a connection to
the Industrial development. A new regional road is planned which will connect the highway
to Ulaanbaatar from the North.
This primary road is a collector for the secondary system which circulates through the new
community. A tertiary system of roadways serves neighborhoods located on non-through
roadways.
Bus System
Bus systems achieve maximum efficiency when stops are confined to a pedestrian network
of 400 meters (five-minute walk). Bus stops will be located at each urban center with
additional stops as necessary every 200 meters. The bus system will be a critical link to the
industrial development area. Additionally, the bus system will provide transportation to
existing Sainshand and the Rail station.
Rail System
Heavy Rail serves Sainshand at the station located in the northern portion of the city. The
distance to Site Option A is five km (by road). The passenger rail service from Ulaanbaatar
and China stops at this station. For Site Option B, the distance from the existing train
station is eight km (by car).
The current industrial development includes a proposed marshalling yard adjacent to the
Option B community.

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Figure 7-5. Community Site A Development Area

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Figure 7-6. Community Site A Layout

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Figure 7-7. Community Site B Development Area

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Figure 7-8. Community Site B Layout

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Appendix 7A. Population Tables1
DRAFT Estimate of Population at Sainshand
ASSUMPTIONS
Average Family Size
Influx Multiplier
Percentage of Mongolian Employees
Percentage of Expat Employees
Common Facilities Employees

4.1 Per World Bank data


1.0 Equal to Employees + Family per World Bank estimate
90% Assume all Mongolian employees have families
10% Assume Expats on single status assignments
20% (Assumed as a percentage of all the plant employees)
PROJECTED
EMPLOYEES

CEMENT PLANT
Administrative and Maintenance
Opearting shift 1
Operating shift 2
Operating shift 3
Operating shift 4
SUBTOTAL
IRON PELLETS PLANT
Administrative
Process
Engineering
Opearting shift 1
Operating shift 2
Operating shift 3
Operating shift 4
SUBTOTAL
DRI PLANT
Adminstrative
Operations
Maintenance
Opearting shift 1
Operating shift 2
Operating shift 3
Operating shift 4
SUBTOTAL
COKE PLANT
Adminstrative and Maintenance
Opearting shift 1
Operating shift 2
Operating shift 3
Operating shift 4
SUBTOTAL
Power Plant
Administrative (M-F Daytime)
Operations (M-F Daytime)
Opearting shift 1
Operating shift 2
Operating shift 3
Operating shift 4
Maintenance (M-F Daytime)
Maintenance shift 1
Maintenance shift 2
Maintenance shift 3
Maintenance shift 4
SUBTOTAL
Gasification
Administrative (M-F Daytime)
Operations (M-F Daytime)
Opearting shift 1

MONGOLIAN
EMPLOYEES

EXPATRIATE
EMPLOYEES

EMPLOYEES
FAMILY

90%

10%

(MONGOLIAN)

30
60
60
60
60
270

27
54
54
54
54
243

3
6
6
6
6
27

84
168
168
168
168
756

114
228
228
228
228
1026

30
38
7
55
55
55
55
295

27
34
6
50
50
50
50
266

3
4
1
6
6
6
6
30

84
107
20
154
154
154
154
827

114
145
27
209
209
209
209
1122

6
6
16
27
27
27
27
136

5
5
14
24
24
24
24
123

1
1
2
3
3
3
3
14

17
17
45
76
76
76
76
383

23
23
61
103
103
103
103
519

30
60
60
60
60
270

27
54
54
54
54
243

3
6
6
6
6
27

84
168
168
168
168
756

114
228
228
228
228
1026

15
6
25
25
25
25
20
5
5
5
5
161

13.5
5.4
22.5
22.5
22.5
22.5
18
4.5
4.5
4.5
4.5
145

1.5
0.6
2.5
2.5
2.5
2.5
2
0.5
0.5
0.5
0.5
17

42
17
70
70
70
70
56
14
14
14
14
451

57
23
95
95
95
95
76
19
19
19
19
612

56
28
45

76
38
61

Table 7A-1.
Estimate of Population
at Sainshand
20
18
2
10
16

9
14.4

1
1.6

INFLUX POPULATION

Process plant staffing estimates are derived from information received from technology suppliers;
utility and infrastructure staffing estimate is based on Bechtel experience.

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Gasification
Administrative (M-F Daytime)
20
Operations (M-F Daytime)
10
Opearting shift 1
16
Operating shift 2
16
Operating shift 3
16
Operating shift 4
16
Maintenance (M-F Daytime)
12
Maintenance shift 1
4
Maintenance shift 2
4
Maintenance shift 3
4
Maintenance shift 4
4
SUBTOTAL
122
COPPER SMELTER
Operations (Daytime)
20
Opearting shift 1
80
Operating shift 2
80
Operating shift 3
80
Operating shift 4
80
Maintenance (Daytime)
15
Maintenance shift 1
40
Maintenance shift 2
40
Maintenance shift 3
40
Maintenance shift 4
40
SUBTOTAL
515
Copper REFINERY (PM PLANT)
Operations (Daytime)
20
Opearting shift 1
60
Operating shift 2
60
Operating shift 3
60
Operating shift 4
60
Maintenance (Daytime)
15
Maintenance shift 1
30
Maintenance shift 2
30
Maintenance shift 3
30
Maintenance shift 4
30
SUBTOTAL
395
Southern Mongolia Railway Repair and Maintenance
Operations (Daytime)
20
Opearting shift 1
8
Operating shift 2
8
Operating shift 3
8
Operating shift 4
8
Maintenance (Daytime)
16
Maintenance shift 1
8
Maintenance shift 2
8
Maintenance shift 3
8
Maintenance shift 4
8
SUBTOTAL
100
TOTAL
2264

COMMON FACILITIES (20% of Plant Employees )


Roads maintenance
Utilities operations + maintenance
Bulk Handling operations and maintenance
Other TBD
SUBTOTAL
TOTAL

GRAND TOTALS

453
453

2717

18
9
14.4
14.4
14.4
14.4
11
3.6
3.6
3.6
3.6
110

2
1
1.6
1.6
1.6
1.6
1
0.4
0.4
0.4
0.4
13

56
28
45
45
45
45
34
12
12
12
12
346

76
38
61
61
61
61
46
16
16
16
16
468

18
72
72
72
72
14
36
36
36
36
464

2
8
8
8
8
2
4
4
4
4
52

56
224
224
224
224
42
112
112
112
112
1442

76
304
304
304
304
57
152
152
152
152
1957

18
54
54
54
54
14
27
27
27
27
356

2
6
6
6
6
2
3
3
3
3
40

56
168
168
168
168
42
84
84
84
84
1106

76
228
228
228
228
57
114
114
114
114
1501

18
2
56
7.2
0.8
23
7.2
0.8
23
7.2
0.8
23
7.2
0.8
23
14
2
45
7.2
0.8
23
7.2
0.8
23
7.2
0.8
23
7.2
0.8
23
90
10
285
2040
230
6352
EMPLOYEES + INFLUX + FAMILIES

76
31
31
31
31
61
31
31
31
31
385
8616
17232

408
45
1404
408
45
1404
COMMON FACILITIES EMPLOYEES + INFLUX + FAMILIES

1857
1857
3714

2448

275

7756

EXPECTED COMMUNITY POPULATION


Table 7A-1. Estimate of Population at Sainshand (continued)

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10473
20946

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Community Program
Sainshand, Population:

20,946

Program for Community Facilities


20,946
Facility
Built Unit
Area (sm)

LOCATION
Education Institutions
Day Care
Primary School
Middle School
High School
University
Health Institutions
Clinic
Hospital
Social Institutions
Library
Community Center
Public Institutions
Post Office
Police Station
Fire station
Government Offices
Entertainment
Center / Athletic Field
Shops
Local Merchants
Local Market
Neighborhood Market
Mall
Total for Community Facilities

Program for Housing


Type A1 Single-Family Detached - 3 Bedroom
Type A2 Single-Family Detached - 4 Bedroom
Type B1 Single-Family Attached -2 Bedroom
Type B2 Single-Family Attached - 3 Bedroom
Type B3 Single -family Attached - 1 Bedroom
Type C1 Multi-family Apartment -2 Bedroom - (Three Level Bldg.)
Type C2 Multi-family Apartment -3 Bedroom - (Three Level Bldg.)
Type C3 Multi-family Apartment - 1 Bedroom - (Three level Bldg.)
Total for Housing
Total for Community Facilities and Housing

Number of
Facilities

Total
Facility
Built Area
(SM)

Lot Area
Unit Area
(Ha)

Total Lot
Area (Ha)

2,300
11,300
11,600
12,500
-

5
3
2
2

12,044
37,870
19,438
23,802

0.013
0.500
0.500
1.000

0.07
1.68
0.84
1.90
0.00

350
13,500

7
1

2,444
18,851

0.200
1.500

1.40
2.09

200
600

2
2

419
1,257

0.040
0.500

0.08
1.05

200
250
500
250

4
3
1
3

838
698
698
698

0.300
0.300
1.200
1.000

1.26
0.84
1.68
2.79

2,000

6,982

0.600

2.09

35
180
1,500
5,000

70
7
4
1
121

2,444
1,257
6,284
3,491
139,514

0.013
0.300
0.600
1.200

0.91
2.09
2.51
0.84
24.12
Total Ha
per
Dwelling
Type
34.15
22.32
23.11
23.11
23.10
16.20
16.20
16.20
174.40
198.52

Dwelling
Number of
Unit Area
Dwelling
Total Built
(sm)
Units
Area (SM)
Ha/ Per DU
185
488
90,253
0.070
205
319
65,366
0.070
120
550
66,024
0.042
135
550
74,277
0.042
100
550
55,000
0.042
90
1,620
145,830
0.010
105
1,620
170,135
0.010
80
1,620
129,627
0.010
7,318
796,513
936,026

Program for Utilities/ Roads / Open Space


Unit

Metric (daily)

Daily Total
(m3)

Potable Water
Residential
Commercial & service Requirements

Sanitary Wastewater
Power
Solid Waste
Unit
Roads/Utilities
Open Space/Recreation
Total Utilities/ Roads / Open Space
Total Community Size

200 Litres Per Capita


50% of residential Use
total
Percent of
total Potable
80% Water
KW per
1 Capita
KG per
1 Capita
Metric (daily)
% total
50% community
% total
50% community

4,189
2,095
6,284

5,027
21
20,946
Total (Ha)
99.3
99.3
198.52
397.03

Table 7A-2. Program for Community Facilities

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8.

SUSTAINABILITY (SUSTAINABLE DEVELOPMENT)

This section addresses the initial rapid assessment screening of potential social and
environmental issues potentially associated with SIP, a review of the social and
environmental standards that may apply to the project, identification of project sustainability
opportunities, identification of activities to be addressed in the next phase of SIP, and a
preliminary sustainability vision for the industrial park. This information is organized as
follows: key issues identified in the master plan screening assessment, key areas to
address in next phase activities (addressing both sustainability challenges and
opportunities), and a preliminary sustainability vision for further development in the next
phase of SIP.
Mongolia is entering a period of increased economic development, connecting with new
regional and international markets by taking advantage of the need for natural resourcedriven industries. Mongolias vast natural resources are widely recognized and the countrys
potential growth in developing these resources has drawn international interest, particularly
from China and Russia. We understand that NDIC is promoting SIP as a key element of
Mongolias National Development Strategy geared toward developing export-oriented, high
technology manufacturing and creating a knowledge-based economy.
Development of SIP presents both sustainable development (or sustainability) challenges
and opportunities to be addressed during subsequent phases of project development.
Sustainability challenges will include environmental protection and resource conservation,
particularly in the critical area of water resource management. The project also presents
opportunities for the project to leave a positive development impact in Mongolia through
worker skills development, technology transfer, and enhancement of suppliers capabilities.
Another opportunity area is possible eco-industrial efficiencies aligned with the Government
of Mongolias commitment to the Exemplar Zero Initiative (EZ Initiative)1.

8.1.

KEY ISSUES IDENTIFIED IN THE MASTER PLAN SCREENING


ASSESSMENT

Some of the key issues NDIC will need to address are identified below. Others will be
identified in the next phase when additional information and studies become available.
These issues will need focused attention in the next phase of SIP2.
Water: The source of water for SIP will be one of the most significant issues to be
addressed during project development. Water is widely known to be an issue relative to
development in the south-Gobi area, which has a limited non-renewable supply in deep
aquifers and where use of the shallow aquifer could impact animal herders. Piping water
from sources to the north may have impacts on the river and draw international attention or
criticism. A recent conference in Ulaanbaatar sponsored by the World Economic Forums
Water Resources Group, McKinsey, and the Office of the President of Mongolia concluded
that there is sufficient water to sustain mining exploration, but not downstream activities.
The World Bank, the United Nations, and others have conducted water studies for Mongolia,
and these studies and the options for water sourcing for SIP will require a major focus in the
next phase of SIP.
Coal: Currently, some of the U.S. and international finance institutions have constraints or
requirements related to investment in coal-related development due to concerns around
1

The Exemplar Zero Initiative is an international program dedicated to fast-tracking climate mitigation, carbon-eradication and
sustainable energy in all world nations. See www.exemplarzero.org
2
See 8.2 below. The phrase next phase as used frequently in this section 8 is a reference to services to be performed after
this Master Plan and do not form part of Bechtels Master Plan scope.

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emissions and climate change. This issue will need to be addressed in a review of potential
lenders and their requirements during the next phase of SIP.
Meeting Mongolian and International Social and Environmental Standards: Due to the
potential need for external project financing, SIP will likely need to satisfy both Mongolian
standards and international standards such as those of the World Bank/International
Finance Corporation (IFC).
Meeting environmental and social standards (including
stakeholder engagement requirements) will be important in establishing project credibility
with international lenders and investors that may be involved in financing, constructing or
operating the industrial park. Meeting the relevant standards is also key to the project
schedule as lenders will require certain activities be completed prior to project finance.
Displacement of herders grazing activities: The IFC has a specific performance
standard on Land Acquisition and Involuntary Resettlement which addresses not only
physical displacement of residents and their property, but also economic displacement
impacts on peoples livelihood. If development of SIP may result in exclusion of herders
from land they traditionally use, studies will be needed to determine who may be impacted,
and a resettlement action plan may be required to develop a program, in consultation with
the affected herders, to protect or restore their livelihoods.
Cultural Heritage: The IFC also has a specific performance standard for identifying cultural
heritage properties, assessing the potential for project impacts on such properties,
protecting cultural properties during project development, and consulting with local
communities to determine the appropriate type of mitigations. During the next phase of SIP,
a screening level study will need to determine whether cultural properties may exist in areas
to be affected by SIP, followed by field studies, as appropriate.
Engagement with Local Residents: It is anticipated that the local community and herders
may have concerns about development of SIP. Herders may be concerned about loss of
access to grazing land and water. Sainshand residents may lack an understanding of
whether the project will be designed to protect their health and safety. Sainshand residents
may also have expectations for potential benefits to be delivered by SIP both in terms of
opportunities to participate in the project directly as workers or suppliers and in terms of
community development programs (e.g. shared infrastructure, community services). Early
engagement with the Sainshand community should begin in the next phase of SIP to
endeavor to maintain a positive relationship with the residents, assist them in understanding
the project, its impacts and mitigations, set realistic expectations for project benefits, identify
opportunities for project participation as workers or suppliers, and demonstrate conformance
with applicable IFC requirements for public consultation and disclosure.
Influx management: The influx of both project construction workers and opportunistic job
seekers to the Sainshand area can potentially impact on limited local resources and
infrastructure. This will need to be addressed in future planning for SIP such as workforce
recruitment processes, workforce management, stakeholder engagement.

8.2.

KEY AREAS TO ADDRESS IN NEXT PHASE ACTIVITIES3

To fully address the challenges and opportunities, the next phase of the SIP development
will need to include planning in four broad areas of sustainability: meeting social and
environmental standards; stakeholder engagement; maximizing national content; and
integrating sustainability concepts into design and construction.
Each of these areas is important to successful development of SIP and maximizing the
potential benefits industrial park development delivers to Mongolia. Meeting the relevant
3

See previous footnote: not included in Bechtels Master Plan scope of services.

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social and environmental standards is necessary to demonstrate compliance with
Mongolias laws and attract international lenders and investors. Engaging with stakeholders
will seek to build the projects License to Operate by involving Sainshand residents in the
project planning including benefits delivered through SIP, and demonstrate to lenders and
non-governmental organizations (NGOs) that the project is adequately addressing critical
issues, such as water scarcity and quality. The potential positive development impacts of
the project include not only the monetary value of national content, but also further
development of human capacity enabling Mongolian workers, suppliers, and contractors to
become internationally competitive and support future development in Mongolia.
Sustainable design and construction practices will be important to minimizing environmental
impacts, protecting local resources, and aligning with the Government of Mongolias (GoM)
commitment to the EZ Initiative.
Early planning in each of these areas will be important to successful development and
execution of SIP and/or to maximizing the benefits SIP delivers to Mongolia and its citizens.
The activities outlined below for the next phase of SIP are based on the PMCs primary role
being to manage technical development tasks on behalf of NDIC (e.g. planning; developing
work scopes for the environmental impact assessment, water study and other surveys;
tendering and bid evaluation). The specific activities are premised on a number of unknowns
at this time, and will need to be refined once NDIC it has hired its PMC, commercial, and
legal advisors and made a decision to proceed with the next phase of SIP. The activities will
also need to be adjusted depending on which ownership model NDIC choses for SIP.
Nonetheless, each of these areas should be key to the projects success.
8.2.1.

MEETING SOCIAL AND ENVIRONMENTAL STANDARDS

SIP will need to be designed and constructed to meet both Mongolian and international
social and environmental standards.
Our current knowledge of the Mongolian
environmental laws and standards to protect people and the environment is summarized in
Section 2.0. Meeting the Mongolian standards will include the need to conduct an
Environmental Impact Assessment (EIA), as well as designing SIP to meet air, water, and
noise standards.
At present, the International Finance Corporations (IFC) Social and Environmental
Performance Standards represent international best practice and are instrumental in
securing project financing and establishing good stakeholder relations on major projects. As
SIP is anticipated to involve external financing, the project will also need to meet the World
Bank/International Finance Corporations (IFC) Social and Environmental Performance
Standards (see Table 8.1 for summary level information). These standards will likely apply
whether NDIC goes to the IFC directly, another international financing institution, or one of
the 60 commercial banks that have signed the Equator Principles, committing to only fund
projects which meet national standards or the IFCs standards, whichever are more stringent
(See Table 8.2 for some key points from the Equator Principles).
Aligning SIP development with Mongolian and World Bank/IFC standards is a prerequisite to
attracting international investors and world class industrial operators to the project. Lenders
will want to know that these activities are in progress and on schedule for timely execution
because they are prerequisites for their investment in the project. Investors will need to
know that these standards have been met in order to support their own financing for
industrial plants. Additionally, some international investors have adopted the IFC standards
as the minimum standard for all their projects. Demonstrating best practice in satisfying the
IFCs social and environmental performance standards is also important to positioning
Mongolia, as it transitions from International Development Association (ICA) programs to
World Bank/IFC programs.

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As discussed in the Preliminary Development Schedule (Section 12), GoM should also
develop two regulatory agencies: one which is the lead industrial park development agency
and a separate industrial park regulatory agency. It will be important to the integrity of
satisfying social and environmental standards to have a separate regulatory agency to avoid
any perception of a conflict of interest between SIP development planning and objective
social and environmental review.
Meeting these standards will include the need to conduct an EIA. We understand that
Mongolias Law on Environmental Impact Assessment requires the preparation of a General
EIA which will determine whether (1) no detailed EIA is necessary, (2) the project may be
completed pursuant to specific conditions, (3) a detailed EIA is necessary, or (4) the project
is cancelled. A detailed EIA is an extensive assessment which must be prepared by a
Mongolian company which is authorized by the Ministry of Nature and Environmental (MNE)
or Aimag (provincial) government.
Based on World Bank/IFC standards, we propose the preparation of a general EIA for the
entire SIP site and common infrastructure to be developed up front. Additional EIAs will be
required for each industrial facility planned for development within SIP. These requirements
need to be included in the project information memorandum (PIM) for future developers to
(1) enable them to evaluate the project and associated risk/risk management and (2) plan
for necessary EIA activity, cost, and schedule.
Construction of certain outside-the-park infrastructure, such as the railway from Tavan
Tolgoi to Sainshand is separate from SIP, but we recommend that NDIC coordinate with the
relevant authorities to confirm whether the railway has also met required social and
environmental standards. This is important to facilitate that the railway development is on
schedule to support SIP development.
Activities that need to be started early in the next phase between NDIC and its Project
Management Consultant (PMC)4 and which should be included in the scope of the PMC
contract include:

Identify and compare relevant Mongolian and international environmental and social
standards to identify the more stringent requirements to be satisfied. This includes
comparing Mongolian ambient air and water quality standards, industrial wastewater
discharge quality standards to soil and to water, potable water standards, and define
the project description to be used in the EIA, including the preferred design basis
and alternatives.

Develop an initial strategy for meeting relevant performance standards and division
of roles and responsibilities among project participants (NDIC, PMC, GoM regulatory
agencies, plant developers). Assist NDIC in developing a plan, schedule and cost
estimate for this work. Support NDIC in technical meetings and correspondence with
potential lenders.

Develop the EIA schedule against the SIP timeline. The EIA needs to be completed
to give potential investors and lenders confidence that the project will meet
international standards. It will be important for NDIC to show potential investors that
the project is proceeding and on track to support their due diligence before they
commit to invest.

Define the project description to be used in the EIA, including the preferred design
basis and alternatives.

As at the date of compilation of this Master Plan, no PMC has been appointed.

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Scope the general EIA and develop a Terms of Reference designed to satisfy
Mongolian and international standards. Assist NDIC in issuing the Invitation to
Tender, and evaluating bidders. This may include identifying and recommending
both Mongolian and international consultants, as needed.

Work with NDIC and GoM regulatory agencies, as appropriate, to align on


expectations, process, methodology and documentation required. Assist GoM
regulatory agencies to understand the schedule interface between EIA and project
development and help develop their capacity, as needed, to manage the EIA
process through technology transfer and training. The EIA will need to use detailed
international methodologies, survey requirements, data analysis, and application of
mitigations based on international best practice.

Work with NDIC to manage the EIA process. Collaborate with NDIC and its
consultants to familiarize project staff with applicable standards, requirements to
meet the standards, procedures and methodologies, documentation requirements.
The objective is to transfer knowledge of the standards, best practice and process to
meet external requirements to NDIC staff for future use in SIP development.

Assess applicability of other IFC performance standards (e.g. listed in Table 8.1).
For example, to meet the IFC performance standards, it is important to document not
only physical resettlement of people, but also any economic displacement including
nomadic activities. If SIP is developed without conforming to these standards, some
international lenders and investors may be concerned or avoid involvement because
there is no way to conform with these standards and required processes later in
project development, especially once construction has started.

Assist NDIC in developing Terms of Reference for various other studies needed to
meet the relevant performance standards.

Review results of field work, baseline surveys, early drafts of EIA, and other plans to
facilitate that they will meet the applicable standards. Review draft EIA for gaps and
facilitate that it applies best practice both in methodology and in mitigation of
impacts. Prepare recommendations for additions and changes, as needed, working
collaboratively with NDIC.

Assist NDIC in completing lender submittals required to demonstrate the project is


meeting required standards through application of best practice.

Summarize the approach to satisfying social and environmental standards in the SIP
marketing plan to inform potential investors and operators.

Assist NDIC in developing the Environmental and Social Management Plan (based
on the EIA) to proactively manage integration of environmental, health, safety, and
social commitments into project design and construction.

Support NDIC on initial audits of social and environmental audits required


periodically by lenders.

Define the environmental impact assessment requirements for each industrial plant
and include in the PIM for future developers.

8.2.2.

STAKEHOLDER ENGAGEMENT

Many stakeholders both inside and outside Mongolia will have an interest in the
development of SIP. To be successful, NDIC may need to carry out a proactive and
effective stakeholder engagement program beginning in the next phase of work and
continuing throughout SIP development. For example, the residents of Sainshand will have
an interest in how the project is being developed, and how the environment and their health
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and safety are being protected. Lenders potentially involved in financing the project
(potentially including the World Bank, IFC, Equator Principle banks, ECAs) will be interested
in the environmental and social standards and management being met by SIP.
Environmental groups or other NGOs may take an interest in certain project aspects or
issues (e.g. water conservation/consumption, coal related emissions). Engagement with the
GoM will also be key in developing the governments capacity to respond to the projects
scale and timeline, aligning Mongolian and international performance standards and best
practices, and demonstrating the level of transparency that international lenders and
investors will require. Activities to be undertaken by NDIC and its PMC starting in the next
phase of SIP include:

Identify and map project stakeholders. This will include the Sainshand community,
nomadic herders, lenders, national and international non-governmental
organizations, such as water NGOs, potential project partners including those who
may assist in the National Content program.

Develop an issues management matrix identifying stakeholders potential issues of


interest, gaps to address in project planning, and potential mitigating strategies.

Define the various stakeholder engagement standards to be met and specific


activities to be undertaken (e.g. IFC requirements for public consultation and
disclosure incorporated within the various social and environmental standards)

Develop a Stakeholder Engagement Plan for the project addressing both initial
industrial park infrastructure and future industrial plants. Such Plan should also
include government relations: a plan for how to approach, respond to and follow up
with government and ministry regulatory and permitting agencies (e.g. Ministry of
Nature, Environment, and Tourism), as well as Sainshand officials to build key
relationships and streamline interactions with government authorities at all levels.
This may include: understanding and tracking relevant national and local legislation
which may affect the project; developing a permitting plan and schedule; regular
briefs and site visits related to project plans, mitigation, monitoring, and planning for
specific program elements such as local content; and alignment with the EZ
Initiative. The stakeholder engagement plan will include: community outreach
designed to identify community issues; provide information on the project and
opportunities for project participation; and conduct community visits. It will also
include a public relations and media strategy for the project.

Determine how the stakeholder engagement effort will be resourced (e.g. internally
by NDIC or through contracted services)

Define a Sustainability Vision for the project and the Project Design Basis going
forward as information to be disclosed to community stakeholders and lenders.

Support NDIC in responding to public queries on technical issues, validity of EIA


methodology and conclusions, and project conformity with relevant standards.

Establish a project-specific grievance procedure as required by IFC standards and


best practice. This will outline the roles and responsibilities of NDIC, the PMC,
contractors, and future investors for industrial plants.

Support NDIC in developing an effective website providing information on SIP.

8.2.3.

NATIONAL (MONGOLIAN) CONTENT

Mongolias vast natural resources can support major economic development, but this
potential exceeds the current capacity of its national workforce and businesses to develop
without expatriate assistance. Increasingly, countries like Mongolia are instituting incentives
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to attract foreign direct investment and stimulate private sector development, and in return,
these countries expect both direct economic benefits from projects and also other positive
development impacts. Mongolia has the potential to benefit from a strong national content
program on SIP both in terms of the projects direct economic impact (i.e. local spend on
workers, contractors, and suppliers), and also from the development of its workers and
suppliers enabling them to support future government and private sector projects in-country.
SIP can attempt to develop a national content strategy including a plan to attract to the
project some of the 200,000 overseas Mongolians who may return home with a desire to
participate in their countrys development opportunities.
During the next phase, NDIC should work with the PMC to develop a project-wide national
content strategy early in project development for both SIP current and future build-out.
Activities that NDIC should conduct with the PMC starting in the next phase include:

Review GoM objectives related to national content development (e.g. skills training
based on an international curriculum, development of local businesses/small- and
medium-enterprises (SMEs), technology transfer, capacity-building and succession
planning).

Define objectives for local engineering, construction workforce, and supplier


programs for various phases of SIP.

Identify existing worker and supplier capabilities in Sainshand and other areas of
Mongolia that can participate in SIP. This includes surveying workforce and
contractors to determine availability, numbers, skill levels, and specialties of
Mongolian workers, and identifying local and Mongolian suppliers/SMEs that can
participate in the project. This will include consultation with the GoM and local
vocational and other training institutions, as appropriate.

Conduct gap assessments to determine where training or other capacity-building is


needed to align local workers and suppliers with SIP and future Mongolian
development opportunities. This information would enable NDIC to decide the level
of national content program (and associated costs) it requires of contractors for the
first phase and to include in the PIM for future industrial plant build out.

Identify in-country resources which SIP can leverage in developing its national
content program (e.g. technical schools, vocational training centers, business
associations). Partnering with existing resources in-country can help keep costs
down, address cultural needs in the national content program, improve the capacity
of these local entities for future work, and build local ownership of the program.

Define the roles and responsibilities of NDIC, the PMC, and other contractors. This
would include what contractors need to do (for incorporation in the PIM), how NDIC
can optimize or incentivize the delivery of national content in project procurement
and construction, a national content transition program from facility construction to
operations, and a communications program to support a SIP-wide national content
program. The information for the PIM will outline expectations for national content,
such as unbundling of contracts to match local suppliers/SMEs capabilities,
providing bidding support or contracting modifications to local businesses/SMEs,
pairing local businesses/SMEs with larger national or international companies).

Define a timeline for NC planning (engineering, construction workforce, and supplier


aspects) that ties to the SIP schedule. This may change over time, but activities
need to be scheduled early enough that gap assessments, training, and other
capacity-building can be done in time to enable participation in the project.

Outline a national content program monitoring and evaluation approach. This is


important for assessing program implementation, making course changes, guiding
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contractors or project investors on reporting to NDIC. Both program outputs (e.g.
number of local workers trained, numbers of Mongolian contracts awarded) and
outcomes measuring the positive development impact of the national content
program are important.
8.2.4.

SUSTAINABLE DESIGN AND CONSTRUCTION

Sustainable Design and Construction includes integration of environmentally green,


functional, and community design criteria and practices. The goals are to reduce
environmental and human impacts, provide long-term benefits to the community, and reduce
project and operational costs. In the context of the SIP, Sustainable Design and
Construction should be seen as a process that optimizes design and construction
performance to improve energy efficiency and reduce water and energy use and solid
waste. Sustainable Design should also consider the human use of sites, infrastructure and
buildings seeking to enhance occupant satisfaction, comfort, and health. Sustainable design
and construction should take into account ecological conditions (e.g. water scarcity), local
services and infrastructure, social and cultural considerations, and opportunities for future
use of temporary project facilities. Consideration of community interests and impacts in
design and construction may help build public consent for a project. Activities that should be
conducted by NDIC and its PMC starting in the next phase of SIP include:

Identify sustainable design and construction criteria for the first phase of SIP. These
criteria should be geared to minimize impacts on natural resources, the environment,
human receptors, and existing local infrastructure.
Objectives may include:
considering site design and layout to maximize conservation of resources including
energy, water, and materials; minimizing environmental impacts such as site runoff,
greenhouse gas emissions; and measures to avoid stress on local infrastructure or
positive shared use of wastewater, electricity, roads and other infrastructure
improvements.

Identify sustainable design and construction criteria for future build out of industrial
plants to be included in the PIM and set sustainability expectations and requirements
for contractors, integrate sustainability into bid specifications, review contractors
proposed programs, and manage contractors performance during execution.

Work collaboratively with government officials to train local experts in ways to


integrate sustainable design and construction practices into project planning and
execution.

Develop a water conservation and reuse plan for the entire project, including water
demand minimization measures, water conservation approaches, and water reuse
and recycling.

Identify opportunities for use of local materials and supplies (in concert with the
national content planning).

Consider possible opportunities for eco-efficiency across SIP, e.g. using waste
product from one process as the raw material/input stream into a different
process/plant. This needs to be considered relative to the ownership model that
NDIC selects, as the ability to influence this process will vary depending on NDICs
involvement.

8.3.

DRAFT SUSTAINABILITY VISION FOR SIP

Based on our Master Planning assessment work, we have outlined a preliminary


Sustainability Vision and Objectives for SIP below. This vision and objectives for SIP should

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be refined and further developed in the next phase of work, once NDIC has made a decision
to proceed, more information is available, and the ownership model has been determined.
The statements related to visions and objectives expressed below are aspirations and
unforeseen and uncontrollable events may occur that make it difficult to meet these visions
and objectives. No assurance can be made that such visions and objectives will be
achieved.
Leverage a new economic sector to diversify the Mongolian economy while
protecting the environment and improving human capacity and creating
sustainable jobs.
Demonstrate international best practice in social and environmental planning
Meet both Mongolian and IFC performance standards in SIP development
Build world class capability in NDIC on international social and environmental
performance standards and best practice
Build and maintain strong government, community and other stakeholder
relations
Utilize a participatory and transparent approach with project stakeholders
Apply international best practice in public consultation and disclosure to
stakeholder engagement
Involve Sainshand residents in project design and in construction/operations
phase opportunities
Capture both short-term economic benefits through Mongolian participation in
SIP and develop workers and businesses for future in-country and international
opportunities
Maximize Mongolian worker and supplier development and participation in SIP
Enable Mongolian workers, contractors, and suppliers/SMEs to perform to the
project and industry standards (e.g. quality, productivity, reliability, safety)
Assist in curbing the manpower shortage by developing Mongolian human
capacity on the project and leaving a legacy of training in-country
Focus expatriate talent and technology on developing local talent and
formalized succession planning
Integrate environmental protection throughout SIP design, construction and
operations
Maximize energy efficiency in project components to reduce greenhouse gas
emissions and save money over the life of facility operations
Conserve water, materials and other resource consumption
Minimize negative impacts on the environment by using sustainable
construction practices.
Consider long term functional use of any temporary facilities associated with
SIP development
Align the development of SIP with Mongolias Examplar-Zero Initiative.
Assess potential for applying eco-industrial (or industrial symbiosis) principles,
using waste products from a process as input/raw materials for another
process to minimize waste streams.
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8.4.

GLOSSARY OF TERMS AS COMMONLY USED RELATIVE TO


SUSTAINABILITY

Capacity building - Enabling people and institutions to develop processes, skills, expertise,
and capabilities for new enterprises
Eco-efficiency - Efficient use of energy, water, materials, and other natural resources
Equator Principles - a voluntary set of environmental and social guidelines adopted by
commercial banks for project finance, based on IFCs environmental and social performance
standards.
Green design and construction - Maximizing the use of renewable resources, recyclable
materials; environmentally friendly products, packaging, and chemicals; non-hazardous
substances; alternative fuels; energy efficiency; closed-loop systems reducing discharges to
the environment, and other resource conservation methods in project design and
construction
LEED - Leadership in Energy and Environmental Design rating system is a third party
environmental certification system developed by the US Green Building Council. LEED
Certification is achieved at different levels based on the total credits earned in each of
several categories: sustainable sites, water efficiency, energy and atmosphere, materials
and resources, and indoor environmental quality.
Project influx - the migration of people to the area where a new project will be constructed.
This includes both workers hired by the project and opportunistic migrants looking for
employment and other income opportunities.
Public Consultation and Disclosure Disclosure is making information accessible to
interested and affected parties as part of the process of stakeholder engagement.
Consultation is a two-way process of dialogue between the project and its stakeholders.
(IFC, 2007)
Social Investment (also called strategic community development) - Targeted social
investments, or community development initiatives, by which a project benefits local
communities.
Stakeholders persons or groups who are directly or indirectly affected by a project as well
as those who may have interests in a project and/or the ability to influence its outcome,
either positively or negatively (e.g. locally affected communities, individuals or
representatives, national or local government authorities, religious leaders, civil society
organizations, special interests groups) (IFC, 2007)
Stakeholder engagement describes a broad and continuous process of communications
engagement between a company and those potentially impacted by the project.
Stakeholder engagement should span the entire life of a project. (IFC, 2007)
Sustainable design and construction - is the integration of green, functional, and community
design and construction practices to reduce environmental and human impacts, provide
long-term benefits to the community, and reduce project and operational costs.

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Table 8.1: IFC Performance Standards (2006) Summary Points

Social & Environmental Assessment &


Management System:
Social & Environmental Assessment
Management Program
Organizational Capacity
Training
Community Engagement & Disclosure
Monitoring & Reporting

Labor & Working Conditions

Applies to direct hire & supply chain


Promote fair treatment, non-discrimination, equal
opportunity of workers, & compliance with national
labor and employment laws
Eliminate child labor & forced labor
Promote safe & healthy working conditions;
protect/promote workers health
Retrenchment

Pollution Prevention & Abatement

Avoid/minimize impacts on human health and


environment - design & technologies that
avoid/minimize pollution & reduce GHE emissions
Pollution Prevention
Wastes
Hazardous Materials
Emergency Preparedness & Response
Pesticide Use & Management

Community Health, Safety and Security

Avoid/minimize health & safety risks to local


communities (target = OSBL)
Ensure safeguarding of personnel & property also
minimizes risks to communitys safety & security
Improve local environmental conditions to protect
health (e.g., water borne diseases)
Work with communities & local governments for
emergency preparedness & response
Security assessments
Government security assess risks, communicate
intent, disclose arrangements
Government & Security contractors no past
abuses; training, rules of conduct, monitoring, &
grievance mechanisms

Biodiversity Conservation & Sustainable Nature


Resource Management

Protect & conserve biodiversity


Promote sustainable management & use of natural
resources with practices that integrate conservation
needs with development priorities
Applied to all habitats (not only protected)
Focus on habitat destruction & invasive species

Indigenous Peoples

IPs often marginalized & vulnerable, especially when


lands are taken
Respect for dignity, culture, knowledge & practices
Prevent adverse impacts, provide benefits
Requires Indigenous Peoples Development Plan based
on free & informed consultation

Cultural Heritage

Tangible forms of cultural heritage of archaeological,


paleontological, historical, cultural, artistic, religious
value and unique natural features that embody cultural
values
Protect cultural heritage from adverse impacts
Support preservation
Promote equitable sharing of business benefits from
cultural heritage

Land Acquisition & Involuntary Resettlement

Includes physical & economic displacement


Involuntary = expropriating or when can expropriate
Avoid/minimize displacement
Resettlement Action Plan
Compensation at replacement cost
Involvement of affected people
Improve or at least restore livelihoods and standards of
living
Improve living conditions through housing and security
of tenure

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Table 8.2 Equator Principles- Excerpted Key Points


Principle 1: Review and Categorization
The EPFI will categorize the project based on the magnitude of the potential risks and impacts as defined in the
environmental and social screening criteria of the IFC. These project categories are:
Category A- potential significant adverse social or environmental impacts that are diverse, irreversible, or unprecedented.
Category B- potential limited adverse impacts that are few in number, largely reversible, and readily addressed through
mitigation.
Category C- projects with minimal or no social or environmental impacts.
Principle 2: Social and Environmental Assessment
For Category A or B projects, a social and environmental Assessment will be conducted to address the impacts and risks of
the project, and propose relevant mitigation and management measures.
Principle 3: Applicable Social and Environmental Standards
For projects in non-OECD countries, the Assessment will establish the projects compliance with the IFC Performance
Standards and applicable Industry Specific EHS Guidelines. The Assessment process must also comply with all relevant
host country laws, regulations, and permits pertaining to social and environmental matters.
Principle 4: Action Plan and Management System
For all Category A or B projects, an Action Plan will be prepared addressing the findings of the Assessment including:
mitigation measures, corrective actions, and monitoring measures to manage the identified impacts. The project will
implement a Social and Environmental Management System to effect these measures.
Principle 5: Consultation and Disclosure
Category A or B projects in non-OECD countries will include consultation with project-affected communities in a
structured and culturally relevant manner. For projects with significant impacts on communities, the process will establish
their free, prior and informed consultation and facilitate their informed participation as a means to establishwhether a
project has adequately incorporated affected communities concerns. This includes consultation throughout the entire
project process and disclosure of the Assessment in relevant local language .
Principle 6: Grievance Mechanism
For all Category A, and as appropriate Category B, projects in non-OECD countries, the borrower will establish a grievance
mechanism as part of the management system to ensure that consultation, disclosure, and community engagement continues
throughout construction and operation of the project. The grievance mechanism will be implemented to receive and
facilitate resolution of concerns or grievances about the projects social and environmental performance raised by
individuals or groups in affected communities.
Principle 7: Independent Review
For all Category A, and as appropriate Category B projects, an independent social or environmental expert not directly
associated with the borrower will review the Assessment, Action Plan, and consultation process documentation to assist the
EPFIs due diligence and assess compliance with the EP.
Principle 8: Covenants
For Category A and B projects, the borrower will covenant in financing documentation:
To comply will all relevant host country social and environmental laws, regulations and permits
To comply with the Action Plan during construction and operations
To provide periodic reports (not less than annually) in a format agreed with the EPFI that document compliance
with the Action Plan and relevant host country requirements.
To decommission the project in accordance with an agreed decommissioning plan
Where a borrower is not in compliance with its covenants, EPFI will work with the borrower to bring it back into
compliance. If the borrower fails within an agreed period, EPFIs reserve the right to exercise remedies.
Principle 9: Independent Monitoring and Reporting
To ensure monitoring & reporting over the life of the loan (Category A and appropriate Category B projects), EPFIs require
appointment of an independent environmental and/or social expert to verify monitoring information.
Principle 10: EPFI Reporting
EPFIs are required to report publicly (at least annually) about its EP implementation processes and experiences.

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9.

INDICATIVE PROJECT SCHEDULE

9.1.

BASELINE SCHEDULE

The indicative Industrial Park Development and EPC phase schedule for the Sainshand
Industrial Park from Council Decision through Startup of the final plant is 86 months and is
aggressive, especially in the development phase. The initiation of the project is contingent
upon approval of the Master Plan by the Mongolian Government, and the decision of the
Mongolian Government to proceed with the development of the Sainshand area by first
allowing key concurrent activities to begin. This indicative schedule assumes that the Basis
of Schedule as described in section 9.4 below and Schedule Assumptions set out in section
9.5 below are satisfied.
These key activities include laws or legal framework that requires amending or being
enacted early in the program; environmental assessment of the proposed site; sufficient
geotechnical evaluation with surveying of the SIP and the planned Community; the design of
roads and utilities necessary for the temporary housing facilities required by the Cement
Plant (CMP) scope (see section 2.5, Industrial Plants) . One priority for the CMP will be to
establish a source of cement for a concrete batch plant which will supply concrete to all of
the plants to follow. For these activities to start on time, funding or interim financing may be
necessary to commence early work and sustain the pace of front end engineering,
procurement and construction. The Milestone Table below (Figure 9-1) illustrates the
indicative dates for beginning or completing key milestones for the overall SIP program.
Project
Month

Begin

End

SIP Decision

-1

01-JUN-12

Interim Financing

01-JUL-12

Final Geotech Report

01-FEB-13

EIS Approval

13

03-JUN-13

Industrial Park Financing

24

02-MAY-14

Plant Concessions

24

01-JUN-14

Cement Plant

44

01-JUL-12

01-JAN-16

Industrial Park Development

66

01-MAR-12

01-MAY-15

Activities Inside of the Industrial Park

66

15-JAN-13

15-NOV-17

Coking Coal Plant

75

01-JUN-14

15-AUG-18

Coal Gasification Plant

79

01-JUN-14

15-DEC-18

Iron Pellets Plant

76

01-JAN-15

01-SEP-18

HBI / DRI Plant

76

01-MAR-15

01-SEP-18

Activities Outside of the Industrial Park

76

01-JUN-12

15-SEP-18

Copper Smelter and Refinery

83

01-JAN-15

1-MAY-19

Milestones

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Milestones

Project
Month

Begin

End

Power Plant

86

01-MAR-15

1-JUL-19

Figure 9-1: Indicative Schedule Milestones

9.2.

CRITICAL PATH

The overall critical path for the EPC Summary Schedule begins with the Sainshand
Industrial Park (SIP) approval, Concession Granted to build the industrial park, and ends
with incorporation of the Copper Smelter steam into the Power plant.
The schedule critical path milestones and additional critical items identified to date are listed
below:
Master Plan Approval / Council Decision
Creation of the Regulatory / Legal Framework
Selection of the Project Management and Commercial Consultants
Budgetary Approval for the SIP Program
Award of a Park Developer
EIS Approval for the Industrial Park
Financing of the Industrial Park Infrastructure
Temporary Facilities to support craft and staff
Construction of the Industrial Park
Completion of the Cement Plant, Coal Gasification Steam to Dry Reduction Iron.
Construction and Start-up of downstream facilities.
Each specific plant in the Sainshand Industrial Park has its own critical path that is unique in
its own right, and other plants have critical paths that are key to operations of another plant,
i. e. Synthesis Gas from the Coal Gasification Plant is delivered to the Steam Power Plant.
See EPC Summary Schedule Figure 9-2, and also the following for specific plant schedules
with critical path shown as a red line.
CEMENT PLANT
The critical path for the Cement Plant starts at Final Investment Decision (FID)/Notice to
Proceed (NTP), through the award, delivery and installation of the clinker production
equipment and the raw meal production equipment and structural steel to the installation
and first flame in rotary kiln, terminations, loop checks and commissioning and start-up. See
Figure 9-3.
COAL COKING PLANT
The critical path for the Coal Coking Plant starts at FID/NTP and goes through to the award,
delivery and installation of the grinder production equipment, including the coal and coke
oven handling system, flue gas desulfurization system, waste heat boiler, and coke dryer
and the corresponding installation of this equipment. The path then goes through the
completion of piping, electrical, loop checks and commissioning and start-up. See Figure
9-4.
COPPER SMELTER
The critical path for the Copper Smelter starts FID/NTP and goes through the award,
fabrication and delivery of the permanent cathode and the electrolytic cells. The path
continues through to loop checks commissioning and start-up. See Figure 9-5.
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STEAM POWER PLANT
The critical path for the Steam Power Plant starts at FID/NTP and goes through the award,
delivery and installation of the steam turbine electric generator, steam boilers, and
completion of piping, electrical, loop checks commissioning and start-up. See Figure 9-6.
COAL GASIFICATION
The critical path for the Coal Gasification starts at FEED through to NTP with the
development of the PFDs and datasheets to award, delivery and installation of the grinder
production equipment, including the gasifier, scrubber/cooler, acid gas removal, hydrogen
gas recovery, CO2 recovery, waste heat boiler and compressor. The path continues through
the completion of piping, electrical, insulation, loop checks, commissioning and start-up. See
Figure 9-7.
IRON PELLETS PLANT
The critical path for the Iron Pellet Plant starts at FID/NTP through the award, delivery and
installation of the process fan and blowers, travelling grates. The path continues through to
the completion of piping, electrical, loop checks commissioning and start-up. See Figure 9-8.
DIRECT REDUCTION IRON/HOT BRIQUETTED IRON PLANT
The critical path for the Direct Reduction Iron Plant schedule starts at FID/NTP and goes
through the award, fabrication and delivery of the gas scrubbers and clarifiers and the DRI
coolers. The path continues through to the completion of piping, terminations, loop checks,
commissioning and start up. See Figure 9-9.
CIVILWORKS INSIDE AND OUTSIDE THE INDUSTRIAL PARK
The critical path for the Civil Works for Inside and Outside Plant scope goes through the
award of the Temporary Housing Availability and Permanent Camp fabrication, delivery and
installation. See Figure 9-10.

9.3.

OPPORTUNITIES FOR SCHEDULE IMPROVEMENT

Any consideration to improving the overall industrial park development or any individual
plant schedule must address the critical path mentioned in section 9.2 preceding.
Improvement in any one critical path may affect the other logical activity paths.
Nevertheless, some of the areas for potential schedule improvement may include the
following:

Early award of raw meal production and critical equipment for the Cement Plant.

Use of tents and heaters to allow installation of concrete in cold weather or allow
other above ground work during the winter.

9.4.

BASIS OF INDICATIVE SCHEDULE

All plants are planned to be located within the boundaries of the proposed Sainshand
Industrial Park. This includes the:
Cement Plant
Coking Coal Plant
Copper Smelter-Refinery
Steam Power Plant
Coal Gasification Plant
Iron Pellet Plant
Direct Reduction Iron Plant
Use of this Report is subject to certain restrictions
set forth in the Important Notice.

9-3

Sainshand Master Plan Project


Final Report

Civil Inside and Outside Park Scope

The Geotechnical Award and Investigation that is planned to take place as part of the
Cement Plant will be contingent upon the entire industrial park being done at this time.
Engineering, Procurement and Construction of the Cement Plant may need to begin early
and is independent to the concessions award for the other plants. An expedited financing
approach should be considered since the Cement Plant may be required to start
construction prior to the general concession awards.
Long lead item durations were provided by vendors or derived from recent Bechtel project
experience, as applicable.
The assumed project standard work week in Sainshand is 60 hours or six, ten-hour days per
week.
There is an assumed period of reduced productivity in the winter months, from midNovember to mid-March.
On the EPC Summary schedule, the planned time for the start of construction reflects the
milestone when direct hire personnel mobilize on site for the respective plant.
Bulk feedstock materials are planned to be delivered by truck and/or rail to a central bulk
material handling facility, until the rail line and spur are installed for the Industrial Park.
Site preparation, grading, and drainage are planned to be done by the Industrial Park (Inside
Industrial Park) developer and the plant sites are planned to be turned over at rough grade
(elevation of 898.5 meters) to concessionaires.
Limestone, coal, copper concentrate, and iron ore are planned to be supplied from deposits
in Darkhan, Oyu Tolgoi and Tavan Tolgoi.
Utilities such as potable water, industrial water, waste water, and sewage collection and
treatment are planned to be temporarily supported by the Industrial Park Developer until
permanent facilities are completed.
Temporary fuel lines and telecommunication facilities are planned to be provided by the
Industrial Park developer until permanent line and facilities are constructed.
Prior to and during Startup, any and all operational certificates and licenses, for all required
operating equipment, are planned to be provided by the plants owners and certified by the
pertinent government agencies prior to its use.
Any contractor and client personnel who will join the respective plant start- up including
operation are planned to be trained by the owners and certified by pertinent government
agencies as may be required.

9.5.

INDICATIVE SCHEDULE ASSUMPTIONS

The assumptions identified and set out in this section and in the remainder of this report are
aspirations and are not intended to be an exhaustive list of all assumptions that require
further investigation and that may affect the Project. Rather they represent a number of
assumptions that Bechtel has identified to date. Unforeseen and uncontrollable events may
occur that cause these assumptions to be incorrect. No assurance can be made that such
assumptions will be accurate in light of future circumstances. Any party reviewing, reading
or relying on this report should perform its own assessments, and should not rely on this
reports identification or characterization of these assumptions.

All key critical path milestones and critical items occur in a timely manner to support
the indicative Baseline Schedule identified at section 9.1.
Use of this Report is subject to certain restrictions
set forth in the Important Notice.

9-4

Sainshand Master Plan Project


Final Report

The required concessions granted for each of the units is at least 1 month prior to
the start of FEED, with the exception of the Coking Coal and Coal Gasification
Plants, where FEED will start immediately.

Client approvals of design documents, Purchase Order Awards, and Contractual and
Sub-contractual documents are incorporated in the Engineering and Procurement
and Construction durations.

Each plants proposed area will be at the rough grade level required at the issuance
of the Financial Investment Decision (FID)/Notice-To-Proceed (NTP).

The access road to each plant area and construction laydown area are available and
passable by a wide body vehicle and heavy truck.

Industrial potable water supply will be available and sufficient to meet the needs of
the developer and concessionaire.

The Industrial Park will comply with World Bank standards for environmental
protection.

The winter weather will prevent earthwork, piling, and the placement of concrete
from 15 November to 15 March and will reduce above ground productivity by 50% of
every year. All other productivity factors for weather are 100%.

Force Majeure conditions are not included.

Commitments are made after FID, with the exception of the Cement Plant and long
lead items to be awarded during the FEED, where applicable to maintain the
scheduled completion dates.

Procurement lead times are based on 2011 3rd quarter vendor supplied information.

Pipe material will be spooled at the job site. Piping will be received, staged, spooled
and painted in the laydown yard prior to erection.

No legal restrictions on skilled labor or supervision.

The utilities will be designed and constructed at the industrial park to support the
operation of the plants.

All necessary permits or approvals or like requirements of regulatory authorities are


completed in a timely manner consistent with the indicative Baseline Schedule.

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

9-5

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Use of the Report is subject to certain restrictions set forth in the Important Notice.






9-14

Sainshand Master Plan Project


Final Report

10.

CAPITAL COST ESTIMATE

Except where stated otherwise, the capital cost estimate contained in this Section is based
on data and design bases provided to Bechtel by NDIC or on behalf of NDIC by other
agencies of the Government of Mongolia contacted by Bechtel at NDICs direction. Where
specific data was not so provided, Bechtel has developed further details from the data that
was provided, and made assumptions to develop the potential alternative sites parameters.
Except where stated otherwise, NDIC has previously approved such developments and
assumptions by approval of previous task reports (including any changes directed by NDIC)
submitted to NDIC as part of the scope of work of this Master Plan Study.
This Report describes the potential alternative sites looked at by Bechtel at the time of this
Report pursuant to design basis and assumptions outlined in the preceding paragraph.
These parameters may change along with other aspects of the SIP as further analysis
(including site conditions), preliminary/front end engineering, detailed design, further
investigations and other necessary data and services are performed. Those tasks are not
part of the scope of this Master Plan Report, but should be completed before making any
capital investment decisions.
Due to uncertainties necessarily inherent in relying upon estimates, actual results may differ,
perhaps materially, from the estimates made in this Report, and Bechtel and its affiliates do
not represent that any estimates will necessarily be achieved.
Any assumptions identified and set out in this section and in the remainder of this Report are
not intended to be an exhaustive list of all assumptions that require further investigation and
that may affect the Project. Rather they represent a number of assumptions that Bechtel
has identified to date. Any party reviewing, reading or relying on this Report should perform
its own assessments, and should not rely on this reports identification or characterization of
such assumptions.

10.1.

ESTIMATE BASIS

The plant scope and schedule basis for the capital cost estimate are the Sainshand
Industrial Park descriptions contained in the preceding sections.
This capital cost estimate includes only the up-front cost to construct the facility, and does
not include any cost of operations.
The capital cost estimates are represented as Indicative Estimates with an accuracy of
plus and minus forty to fifty percent in accordance with the Study contractual requirements.
(See Exhibit 1-A, Clause 5.1 of the NDIC/Bechtel Contract for Consultants Services.) In
general, the preparation of the estimates was substantially in accordance with Bechtel
Class-5 EPC capital cost estimates with an expected accuracy of minus ten percent to plus
forty to fifty percent. This range is consistent with the Bechtel Estimate Classifications for
Class-5 Conceptual Estimates upon which the estimate development methodology was
based.
Third-party licensors and/or equipment vendors provided indicative pricing for their
respective process units. Bechtel adjusted these indicative prices to the timing and location
of the SIP development. Specifically, materials, labor, engineering services, and other costs
were extracted from the third-party provided indicative estimates, and converted to the
common estimate basis for SIP. To supplement these vendor/licensor estimates, Bechtel
used in-house and third-party data from similar projects.
Bechtel estimated capital costs for utilities and common facilities using equipment and
material designs and quantities developed in accordance with the scopes as presented in
the preceding report sections.
Use of this Report is subject to certain restrictions
set forth in the Important Notice.

10-1

Sainshand Master Plan Project


Final Report
Where available and applicable, Bechtel developed project-specific equipment lists for the
required project scope and capacity. Estimated equipment pricing was developed from the
following sources:
Current Bechtel in-house data supplemented by recent project purchases
Vendor quotations received for recent proposals
Current, SIP project specific budgetary quotes
Other general capital cost estimate bases include:
Engineering, procurement, and construction costs are based on execution of the projects by
major, global, EPC contractors.
Costs are expressed in US dollars with a base date for escalation of September 2011. Any
forward escalation is covered in the economic analysis.
Currency exchange rates are based on the prevailing exchange rates on August 1, 2011, as
shown in the following table.
Exchange Rates
Country

Currency

Currency Units Equivalent to 1 USD

Australia

Australian Dollar

0.90769

Canada

Canadian Dollar

0.95354

China

Yuan Renminbi

6.41539

European Union Euro

0.69686

India

Indian Rupee

44.1901

Japan

Yen

Kazakhstan

Tenge

143.303

South Korea

Won

1050.31

Mongolia

Tugrik

1248

Russia

Rouble

27.6208

Switzerland

Swiss Franc

0.78763

United Kingdom

Pound Sterling

0.61029

77.27

Bulk Materials pricing is based on current unit material prices at the summary commodity
level at current day pricing from Bechtel in-house data as of September 2011.
Construction execution, for the purposes of the estimate, assumes that the great majority of
installation work will be done on a direct-hire basis; that is, use of subcontracts in the
estimate is minimized. This simplifies the estimate preparation as all-in subcontract
quotations are generally not required. Subcontract based costs have been used for some of
the common utilities and common facilities such as field-erected tanks, buildings,
telecommunications, portions of the sitework, painting, and roads.
Construction Labor
The construction labor force is planned to be comprised of 10% local labor and the
remainder temporary workers from other countries such as China, Philippines, etc.
The construction work schedule is planned to be 60 hours per week, six ten hour days per
week.
Use of this Report is subject to certain restrictions
set forth in the Important Notice.

10-2

Sainshand Master Plan Project


Final Report
Bechtel estimated the base direct craft hours by commodity in accordance with Bechtel
labor standards. The base hours were then adjusted using the anticipated labor productivity
for the specific project location. These unit rates and adjustments were developed from
similar projects in similar locations. Bechtel estimates that the installation of a unit quantity
for the SIP project will take 2.75 times more hours than would be experienced in the US Gulf
Coast region. This is equivalent to Bechtels experience in Southeast Asia, and a lower rate
(fewer hours) than experienced in China.
Bechtel developed the direct craft wage rates, which include the bare rate plus payroll
additives and workers compensation insurances.
Direct craft wage rates exclude
construction indirect costs, camp and catering costs. The average direct craft wage rate
Bechtel used for the purposes of the capital cost estimate is $4.50/hour. Bechtel
determined this rate from prevailing wage rates in China, and data on Mongolian salaries
and wages provided by NDIC.
Construction Indirect Costs
Bechtel developed the estimates for construction indirect field costs from Bechtel historical
and current projects of a similar nature. Total craft jobhours for the Sainshand project are
projected to be significantly higher than similar projects so the rates were reviewed and
adjusted to take into consideration the project location, weather conditions, source of labor,
and other factors impacting productivity and craft hours which may impact construction
indirect costs. Bechtel assumed that project contracting strategy would provide for separate
EPC contractors executing the individual projects, and possibly multiple projects. This may
reduce the craft jobhours per facility (contractor) to a job size more in line with Bechtel
historical projects, thus providing comparable construction indirect cost rates to apply for this
project. The indirect costs include, without limitation:
Temporary Construction Facilities (includes temporary buildings, warehouses, roads, laydown areas, fencing and temporary construction utilities). The material, labor and
subcontract costs for temporary construction facilities were based on estimated direct craft
hours and priced on a cost per direct hour. The cost for temporary construction facilities
Bechtel used to compute the capital cost estimate is $1.50 per direct construction labor
hour.
Construction Services (includes clean-up, scaffolding, warehousing, material handling,
training, surveys, security, transportation and maintenance). The labor and subcontract
costs for construction services were based on estimated direct craft hours and priced on a
cost per direct hour cost, but adjusted for estimated project jobhours. The cost for
construction services Bechtel used to compute the capital cost estimate is $3.25 per direct
construction labor hour.
Construction Equipment, Small Tools & Consumables. The cost for this account is
usually based on a construction equipment schedule and rental rates, including mobilization
and demobilization. For this estimate, an applicable cost per direct hour rate was applied to
estimated direct craft hours, but took into consideration project size, weather and estimated
project jobhours. The cost for construction equipment, small tools, and consumables
Bechtel used to compute the capital cost estimate is $8.00 per direct construction labor
hour.
Construction Management Costs (site non-manual supervisory staffing): Contractor
staffing required for managing direct-hire craft labor and supervising specialty
subcontractors was based on supervisory-to-craft staffing ratios from recent reference
projects. Bechtel developed field non-manual staff wage rates as an all-in rate using
typical Employment Conditions for the project location. These all-in rates include
salaries, payroll additives, incentives, mobilization, shipping & storage, absences (home
leaves), demobilization and removal from storage cost. Bechtel estimated required field
Use of this Report is subject to certain restrictions
set forth in the Important Notice.

10-3

Sainshand Master Plan Project


Final Report
non-manual construction supervision at 15% of the direct construction hours, and used an
average wage rate is $39 per hour in computing the capital cost estimate. This wage rate
represents a field non-manual staff comprised of 15% western expatriates, and the balance
from Mongolia or other nearby Asian nations.
Construction Camp Costs (temporary accommodations and operations): Bechtel based
construction camp pricing estimates on recent international completed projects and recent
subcontractor quotations applied to the projects estimated field staffing, including craft
labor, subcontractor personnel, field non-manuals, vendors, commissioning/startup
personnel, etc. The basis of the capital cost estimate is 100% camp and no available local
housing. It is assumed that the temporary construction camp will remain on site for future
construction labor. The camp population was estimated per the estimated EPC project
schedule and jobhours as indicated in the Estimate Capital Summary tables in Sections 10.2
through 10.4 following. Camp costs were developed from two (2) components:
o

Quantity of accommodations (number of beds) required are based on peak


staffing expectations which are dependent on jobhours and schedule to
determine the peak accommodations required. Cost per accommodation
was applied using historical unit pricing for similar project accommodations.

Catering, utilities, maintenance and operations costs are variable and based
on the computed number of camp-days which are dependent on jobhours
and schedule. Cost per camp-day was applied using historical unit pricing for
similar project camp operations.

The construction camp costs used by Bechtel in computing the capital cost estimate
are estimated at $5,000 per person at the peak population of 19,000, plus $10 per
day per person.
Remote Construction Operations Costs include such costs as local transportation,
personnel recruiting, mobilization and demobilization of foreign labor, concrete batch plant
operations and communications. These costs were based on estimated direct craft hours
and priced on a cost per direct hour basis. The cost for remote construction operations
Bechtel used in computing the capital cost estimate is $3.50 per direct construction labor
hour.
Commissioning and Startup Services
The capital cost estimates cover the EPC Contractors responsibilities through project turnover and includes the cost for plant commissioning & startup services, exclusive of Ownerprovided operators. These costs include startup supervision labor costs, craft labor support,
vendor field services support during startup, training manuals, travel, consumables, small
tools, startup spare parts, early home office support and all other services to commission,
startup and turnover a fully operational project to the Owner. These costs were based on
Bechtel experience. The estimated cost for commissioning and startup services used by
Bechtel in computing the capital cost estimate averages $1.50 per direct construction labor
hour.
Initial Fills of Catalysts, Chemicals, Refrigerants, Lubricants
Estimated costs were included in the capital cost estimate for catalysts, chemicals and
lubricants [based on vendor-recommended first fill consumables and amounts and based on
pricing effective in September 2011] and are based on recent Bechtel project experience.
Construction and Startup Spare Parts
Estimated allowances are included in the capital cost estimate to cover anticipated spare
parts during construction and commissioning/startup. Additional costs are included and
shown separately to cover plant capital and warehouse spare parts. Spare parts are
Use of this Report is subject to certain restrictions
set forth in the Important Notice.

10-4

Sainshand Master Plan Project


Final Report
included in the owners costs section of the capital cost estimate, based on items and
quantities recommended by vendors of the relevant equipment.
Professional Services
The assumed scope of the EPC contractors services includes home office professional
services for the engineering and procurement, and support of construction. The capital cost
estimate is based on an assumption that 50% of these services will be performed in the
EPC contractors western execution offices and 50% will be performed in high-value
execution centers with a cost basis per jobhour.
Home office services job-hours and cost were estimated based on historical and reference
project metrics.
Home office services job-hour composite rates by office location were developed using
charging rates as of September 2011 for Bechtels execution offices. Included in home
office services (rate) are costs for third-party consultants, vendor shop inspection, expediting
services, other non-labor home office costs and project travel costs based on recent project
experience. The average rate for EPC home office services is $90 per hour.
Costs for Front-End Engineering Design (FEED) services were included in the estimates for
professional services. These costs were developed from historical projects based on a
percentage of EPC home office hours. Based on a lower portion of the work performed in
the high-value execution centers, the hourly rate is higher than the EPC home office rate.
The average rate for FEED services is $150 per hour.
Costs for pre-FEED feasibility study services were included in the estimates for professional
services. These costs were developed from historical projects based on a percentage of
EPC home office hours. Based on a lower portion of the work performed in the high-value
execution centers, the hourly rate is higher than the EPC home office rate. The average
rate for Feasibility Study services is $150 per hour.
License and Royalty Fees
Technology process license fees are included, where applicable, as provided by the
technology providers indicated in Section 2.
Import Duties and Local Taxes
The estimates exclude any local taxes other than payroll taxes at rates current as of
September 2011, assuming that VAT and other local taxes would be waived for the project.
Freight and Transportation Costs: Estimated costs for delivery of materials, equipment
and construction equipment from vendor shops to the jobsite were developed based on
recent project experience and adjusted for the project location. These costs include:
Freight from vendors point of delivery (with materials & equipment pricing)
Export packing
If applicable, ocean freight from vendors point of delivery to entry port, and inland transport
from entry port to jobsite
Customs clearance and broker fees
Heavy Haul and Heavy Lift
Heavy Haul and Heavy Lift costs are included to cover transporting heavy equipment from
receipt to the final installation site. This is the service usually provided by specialty logistics
contractors other than freight companies. The estimates for these costs are based on
recent project experience adjusted for site-specific requirements, such as transportation
distances and equipment to be transported.

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Insurances and Bonds
Estimated pricing for the EPC Contractors applicable project insurances and bonds were
included based on recent pricing and rates as used in Bechtels projects, including:
Builders Risk
Marine Cargo
General Liability
Vendor Services (at jobsite): Estimated costs for Vendor field services representatives
during construction and commission/startup are included, based on recent project
experience. Estimated pricing includes vendors personnel services at the jobsite, travel
and site accommodations.
Contingency: The capital cost estimate includes a contingency of 18%. As used in this
report, contingency means an amount of money included in the estimate for costs which,
based on past experience, are likely to be encountered but are difficult or impossible to
identify at the time the estimate is prepared. It is an amount which is expected to be
expended during the course of the project. Contingency does not include any allowance for
scope changes.
Examples of contingency items include:
Estimating method errors and omissions
Take-off Errors
Design developments
Errors in Determining labor productivity
Schedule contingency
Errors in assessing growth allowances
Delays for equipment and material deliveries
Subcontractors claims and their impacts
Contingency development is based on a Bechtel computerized analysis summarizing the
major cost items. Project team members participate and assess the various levels of
contingency to be applied in numerous cost areas. This model yielded an overall
contingency percentage of 18% of the total under contingency analysis, with a 50% of
probability of overrun.
EPC Contractor Fee: The estimated EPC Contractors profit and fee is included in the
estimate as one identifiable price and computed at 8% of total project cost.
Project Management Contractor Services (PMC)
The cost estimates include a separate identifiable cost to cover Project Management
Contractor (PMC) Services to oversee the entire Sainshand project for the Mongolian
government. This cost was based on a projected staff of one hundred (100) non-manual
personnel assigned to the project for a duration of six (6) years. The staffing mix was
assumed to be 30% western expatriates and 70% staff from Mongolian or other Asian
countries. The PMC is not part of the direct facilities cost, and is included separately in the
SIP support facilities capital cost estimate summary set out in Section 10.3 below.

10.2.

SAINSHAND INDUSTRIAL PARK

Subject to the assumptions, clarifications and exclusions set out above and in the remainder
of this Report, the estimated capital cost of the facilities within the boundaries of the
Sainshand Industrial Park is US$9,516,374,000. This estimated capital cost is divided
among the individual facilities as follows:
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Facility

Total Estimated Capital Cost (USD


Thousands)

Coke Plant

1,822,276

Copper Plant

1,731,576

Iron Ore Pellet Plant

379,061

DRI/HBI Plant

576,184

Cement Plant

315,029

Power Plant

1,137,349

Coal Gasification Plant

704,511

Common Facilities

2,850,388

Total SIP

9,516,374

A more detailed summary, in three sections, is included here.


SIP Capital Cost Estimate Summary (part 1 of 3)
Estimated Capital Cost in USD Thousands
Estimated Capital
Cost Element
Major Equipment
Bulk Materials
Subcontracts
Construction
Professional Services
Other (Freight, Insurance, etc.)
Subtotal
Contractor Fee
Owners Cost
Contingency
Total Cost
Direct Construction Hours

Coke Plant
239,936
366,863

Copper Plant
302,962
273,735

499,484
174,111
134,199
1,414,594
113,167
16,541
277,974
1,822,276

477,557
164,139
129,660
1,348,052
107,844
11,541
264,139
1,731,576

102,944
35,445
19,746
243,184
19,455
4,335
48,055
315,029

15,923,560

15,224,438

3,281,816

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

Cement Plant
29,123
55,926

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SIP Capital Estimate Summary (part 2 of 3)
Estimated Capital Cost in USD Thousands
Estimated Capital
Cost Element
Major Equipment
Bulk Materials
Subcontracts
Construction
Professional Services
Other (Freight, Insurance, etc.)
Subtotal
Contractor Fee
Owners Cost
Contingency
Total Cost
Direct Construction Hours

Iron Ore Pellets


62,825
57,980
107,328
36,952
27,702
292,788
23,423
5,027
57,823
379,061
3,421,601

DRI/HBI Plant
103,492
111,447
135,407
46,621
48,647
445,615
35,649
7,027
87,892
576,184
4,316,770

Coal Gasification
170,493
78,318
68,114
105,377
60,653
53,387
536,341
42,907
17,795
107,468
704,511
3,359,363

SIP Capital Estimate Summary (part 3 of 3)


Estimated Capital Cost in USD Thousands
Estimated Capital
Cost Element
Major Equipment
Bulk Materials
Subcontracts
Construction
Professional Services
Other (Freight, Insurance, etc.)
Subtotal
Contractor Fee
Owners Cost
Contingency
Total Cost

Power Plant
224,151
94,693
97,555
337,308
56,145
74,699
884,550
70,764
8,541
173,494
1,137,349

Direct Construction Hours

2,508,000

10.3.

Common Facilities
536,851
403,864
118,207
845,630
112,346
211,851
2,228,750
178,300
8,533
434,806
2,850,388
26,806,122

Total SIP
1,669,833
1,442,826
283,876
2,611,034
686,412
699,893
7,393,874
591,510
79,340
1,451,650
9,516,374
74,841,670

SAINSHAND SUPPORT FACILITIES

Subject to the assumptions, clarifications and exclusions set out above and in the remainder
of this Report, the estimated capital cost of the support facilities outside of the boundary of
the Sainshand Industrial Park is US$1,290,454,000. This includes the new permanent
community, and rail and roads external to the park. This estimated capital cost is divided
among the individual facilities as follows:

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Total Estimated Capital Cost (USD


Thousands)

Facility
Community

693,935

Roads

33,297

Rail and Rail Yard

563,222

Total Support Facilities

1,290,454

PMC

180,540

A more detailed summary follows.


SIP Support Facilities Capital Estimate Summary
Estimated Capital Cost in USD Thousands
Estimated Capital
Cost Element
Major Equipment
Bulk Materials
Subcontracts
Construction
Professional Services
Other (Freight, Ins., etc.)
Subtotal
Contractor Fee
Owners Cost
Contingency
Total Cost

Community
514,347
16,678
13,494
544,519
43,562
105,854
693,935

Direct Construction Hours

10.4.

Rail & Yard


56,453
210,226
27,521
79,102
9,774
58,874
441,951
35,356
85,915
563,222

Roads
4,294
6,365
10,196
2,012
676
2,585
26,128
2,090
5,079
33,297

Total
60,747
216,591
552,064
81,115
27,128
74,952
1,012,598
81,008
196,849
1,290,454

PMC
150,000
3,000
153,000
27,540
180,540

2,482,283

63,100

2,545,383

ALTERNATE LOCATIONS

Subject to the assumptions, clarifications and exclusions set out above and in the remainder
of this Report, the estimated capital cost of the Coke Plant, Copper Plant, and Iron Ore
Plants at alternate locations follows. The estimated capital cost includes all facilities
required for stand-alone facilities as described in Section 6. The estimated capital cost for
the Iron Ore Plants includes the Coal Gasification Plant required to supply reducing gas.
Facility

Total Estimated Capital Cost (USD


Thousands)

Coke Plant at Tavan Tolgoi

2,556,729

Copper Plant at Oyu Tolgoi

2,046,244

Iron Ore Processing Complex at Darkhan

2,908,314

A more detailed summary follows.

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set forth in the Important Notice.

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Alternate Locations Capital Cost Estimate Summary
Estimated Capital Cost in USD Thousands
Estimated Capital
Cost Element
Major Equipment
Bulk Materials
Subcontracts
Construction
Professional Services
Other (Freight, Insurance, etc.)
Subtotal
Contractor Fee
Owners Cost
Contingency
Total Cost
Direct Construction Hours

Darkhan
462,867
620,952
90,763
638,504
198,796
238,426
2,250,308
180,025
34,340
443,641
2,908,314
20,172,899

Tavan Tolgoi
408,961
474,096
2,713
673,140
234,122
199,213
1,992,245
159,380
15,095
390,010
2,556,729
21,256,215

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

Oyu Tolgoi
341,416
348,697
4,308
559,298
187,206
155,584
1,596,509
127,721
9,876
312,139
2,046,244
17,654,357

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11.

ECONOMIC ANALYSIS OF INDUSTRIAL PLANTS

11.1.

EXECUTIVE SUMMARY

This section summarizes the approach, assumptions, methodology, and key results of a
preliminary economic analysis of the proposed industrial plants for the Sainshand Industrial
Park (SIP). The analysis is based on: (i) plant requirements and capital cost estimates that
Bechtel developed in previous stages of this Master Plan Study; (ii) macroeconomic
assumptions provided by NDIC; (iii) long-range commodity price forecasts (on an ex-factory
or delivered cost basis at Sainshand) developed by CRU Strategies (CRU); and (iv) other
generic assumptions based on Bechtels experience conducting preliminary economic
analyses for proposed industrial projects internationally.
Bechtel developed a Microsoft Excel (Excel) Economic Model to evaluate the economic
feasibility of SIP based on forecasted after-tax nominal cash flows to international investors
over an assumed economic life of 30 years. The analysis assumed that the coke plant, iron
pellet plant, DRI/HBI plant, copper smelter, and cement plant would sell all of their products
at prevailing market prices in domestic or export markets, and that the coal gasification plant
would sell synthesis gas (syngas) and the power plant would sell power within SIP at prices
that would result in an acceptable return on investment.
The analysis initially assumed that the capital costs and operating costs of common facilities
and utilities would be recovered through charges to the industrial plants. As described
below, this assumption was modified in subsequent scenario analyses conducted to
enhance the economic feasibility of the industrial plants.
The primary measure of project economics used in the study was the unleveraged after-tax
internal rate of return (IRR), calculated based on forecasted unleveraged after-tax cash
flows for each plant. Other financial metrics calculated by the Economic Model included
leveraged after-tax return on equity (ROE) based on generic financing assumptions, net
present value (NPV), and payback period.
Alternate sites were evaluated for the DRI/HBI plant, iron ore pelletizing plant, copper
smelter and coke plant. For these analyses, Bechtel adjusted the capital cost estimates for
the different sites and commodity price forecasts were adjusted for freight to/from the
alternate locations. No allocations of common facilities and utilities were necessary, except
between the iron plants at Darkhan, as each industrial plant at an alternate site is assumed
to have its own dedicated infrastructure and utilities. At Darkhan, the costs of the coal
gasification plant and other utilities were allocated between the iron ore pelletizing plant and
the DRI/HBI plant based on expected usage.
Detailed descriptions of Base Case assumptions for all the industrial plants at SIP and the
alternate sites can be found in Sections 11.4 to 11.13.
11.1.1. BASE CASE RESULTS
Table 11.1 summarizes the results of the Base Case economic analysis. To illustrate the
impact of infrastructure charges on project economics at SIP, unleveraged after-tax IRRs
are shown before and after allocation of infrastructure charges to each industrial plant.

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Industrial Plant

Base Case
Sainshand
(Before
Allocation*)

Base Case
Sainshand
(After
Allocation*)

Base Case
Alternate Sites

Coke Plant

15.9%

15.2%

9.0%

Cement Plant

6.5%

N/A

N/A

Iron Ore Pelletizing Plant

0.7%

N/A

1.0%

DRI/HBI Plant

N/A

N/A

N/A

Copper Smelter

N/A

N/A

0.3%

Coal Gasification Plant

10.5%**

10.5%**

N/A

Power Plant

10.4%**

10.4%**

N/A

* Allocation of annual charges for infrastructure e.g., materials handling, roads and rail, telecommunications,
interconnecting piping, site preparation
** Based on the generic financing and tax assumptions, after-tax unleveraged IRR of 10.4%-10.5% is
associated with an after-tax leveraged return on equity of 15%
N/A Not applicable; either because the plant is not in analysis scope or because after-tax unleveraged IRR
cannot be calculated due to poor project economics

Table 11.1: Base Case Economic Analysis Results


Observations from the Base Case analysis results include:

The high cost of power at SIP is expected to have a significant negative impact on
the economic performance of all industrial plants and utilities, except the coke plant,
which is designed to be a net producer of steam, whose price is determined based
on the price of power. This high cost of power is a result of the equipment
redundancy required to power the plant in the event of steam shortage from the
industrial plants.

The capital and operating costs of infrastructure are significant, both at SIP and at
the alternate sites. At SIP, these contribute to high annual charges for infrastructure,
especially for projects with otherwise marginal economics. At the alternate sites,
where support infrastructure is included in (and thus increases) the capital cost
estimate, the capital and operating costs of infrastructure are expected to
significantly reduce economic returns.

Low operating income and high capital costs contribute to the low expected
unleveraged after-tax IRR of the copper smelter.

While a number of factors may contribute to the poor expected economic


performance of the DRI/HBI plant, the price of syngas produced by the coal
gasification plant is the primary reason why the project is not expected to break even
at the estimated price, the syngas cost is estimated to exceed the difference
between annual DRI/HBI sales revenues and iron ore pellet costs.

11.1.2. ENHANCEMENTS TO ECONOMIC FEASIBILITY


In view of the low expected unleveraged after-tax IRRs estimated for some of the industrial
plants at SIP and the alternate sites that resulted from using the Base Case assumptions,
NDIC directed Bechtel to evaluate the impact of potential changes to Economic Model
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assumptions on economic feasibility of SIP. As directed by NDIC, a Revised Base Case
was developed with the following changes from the Base Case:

Supplying power from the grid, instead of constructing a dedicated power plant to
supply the electric load within SIP as proposed in Task 2

Government of Mongolia (GoM) ownership and financing of SIP infrastructure

To further enhance the expected economic feasibility of the industrial plants at SIP, NDIC
directed Bechtel to develop and conduct analyses on additional scenarios, including:

A 50% increase in the proposed capacity of the copper smelter to take advantage of
economies of scale in construction and production

Potential government incentives to encourage private investment in SIP, including


exemptions from VAT and customs duty, a Mongolian tax holiday, subsidized water
costs, government ownership of coal gasification plant (to reduce the price of
syngas), and subsidized thermal coal and electricity costs

Table 11.3 shows the estimated progressive improvement in expected unleveraged after-tax
IRR for each industrial plant that is expected to sell its output outside SIP under different
scenarios. To differentiate between different levels of government support that may be
required to make different industrial plants economically feasible, unleveraged after-tax
IRRs are not shown for additional scenarios once the expected unleveraged after-tax IRR
exceeded 10-12% assumed to be the range of unleveraged after-tax IRRs foreign
investors may expect in preliminary economic assessments of investments in Mongolia 1.
Scenario

After-Tax Unleveraged IRR

Cumulative Impact of Changes

Revised Base Case (Grid Power)


(Syngas price $8.6 /MMBtu)

Cement
Plant

Coke
Plant

Iron Ore
Pelletizing
Plant

Copper
Smelter

DRI/HBI
Plant

10.8%

10.4%

6.1%

1.8%

N/A

50% Increase in Copper Smelter Capacity


Exempt from VAT and Import Duties on EPC Cost

4.2%
8.1%

4.9%

N/A

Income Tax Holiday

12.0%

11.4%

10.5%

6.6%

N/A

Water Cost Subsidy (Raw Water Rate)

11.6%

7.1%

N/A

Government Ownership of Coal Gasification Plant ;


target 0% Return
(Syngas price $5.7MMBtu)

7.1%

N/A

Tavan Tolgoi Thermal Coal Sold to Coal


Gasification Plant at Mine Cost + Transportation
(Syngas price $3.7/MMBtu)

7.1%

6.1%

100% Electricity Cost Subsidy for Coal Gasification


Plant (Syngas price $2.7/MMBtu)

7.1%

10.4%

N/A After-tax unleveraged IRR cannot be calculated due to poor project economics

Table 11.2: Expected Impact of Enhancements to Economic Feasibility


The following observations may be drawn from the analysis:

With power supplied from the grid and with the cost of infrastructure borne by the
GoM, the cement plant and the coke plant at SIP may be economically feasible
without further government incentives.

See additional discussion on this assumption in Section 11.15.2.2.

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Under the Revised Base Case assumptions (grid power and GoM-owned
infrastructure), the iron ore pelletizing plant at SIP would likely require tax incentives
(exemption from VAT and customs duty on EPC cost, zero VAT rating for iron ore
pellet exports, and Mongolian tax holiday) to become economically feasible.

Also under the Revised Base Case assumptions, increasing the capacity of the
copper smelter and incorporating government incentives in the scenarios considered
may only result in a project with marginal economics. According to the sensitivity
analysis, reduction in capital cost and/or increase in commodity pricing may be
required.

The DRI/HBI plant at SIP is not expected to break even on a cash flow basis, even
with government tax incentives and a water cost subsidy, as long as the syngas
price stays above US$6/MMBtu in 2011 US$. Additional government incentives
directed at the coal gasification plant to reduce syngas price to approximately
US$3/MMBtu are likely required.

In general, project economics are most sensitive to changes in commodity prices and capital
costs.
11.1.3. CONCLUSIONS AND RECOMMENDATIONS
In summary, key conclusions from the economic analysis of this study include:

An integrated, dedicated power plant at SIP, established as part of the study scope,
is not expected to generate electricity at a competitive price; supplying power from
the grid appears to be a more economic option for the SIP industrial plants as a
whole.

The costs of infrastructure and utilities are significant, and recovery of the costs
through infrastructure charges and utility charges will likely cause most projects at
SIP and the alternate sites to not be economically feasible. GoM ownership and
financing of infrastructure and utilities is critical to enhancing the economics of most
industrial plants.

The proposed coke plant may be economically feasible at SIP or Tavan Tolgoi, if the
GoM provides basic infrastructure and utilities.

With power supplied by the grid, the cement plant proposed for SIP may also be
economically feasible if the GoM provides basic infrastructure and utilities.

With appropriate GoM incentives (such as exemption from VAT and customs duty,
income tax holiday, provision of infrastructure, and subsidized water costs), the iron
ore pelletizing plant proposed for SIP may be economically feasible.

Under Base Case assumptions, the expected economics of proposed copper smelter
may only be marginal, even with GoM provided infrastructure and tax incentives.
Significant improvement in revenue assumptions and/or reduction in capital cost
may be required to improve project economics sufficiently to attract private
investment.

Of all the industrial plants proposed for SIP, the DRI/HBI plant is expected to have
the least favorable economics. According to our analysis, the DRI/HBI plant is not
expected to be economically feasible unless it can procure syngas at less than US$3
per MMBtu (2011 US$).

Economics of the industrial plants at the alternate sites are not expected to be
significantly different from those at SIP, provided that the GoM provides the same
level of infrastructure support.
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To fulfill the GoMs objective of developing SIP as a greenfield industrial complex with
private investment, we recommend, based on economic analyses summarized in this
section, that the GoM consider the following actions:

Finalize and approve the scope of SIP Based on the analyses conducted in this
study, and evaluation of other factors outside of the scope of this study (some
suggestions are included in Section 11.18.2), the GoM should make an appropriate
decision regarding SIP, including determining the industrial plants that will be
developed.

Develop a plan to finance and implement infrastructure and utilities Given the
importance of government-sponsored infrastructure and utilities to the economic
feasibility of most of the proposed industrial plants, the GoM should develop a plan
to finance and implement these projects. While not studied as part of this economic
analysis, the same would be true of outside the park infrastructure required to
support operations of SIP. As discussed in Section 12, expediting implementation of
these projects would also signal the GoMs commitment to the development of SIP,
which may in turn enhance potential investors confidence in investing in SIP.

Develop the legal framework for government incentives The GoM should start
developing a legal framework that enables it to negotiate and grant incentives to
attract private investment to SIP, on a project-by-project basis.

Iron plant for the Mongolian market If the GoM remains committed to developing
downstream iron and steel making capabilities in Mongolia, the GoM is advised to
evaluate the technical and economic feasibility of alternative technologies that may
be more feasible for the estimated size of the Mongolian market.

Engage advisors While the economic analyses in this section provide indicative
estimates of project economics, the attractiveness of the proposed industrial plants
to potential investors is best determined by discussing the SIP project with potential
investors. This effort is best accomplished with the assistance of an experienced
commercial advisor, working in coordination with other legal and technical advisors
under direction of the GoM.

Refine economic analysis The economic analysis may be refined at a later stage
to replace generic assumptions with specific assumptions reflecting technology
vendor choice, negotiated commercial and financing terms, and owner-specific tax
situations and return requirements.

11.2.

INTRODUCTION COMMERCIAL CONSIDERATIONS

Sainshand Industrial Park (SIP) will be located on a largely undeveloped site with limited
connecting transportation infrastructure or utilities. As proposed, the park consists of
industrial plants (coke plant, iron ore pelletizing plant, DRI/HBI plant, coal gasification plant,
copper smelter, cement plant, and power plant), common facilities/infrastructure (graded
site, materials handling facilities, transportation infrastructure, interconnecting piping, and
telecommunications), and utilities (air separation unit and water treatment facilities). The
economic analysis assumed, initially, that SIP would recover the costs of all supporting
infrastructure and utilities through charges to those industrial plants that will sell their
production in the Mongolian and international markets and would not require government
capital or operating subsidies, although the Government of Mongolia (GoM) may need to
consider guarantees or other credit support.
The analysis assumed that the coke plant, iron ore pelletizing plant, DRI/HBI plant, copper
smelter, and cement plant would sell all of their products at prevailing market prices in
domestic or export markets. The coal gasification plant and power plant would supply all of
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their output for use in SIP (synthesis gas or syngas and steam from coal gasification plant;
power and steam from the power plant). Common facilities and utilities were assumed to
recover all of their costs through charges to the industrial plants; such charges were either
based on the size of the land area of the associated industrial plot or based on usage, e.g.,
per tonnage of material transported.
Bechtel has made the assumption that the hurdle rate for economic feasibility for the
industrial plants is an unleveraged after-tax IRR of 10-12%. Likewise, as described in
Section 11.3, product prices for the coal gasification plant, power plant, and the air
separation unit are set to meet this same return requirement. Under a project financing with
70% debt (which would require guaranteed product offtake by the exporting industrial plants
or the GoM), this 10-12% after-tax cost of capital would correspond to approximately to an
after-tax ROE for private investors of about 15%.

11.3.

ANALYSIS METHODOLOGY OVERVIEW

Bechtel developed a Microsoft Excel (Excel) Economic Model to evaluate the economic
feasibility of SIP on a preliminary basis. As shown in Figure 11.1, the Economic Model is
composed of seven Industrial Plant Modules, two Utility Modules and one Common
Facilities Module. In addition to analyzing the economics of the proposed industrial plants at
SIP, where utilities and infrastructure were assumed to be shared, the Economic Model was
also used to analyze the economic feasibility of most of the proposed industrial plants at
specified alternate locations on a stand-alone basis. Except for the coal gasification plant
and the power plant, which were designed to sell their entire output within SIP, all industrial
plants were evaluated based on forecasted cash flows over their 30-year economic life,
taking into account forecasted product prices, estimated operating and capital costs, and
other operating and financing cash flows, using standard financial metrics such as
unleveraged internal rate of return (IRR), net present value (NPV), and payback period. As
in similar preliminary economic assessments that Bechtel has conducted on proposed
industrial projects around the world, Bechtel evaluated economic feasibility by comparing
these standard financial metrics against industry norms, on the assumption that SIP will be
competing against similar investment opportunities in other countries on investment merit
alone. It is possible, for example, that an investment with below market expected returns
may attract foreign investment, due to strategic / geopolitical considerations such
assessments are beyond the scope of this study.
To evaluate the economic feasibility of the coal gasification plant and power plant as captive
suppliers to other industrial plants in the park, the Economic Model used the goal seek
function in Excel to solve for the prices of their products (syngas, electric power, and steam)
required to achieve a reasonable return on the cost of capital, at 10-12% IRR corresponding
to about 15% after-tax ROE. Where possible, these prices were then compared against
forecasted delivered prices of comparable products from sources outside Sainshand to
confirm their reasonableness ideally, the product price determined by the Economic Model
should be in line with the expected market price of the same product delivered to the
Sainshand site from the most competitive alternate source.

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Sainshand Industrial Park Economic Model Overview


Sainshand Industrial Park
Economic Model

Modules
Seek product price based
on required return

Determine return based


on forecasted prices

Industrial Plant Modules

Utility
Modules

Common
Facilities
Module

Air
Separation
Unit

Common
Facilities

Water
Utilities

(materials
handling, rail,
roads, piping,
telecoms, etc.)

Coke Plant

Iron Ore
Pelletizing
Plant

Cement Plant

DRI/HBI Plant

Coal
Gasification
Plant

Copper
Smelter

Power Plant

Figure 11.1: Economic Model Structure Overview


Because the syngas and power prices charged by the coal gasification plant and the power
plant affect the economics of other industrial plants and utilities at SIP, and because utilities
and common infrastructure costs are proposed to be shared among all industrial plants in
the park, each industrial plant / utility at SIP is represented by a module that contains inputs
linked to outputs in other modules within the integrated Economic Model. For example, the
power price determined by the Power Plant Module is an input to the Coal Gasification Plant
Module, whose output syngas price is a fuel price input in the Power Plant Module.
Similarly, the power price determined by the Power Plant Module is an input to the Water
Utilities Module, whose output water price is an input to the Power Plant Module.
Linkages like these require the Economic Model to be run iteratively for each given set of
assumptions, until the model results converge.
Figure 11.2 is a summary level schematic of the Economic Model, showing key linkages and
information flows between different modules.

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Sainshand Industrial Park


Economic Model Modules and Data Flows

Common
Facilities
Water
Utilities

Power Plant

Coke Plant

Iron Ore
Pelletizing
Plant

To all plants
Coal
Gasification
Plant

Modules
Seek product price based
on required return

DRI/HBI Plant
Air
Separation
Unit

Copper
Smelter

Determine return based


on forecasted prices
Key Data Flows between Modules
Power Price
Steam Price
Oxygen & Nitrogen Prices

Cement Plant

Syngas Price
Water Price

Figure 11.2: Economic Model Modules and Information Flows


Figure 11.3 illustrates the iterative process involved in solving for power, steam, syngas,
oxygen, nitrogen, and water prices at SIP.

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Solving the Sainshand Industrial Park Economic Model


Model Sequence

Common
Facilities

1) Solve Power Plant Module


2) Solve Coal Gasification Module
Loop until convergence
3) Solve Air Separation Unit Module
4) Solve Water Utilities Module
5) Solve Common Facilities Module
Loop until convergence

Power Plant

Water
Utilities
Coal
Gasification
Plant
Air
Separation
Unit

Convergence is based upon all equity


returns reaching pre-determined rates
+/- 0.01%.

Key Data Flows between Modules


Power Price
Steam Price

Each module is solved sequentially and utility prices are updated.

Oxygen & Nitrogen Prices


Syngas Price

The process repeats until all plants have achieved required rates of
return within acceptable tolerances.

Water Price

Figure 11.3: Iterative Process for Solving the Economic Model


The functional currency in the Economic Model is the U.S. dollar (US$), expressed in
nominal dollars (rather than a real dollar or constant dollar basis), for the following
reasons:

CRU Strategies (CRU), consultant to Bechtel on this study, developed commodity


price forecasts, which were key assumptions in the Economic Model, in nominal
US$, the currency commonly used in most commodity price quotes and benchmarks.

Bechtels capital cost estimates were developed in nominal (2011) US$.

Financial metrics based on US$ denominated nominal cash flows (described further
in Section 11.3.2) may be more easily interpreted by international investors and
financial institutions.

Financing terms (e.g., interest rates) are typically expressed on a nominal basis, and
raising US$ denominated debt is not unreasonable, because a large portion of cash
flows associated with most plants (e.g., capital cost, product sales revenue,
feedstock cost) will likely be denominated in US$.

The Economic Model was structured to compute cash flows on a monthly basis during the
construction period and on an annual basis during the operations period. Prices and costs
during the operations period were assumed to represent nominal prices at mid-year.
11.3.1. ANALYTICAL APPROACH
Economic analyses of all plants were based upon forecasted after-tax, nominal cash flows
to an international investor over an assumed economic life of 30 years. At this master plan
study phase, it is difficult to specify the countries of domicile of potential investors in the
industrial plants. For this reason, the Economic Model used generic tax and depreciation
assumptions to estimate returns after Mongolian and foreign taxes for a typical hypothetical
international investor, without taking into account specific tax circumstances of any particular
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international investor. Calculation of after-tax returns may be refined at a later stage of the
development of SIP, when investors are identified for each plant.
The analysis was conducted both on an unleveraged basis and a leveraged basis. The
analysis of leveraged cash flows, which included cash flows associated with debt financing
at the project level, assumed that the industrial plants would be financed using limited
recourse project debt financing from international lenders (e.g., international commercial
banks, export credit agencies, and the private sector windows of multilateral financial
institutions such as the World Bank and the Asian Development Bank) at terms that are
comparable to todays market terms. While actual financing terms may vary depending on
the commercial structure associated with each industrial plant, macroeconomic and financial
market conditions at the time of financing, terms of all significant project agreements (e.g.,
engineering, procurement, and construction (EPC) contract, feedstock, fuel supply, product
off-take), experience and track record of the EPC contractor, the technology provider, and
the operator, and other factors, the use of representative financing terms, in Bechtels view,
is appropriate for this stage of the analysis.
As discussed in Section 12, owners may elect to finance the industrial plants on a corporate
credit basis, rather than on a limited recourse project finance basis. If this is the case, the
analysis of unleveraged cash flows (and the financial metrics calculated on an unleveraged
basis) may be more relevant.
11.3.2. FINANCIAL METRICS
The primary measure of project economics used in the analysis was the unleveraged
internal rate of return (IRR), which was calculated as the internal rate of return of each
projects year-by-year unleveraged nominal cash flow (i.e., revenues less the sum of
operating costs, increases in working capital, income taxes, and capital costs):
=

Revenues
Operating costs (excluding non-cash costs such as depreciation and amortization)
Increase in working capital
Income taxes
Capital costs
Unleveraged project cash flow

According to the Capital Asset Pricing Model 2, as a general rule, investment in a project
may be justified if the expected IRR exceeds investors required rate of return, taking into
account risks specific to the investment that cannot be eliminated by investing in a
diversified market portfolio.
Generally speaking, investors in a project may improve their expected equity return if they
can borrow at an interest rate below the unleveraged after-tax IRR. Therefore, for projects
with an expected unleveraged after-tax IRR above the cost of debt (approximately 5.5%, as
described in Section 11.4.9 below), the Economic Model also calculated the leveraged aftertax returns on equity (ROE), which were calculated as the internal rate of return of year-byyear cash flows to equity investors (revenues less the sum of operating costs, increases in
working capital, debt service, income taxes, and equity investment during construction):

The Capital Asset Pricing Model, introduced by William Sharpe, John Lintner, and Jack Treynor in
the mid-1960s, theorizes that investors expected return on an investment should be proportional to:
the sensitivity of the return on the investment relative to the return of the market portfolio, expressed
as a coefficient called beta; and the difference between the expected return on the market portfolio
and the risk-free rate of return known as the market risk premium.

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Revenues
Operating costs (excluding non-cash costs such as depreciation and amortization)
Increase in working capital
Debt service (interest and principal repayment)
Income taxes
Equity investment during construction
Cash flow to equity

Project investments may also be evaluated by discounting the nominal cash flows to
calculate a net present value (NPV), using an appropriate risk-adjusted discount rate.
Projects with higher NPVs are generally preferred to those with lower NPVs. Nevertheless,
projects with a negative NPV, which may not be justified on a simple cash flow basis, may
be justified, under certain circumstances, on other grounds, such as strategic value or option
value.
According to the Capital Asset Pricing Model, the discount rate used to calculate NPV
associated with a project investment should reflect the risk-free cost of capital and an
adjustment to compensate the investor for risks that cannot be eliminated through portfolio
diversification. At this master plan study stage, the Economic Model assumed a 12%
discount rate to discount unleveraged project cash flows, except for projects that were
expected to be government-owned. This assumption is based on the approximate discount
rate of 10% that Bechtel typically uses in similar preliminary economic assessments based
on unleveraged US$ cash flows before adjustment for country risk, plus an assumed 2%
premium for Mongolia country risk (assuming continuing improvement in Mongolias
sovereign/political risk profile over the next couple years). Because different individual
investors may have different assessment of country risk (for example, Mongolian investors
may perceive the risk of investing in their home country differently than foreign investors
would), discount rate assumptions should be reviewed and updated as the risk profiles of
the projects change, and as the identity of the investors is known. As is customary in
investment appraisals, NPVs in the Economic Model were calculated as of the date of
financial close (which serves as a proxy for the date of final investment decision by potential
investors) in other words, all future cash flows in the model were discounted back to the
financial close date of each project.
Payback period can be helpful in providing a measure of the initial profitability and time
exposure risk of an investment. However, because it does not recognize the time value of
money or the value of cash flows beyond the payback period, this methodology may not
always indicate the preferred alternative as a standalone criterion.
11.3.3. UTILITIES AND COMMON FACILITIES
Bechtels Economic Model also includes Utility Modules that calculate net cash flows
associated with constructing, operating and maintaining common utility infrastructure at SIP.
Based on the expected annual output (i.e., the aggregate demand for the output from these
utilities by all industrial plants at SIP), these modules calculated unit prices to recover the
capital and operating costs associated with supplying utilities such as water, nitrogen, and
oxygen to the industrial plants, plus a required after-tax return over 30 years. By charging
unit prices for utilities, the Utility Modules allocated the capital and operating costs of
common utility infrastructure to each plant based on its expected usage.
The required returns assumed in the Utility Modules were consistent with proposed
ownership models described in Section 12:

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Air Separation Unit (ASU) was assumed to be privately owned and financed, with an
unleveraged after-tax IRR in the range of 10-12% and a required after-tax ROE (if
project financed) of about 15% 3

Water Utilities were assumed to be owned by the GoM and financed 100% through
the government budget or sovereign borrowing, with cost of capital of 6%, which is in
line with the GoMs long-term cost of capital 4

Utility

Cost Allocation
Basis

Output of Utility
Module

Tax Rate

Debt Ratio

Required
After-Tax IRR
or ROE

Air
Separation
Unit

Usage of oxygen
and nitrogen

Costs per tonne


of oxygen and
nitrogen
consumed

10%-25%

70%

10-12% (IRR)
15% (ROE)

Water Utilities

Usage of industrial
water

Costs per tonne


of industrial
water consumed

0%

0%

6%

Table 11.3: Utility Modules


The Common Facilities Module within the Economic Model captured the capital costs of
common facilities at SIP (including site preparation cost, material handling facilities,
transportation infrastructure, and other infrastructure such as telecommunications network
and interconnecting piping) and ongoing costs of operating and maintaining the facilities,
and determined total annual infrastructure charges required to achieve a target return of 6%
on capital investment. Annual infrastructure charges were allocated to each industrial plant
based on the size of the plot dedicated to the industrial plant in the proposed site layout.
Common Facilities

Assumed Cost Allocation Basis

Output of Utility / Common


Facilities Module

Material Handling
Facilities

Estimated tonnage of materials


handled (inbound and outbound)

Annual infrastructure charge to


each industrial plant

Inside the Park Rail


Infrastructure

Estimated tonnage of materials


transported (inbound and outbound)

Annual infrastructure charge to


each industrial plant

Roads inside the Park

Estimated truck traffic associated


with each industrial plant

Annual infrastructure charge to


each industrial plant

Interconnecting Piping

Area of industrial plant plot

Annual infrastructure charge to


each industrial plant

Telecommunications

Area of industrial plant plot

Annual infrastructure charge to


each industrial plant

Site Infrastructure

Area of industrial plant plot

Annual infrastructure charge to


each industrial plant

Table 11.4: Common Facilities Module


3

Bechtel did not approach potential investors to survey their required ROE as part of this study; 15%
is a preliminary ROE assumption based on return expectations in infrastructure investments in
developed countries, plus an assumed country risk premium for Mongolia.
4
In March 2012, the Development Bank of Mongolia issued $580 million of 5-year US$ denominated
notes backed by Mongolias BB- sovereign rating at a 5.75% yield.

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All utility and common facilities assumed to be government-owned were assumed to be
exempt from income taxes and financed by the government without project level debt.
Therefore, the unleveraged after-tax IRR and after-tax ROE are the same for these projects.
Utility unit prices and annual infrastructure charges calculated by the Utility Modules and
Common Facilities Modules were used as operating cost inputs in the Industrial Plant
Modules. This allowed the cost of shared infrastructure to be reflected in the economic
analyses of the industrial plants and enabled parallel comparisons to be made against the
same industrial plants at the alternate sites, where the proposed plan is for the industrial
plants to either self-supply or purchase utilities from the open market (e.g., electricity from
the grid).
Consistent with the proposed framework for financing SIP described in Section 12, the
Economic Model assumed that the capital costs and operating costs associated with the
following infrastructure outside the park boundary, as well as the cost of PMC services
during the development and implementation of SIP, would be funded by the GoM and not
recovered through annual infrastructure charges imposed on the industrial plants:
Community facilities
Roads outside the SIP boundary
Rail yard and rail outside the SIP boundary
Capital cost estimates for these facilities are provided in Section 10.3 as part of this study,
but were excluded from the economic analyses of the industrial plants, both at Sainshand
and the alternate locations.
The underlying assumption was that the GoM may decide to invest in such basic
infrastructure and seek to recoup its investment through increases in tax revenue or
payments from the railroad operator, not through collecting infrastructure charges or
assessing special taxes on the industrial plants. Whether the industrial plants would be
located at Sainshand or at the alternate locations studied, similar investment in
infrastructure by the GoM would likely be required to attract foreign investment.
The scope of the economic analyses in this section is limited to factors that directly impact
the cash flows to potential owners of the industrial plants at Sainshand and the alternate
sites. Analyses of the GoMs potential investment in outside the park infrastructure are
beyond the scope of this study.
11.3.4. ALTERNATE SITES
For the analyses of alternate sites (iron ore pelletizing plant and DRI/HBI plant at Darkhan,
copper smelter at Oyu Tolgoi, and coke plant at Tavan Tolgoi), Bechtel evaluated the
economics of the relevant industrial plant(s) at each site, based on capital cost estimates
developed in accordance with Section 10, product and raw material pricing adjusted for the
alternate location, and operating cost estimates developed for Sainshand. For this master
planning level of analysis, Bechtel did not adjust operating costs other than the delivered
cost of raw materials to reflect freight cost to the alternate locations. For the Oyu Tolgoi and
Tavan Tolgoi sites, no allocation of common infrastructure cost was considered necessary,
as each plant is proposed to have its own dedicated infrastructure. To evaluate the
economics of the iron ore pelletizing plant and the DRI/HBI plant at the Darkhan site
separately, the capital cost of common facilities (e.g., water utilities, coal gasification plant)
was allocated between the two iron plants based on expected usage of the proposed
capacity.
11.3.5. DATA SOURCES
Bechtel developed preliminary construction schedules and capital cost estimates (in 2011
US$) for the industrial plants and common infrastructure (as documented in Sections 9 and
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11-13
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Sainshand Master Plan Project


Final Report
10, respectively), as well as preliminary estimates for development cost and owners costs
during construction based on its experience with similar international projects.
NDIC provided long-range macroeconomic assumptions such as Mongolian inflation and the
exchange rates between the Mongolian tugrug (MNT) and major foreign currencies (US$,
Euro, Canadian dollar, Japanese yen and Chinese yuan). NDICs exchange rate
assumptions assume that the cross exchange rates between the MNT and major foreign
currencies remain unchanged beyond 2018. Because NDICs long-term Mongolian inflation
rate forecast of 4-5% per annum is not significantly higher than long-term inflation (2-3% per
annum) forecasted for most developed countries, the Economic Model used NDICs
exchange rate forecasts as is without applying any adjustment based on purchasing power
parity 5.
The Economic Model calculates revenue and raw material cost for each industrial plant
based on plant requirements and material flows that Bechtel developed in Tasks 2, 3, and 4.
To obtain independent estimates of product unit prices and raw material unit costs for the
analysis, Bechtel retained CRU, an experienced international consultancy to the mining and
metals industries, to develop long-range market price forecasts for all the industrial plants
except the cement plant, which is expected to sell its output primarily in the Mongolian
market.
Bechtel estimated annual labor costs for each industrial plant based on estimated staffing
requirements, Mongolian wage rates from Mongolian Statistical Yearbook 2010 6, and labor
escalation rates and other payroll related expenses (as a percentage of salary cost)
provided by NDIC. Bechtel also estimated other cash operating costs (primarily operations
and maintenance (O&M) expenses, sales, marketing, and administration expenses, and
corporate overhead) either as an annual amount or as a percentage of the total installed
costs of the facilities. Other Bechtel-developed assumptions used in the Economic Model
include working capital assumptions based on customary payment terms in the industry, and
generic financing assumptions based on representative financing terms.

11.4.

BASE CASE ASSUMPTIONS

This section describes general assumptions that were applied universally to the Base Case
economic analyses of all industrial plants and utilities at the Sainshand and alternate
locations. Assumptions unique to a specific plant or utility are described in the relevant
sections 11.5 to 11.13.
11.4.1. MACROECONOMIC ASSUMPTIONS
NDIC provided long-range forecasts of Mongolian inflation as well as exchange rates
between the MNT and major international and regional currencies. These assumptions are
tabulated in Table 11.5.

Because of the relatively small share of Mongolian costs in the overall capital and operating costs of
the projects, the economic analysis results are not expected to change significantly if purchasing
power parity adjustments were made to the exchange rate forecasts.
6
Published by the National Statistical Office of Mongolia in 2011

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Mongolian Inflation (CPI)


Mongolian Wage Increase
MNT / US Dollar Exchange Rate
MNT / Euro Exchange Rate
MNT / Canadian Dollar Exchange Rate
MNT / Chinese Yuan Exchange Rate
MNT / Japanese Yen Exchange Rate

2012
9.1%
10.2%
1,344
1,709
1,344
214.6
17.3

2013
7.6%
10.4%
1,323
1,741
1,297
218.7
15.8

2014
8.0%
11.0%
1,307
1,693
1,331
224.3
15.6

2015
9.4%
12.5%
1,288
1,662
1,323
228.8
15.3

2016
7.0%
8.6%
1,277
1,648
1,319
231.6
15.2

2017
6.0%
9.6%
1,259
1,628
1,305
235.3
15.0

2018
5.0%
7.4%
1,000
1,220
1,000
187.0
12.0

2019-2025 2026-2050
5.0%
4.0%
7.2%-7.8% 7.9%-8.2%
1,000
1,000
1,220
1,220
1,000
1,000
187.0
187.0
12.0
12.0

Table 11.5: Macroeconomic Assumptions Provided by NDIC


11.4.2. CAPITAL COST AND CONSTRUCTION PERIOD ESCALATION
Bechtel developed capital cost estimates for all industrial plants, utilities and infrastructure in
2011 US$ (Section 10), as well as a percentage breakdown of each capital cost estimate by
local and foreign currencies. The Economic Model calculated construction period cost
escalation by first applying the escalation rate associated with each currency, then
converting all non-US$ currencies to US$ using exchange rate assumptions provided by
NDIC, which are tabulated in Table 11.5 above.
Bechtel developed escalation assumptions for costs denominated in US$ and other foreign
currencies based on historical and forecast inflation rates in the U.S., the Euro zone,
Canada, Japan, and China from 2009 to 2016 published by the International Monetary
Fund. The following escalation rates were assumed:
US$ denominated cost 2%
Euro denominated cost 2%
Canadian dollar denominated cost 2%
Japan yen denominated cost 1%
Chinese yuan denominated cost 3%
These forward capital cost escalation assumptions, while appropriate for this level of
analysis, should be refined during the pre-FEED and FEED stages of each plant.
The capital cost estimates documented in Section 10 include the estimated costs of FrontEnd Engineering Design (FEED) services and pre-FEED feasibility studies. Project costs
that are expected to be incurred prior to financial close are categorized as development
costs in the Economic Model. Consequently, FEED and pre-FEED costs were included in
development costs and assumed to be incurred in the same year as financial close (as
presented in Figure 12.5, Preliminary Industrial Park Development Schedule), while other
capital costs (EPC costs) were assumed to be incurred according to a monthly draw
schedule over the expected construction period of each plant.
11.4.3. DEVELOPMENT COST AND OWNERS COST DURING CONSTRUCTION
For modeling purposes, development costs incurred over the development phase of a plant
were assumed to be reimbursed at the financial close date of the plant per the project
schedule in Section 9. Development cost was assumed to cover all owners costs prior to
construction of the plant, including but not limited to technical studies (e.g., pre-FEED,
FEED), facility-specific environmental studies and other permitting activities, negotiation and
execution of all commercial agreements required prior to financial close, as well as advisor
fees and other transaction costs associated with the closing of financing. Based on its
experience, Bechtel assumed the development cost for a plant to be US$10 million plus the
estimated FEED and pre-FEED costs. In general, development cost varies depending on
the complexity of the commercial structure of the project, the permitting process, the size of
the project, and the number of parties involved in the financing. Similar to other estimates
used in the Economic Model, development cost assumptions should be reviewed and
updated during the development process as more information becomes available.
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Bechtels capital cost estimates included estimates of typical owners cost such as building
fixtures and office equipment, vehicles and initial spares, and owners insurance. At this
preliminary feasibility stage of the analysis, no adjustments for other owners costs were
incorporated into the Economic Model.
Cost of owners insurance during construction (to insure against risks that are typically the
owners responsibility, such as force majeure) was calculated as 0.5% of EPC cost as
defined in Section 11.4.2 above.
Owners contingency was assumed to be 5% of EPC cost. Owners contingency is an
amount set aside by the owner to cover miscellaneous costs during construction that are not
covered by the EPC contract, such as owner-specified change orders. Although labeled as
a contingency amount because the source of the cost is unknown, this cost is expected to
be spent during the construction period.
11.4.4. COMMODITY PRICING
Unlike the cyclically driven methodology CRU uses for medium-term commodity forecasts,
the forecasting methodology CRU adopted in this study for all commodities except cement
puts more emphasis on the long-run marginal cost of production (which reflects the
estimated operating costs of new mines, smelters, refineries, and other facilities in the most
competitive locations as well as the capital costs of new facilities), observations on historical
price performance, and consideration of other factors that may result in a structural shift in
the trend price.
Pricing assumptions for the cement plant, which is expected to sell its output domestically,
were developed by extrapolating current Mongolian market prices provided by NDIC and are
documented in Section 11.10.1.1 below.
Except as otherwise stated, all product prices in the Economic Model were estimated in
nominal US$ on an ex-factory basis at the plant location (Sainshand or the alternate sites),
while raw material prices used in the analysis were adjusted for delivery cost to the plant
location, using one of two methods:

Netback discount method where a commodity from a Mongolian source could


expect to be exported to the international market, the price at the plant location was
determined by subtracting outbound freight and taxes from the forecasted
international market price.

Border price plus freight method where border prices were available for
commodities imported to Mongolia, the price at the plant location was determined by
adding freight costs to forecasted prices at the Chinese/Russian border.

It should be noted that transportation costs used in the estimating process described above
assumed import/export through the shortest and most direct route, in most cases through
northern China. However, the same forecast prices might be applicable for the longer rail
shipment route through Russia and the Russian Far East seaports if the transportation costs
are comparable, either due to lower cost per tonne per km or negotiated discounts on freight
rates.

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

11-16

Table 11.6 Commodity Price Assumptions Developed by CRU


CommodityPriceAssumptions
Commodity

Unit
NominalUS$

Case

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

SainshandIndustrialPark
Thermalcoal

DeliveredSainshand

$/MMBtu

Base
Low
High

3.62
2.32
5.29

3.61
2.31
5.27

3.65
2.34
5.33

3.72
2.38
5.43

3.79
2.43
5.54

3.88
2.48
5.66

3.97
2.54
5.80

4.07
2.60
5.94

4.17
2.67
6.09

4.27
2.74
6.24

4.38
2.80
6.40

4.49
2.87
6.55

4.61
2.95
6.73

4.73
3.03
6.90

4.85
3.11
7.08

4.98
3.19
7.27

5.12
3.27
7.47

5.24
3.35
7.65

5.37
3.44
7.84

Cokingcoal

DeliveredSainshand

$/tonne

Base
Low
High

160
102
233

161
103
236

163
104
238

164
105
240

166
106
242

168
107
245

166
106
242

167
107
244

170
109
249

174
112
254

179
114
261

183
117
267

187
120
274

192
123
280

197
126
287

202
129
294

207
132
302

212
136
309

217
139
317

Metallurgicalcoke

exWorksSainshand

$/tonne

Base
Low
High

398
255
582

405
259
591

411
263
600

417
267
609

424
271
619

430
275
628

436
279
637

440
282
642

448
287
655

459
294
670

470
301
686

481
308
702

493
315
719

505
323
737

517
331
755

530
339
774

543
348
793

556
356
812

570
365
832

FeOreconcentrate

DeliveredSainshand

$/tonne

Base
Low
High

146
104
196

124
88
167

101
72
136

88
62
118

79
57
107

75
53
101

73
52
98

72
51
97

72
51
97

73
52
98

74
53
100

76
54
102

77
55
104

79
56
106

81
58
109

83
59
111

85
60
114

87
62
117

89
63
120

FeOrepellets

DeliveredSainshand
exworksSainshand

$/tonne

Base
Low
High

184
131
247

160
114
215

136
97
183

122
87
164

114
81
153

110
78
147

108
77
145

108
77
145

109
78
146

111
79
149

113
80
152

115
82
155

118
84
158

121
86
162

124
88
166

127
90
170

130
93
175

133
95
179

137
97
184

HBI

DeliveredSainshand

$/tonne

Base
Low
High

434
309
584

378
269
508

320
228
430

285
203
383

265
189
357

255
182
343

250
178
336

250
178
336

252
179
338

255
182
343

260
185
350

266
189
357

272
194
366

279
199
376

287
204
386

295
210
396

302
215
407

310
221
417

319
227
428

Silica

DeliveredSainshand

$/tonne

Base
Low
High

30
21
40

31
22
42

33
23
44

34
24
46

35
25
47

37
26
49

38
27
52

40
29
54

42
30
56

44
31
59

46
33
62

48
34
64

50
36
67

52
37
70

54
39
73

57
40
76

59
42
79

62
44
83

64
46
86

Dolomite

DeliveredSainshand

$/tonne

Base
Low
High

121
86
162

123
88
166

127
90
171

132
94
177

137
97
184

142
101
191

148
106
199

155
110
208

162
115
217

169
120
227

176
126
237

184
131
248

192
137
258

200
142
268

208
148
279

216
154
290

225
160
302

234
167
315

244
174
328

Bentonite

DeliveredSainshand

$/tonne

Base
Low
High

211
150
283

216
154
291

224
159
301

233
166
313

243
173
327

254
181
341

265
189
357

277
197
373

290
206
389

303
216
407

316
225
425

331
235
444

345
245
463

359
255
482

373
266
502

389
277
523

405
288
544

422
300
567

440
313
591

Lime

DeliveredSainshand

$/tonne

Base
Low
High

103
74
139

106
75
142

109
77
146

112
80
151

116
83
157

121
86
163

126
90
170

132
94
177

138
98
185

144
102
193

150
107
202

157
111
210

163
116
219

169
121
228

176
125
237

183
130
246

191
136
256

199
141
267

207
147
278

CopperCathode

LMEcashprice

$/tonne

Base
Low
High

9,400
6,693
12,634

9,200
6,550
12,365

7,950
5,660
10,685

6,781
4,828
9,113

5,965
4,247
8,017

6,115
4,354
8,219

6,265
4,461
8,420

6,418
4,570
8,626

6,575
4,682
8,837

6,738
4,797
9,056

6,905
4,916
9,280

7,077
5,039
9,511

7,248
5,160
9,741

7,424
5,286
9,977

7,604
5,414
10,220

7,790
5,547
10,470

7,981
5,683
10,727

8,178
5,822
10,991

8,380
5,966
11,262

TreatmentCharge(TC)

Globalprice

$/tonne

Base
Low
High

109
78
147

107
76
143

92
66
124

79
56
106

69
49
93

71
51
95

73
52
98

74
53
100

76
54
103

78
56
105

80
57
108

82
58
110

84
60
113

86
61
116

88
63
119

90
64
121

93
66
124

95
68
127

97
69
131

RefiningCharge(RC)

Globalprice

$/tonne

Base
Low
High

72
51
97

71
50
95

61
44
82

52
37
70

46
33
62

47
33
63

48
34
65

49
35
66

51
36
68

52
37
70

53
38
71

54
39
73

56
40
75

57
41
77

58
42
79

60
43
80

61
44
82

63
45
84

64
46
87

Use of this Report is subject to certain restrictions set forth in the Important Notice.

11-17

Table 11.6 Commodity Price Assumptions Developed by CRU


CommodityPriceAssumptions
Commodity

Unit
NominalUS$

Case

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

SainshandIndustrialPark
Thermalcoal

DeliveredSainshand

$/MMBtu

Base
Low
High

5.50
3.52
8.03

5.64
3.61
8.23

5.76
3.68
8.41

5.88
3.76
8.59

6.01
3.84
8.77

6.14
3.93
8.96

6.27
4.01
9.15

6.40
4.10
9.35

6.54
4.19
9.55

6.68
4.28
9.75

6.83
4.37
9.97

6.97
4.46
10.18

7.10
4.54
10.36

7.22
4.62
10.54

7.35
4.70
10.73

7.48
4.79
10.92

7.61
4.87
11.11

Cokingcoal

DeliveredSainshand

$/tonne

Base
Low
High

223
143
326

229
146
334

235
150
343

241
154
352

247
158
361

253
162
370

260
166
379

266
170
388

272
174
397

278
178
406

285
182
416

292
187
426

298
191
435

305
195
445

311
199
454

317
203
463

323
207
472

Metallurgicalcoke

exWorksSainshand

$/tonne

Base
Low
High

584
373
852

598
383
873

612
392
894

627
401
915

642
411
937

658
421
960

673
431
983

690
442
1007

707
452
1032

724
463
1057

742
475
1083

760
486
1109

778
498
1136

797
510
1164

817
523
1193

837
536
1222

857
549
1252

FeOreconcentrate

DeliveredSainshand

$/tonne

Base
Low
High

91
65
123

94
67
126

96
68
129

98
70
132

100
71
134

102
73
137

105
74
140

107
76
144

109
78
147

112
80
150

115
82
154

117
83
157

120
85
161

122
87
164

125
89
167

127
90
171

130
92
174

FeOrepellets

DeliveredSainshand
exworksSainshand

$/tonne

Base
Low
High

140
100
188

144
102
193

147
105
198

151
107
203

154
110
207

158
113
212

162
115
217

166
118
223

170
121
228

174
124
234

178
127
239

182
130
245

186
133
251

191
136
256

194
138
261

198
141
267

202
144
272

HBI

DeliveredSainshand

$/tonne

Base
Low
High

327
233
440

336
239
451

344
245
462

352
251
474

361
257
485

370
263
497

377
268
506

384
273
516

391
278
526

399
284
536

406
289
546

409
291
550

413
294
554

416
296
559

419
298
563

422
301
568

426
303
572

Silica

DeliveredSainshand

$/tonne

Base
Low
High

67
48
90

70
50
94

73
52
98

76
54
102

79
56
106

82
59
111

86
61
115

89
64
120

93
66
125

96
69
130

100
71
135

104
74
140

108
77
145

112
80
150

116
83
156

120
86
162

125
89
168

Dolomite

DeliveredSainshand

$/tonne

Base
Low
High

254
181
342

265
188
356

276
196
371

287
204
386

299
213
402

312
222
419

325
231
436

337
240
453

350
249
471

364
259
489

378
269
508

392
279
527

406
289
546

421
300
566

436
310
586

452
322
607

468
333
629

Bentonite

DeliveredSainshand

$/tonne

Base
Low
High

458
326
616

477
340
642

497
354
669

518
369
697

540
384
726

563
401
756

586
417
788

609
434
819

633
451
851

658
469
884

683
487
918

709
505
953

735
524
988

762
543
1024

790
562
1062

819
583
1100

848
604
1140

Lime

DeliveredSainshand

$/tonne

Base
Low
High

215
153
289

224
160
301

234
166
314

243
173
327

253
180
341

264
188
355

275
196
369

286
203
384

297
211
399

308
219
414

320
228
430

332
236
446

344
245
462

356
254
479

369
263
496

382
272
513

396
282
532

CopperCathode

LMEcashprice

$/tonne

Base
Low
High

8,587
6,114
11,542

8,801
6,266
11,829

9,021
6,423
12,124

9,247
6,584
12,428

9,480
6,750
12,741

9,720
6,920
13,063

9,966
7,096
13,394

10,220
7,277
13,736

10,481
7,463
14,087

10,750
7,654
14,448

11,027
7,851
14,820

11,312
8,054
15,204

11,606
8,264
15,599

11,909
8,479
16,005

12,221
8,701
16,424

12,542
8,930
16,856

12,873
9,165
17,301

TreatmentCharge(TC)

Globalprice

$/tonne

Base
Low
High

100
71
134

102
73
137

105
75
141

107
76
144

110
78
148

113
80
152

116
82
155

119
84
159

122
87
163

125
89
168

128
91
172

131
93
176

135
96
181

138
98
186

142
101
191

145
104
196

149
106
201

RefiningCharge(RC)

Globalprice

$/tonne

Base
Low
High

66
47
89

68
48
91

69
49
93

71
51
96

73
52
98

75
53
100

77
55
103

79
56
106

81
57
108

83
59
111

85
60
114

87
62
117

89
64
120

92
65
123

94
67
126

96
69
130

99
70
133

Use of this Report is subject to certain restrictions set forth in the Important Notice.

11-18

Table 11.6 Commodity Price Assumptions Developed by CRU


Commodity

Unit

Case

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

Gold

London(globalprice)

$/oz

Base
Low
High

1,183
842
1,590

1,175
837
1,580

1,186
844
1,593

1,205
858
1,620

1,229
875
1,652

1,257
895
1,689

1,289
918
1,733

1,319
939
1,772

1,349
961
1,813

1,381
983
1,856

1,413
1,006
1,899

1,446
1,030
1,944

1,480
1,054
1,989

1,515
1,079
2,036

1,550
1,104
2,084

1,587
1,130
2,133

1,624
1,156
2,183

1,662
1,184
2,234

1,701
1,211
2,287

Silver

London(globalprice)

$/oz

Base
Low
High

14
10
19

14
10
19

15
10
20

15
11
20

16
11
21

16
12
22

17
12
23

17
12
23

18
13
24

18
13
25

19
14
26

20
14
26

20
14
27

21
15
28

22
15
29

22
16
30

23
16
31

24
17
32

24
17
33

Sulfuricacid

exWorksSainshand

$/tonne

Base
Low
High

4
0
34

0
0
18

0
0
18

0
0
14

0
0
5

0
0
2

5
0
39

22
0
63

33
0
79

41
0
90

45
2
97

49
4
103

52
6
108

55
7
113

58
8
118

61
10
122

65
12
128

68
13
134

71
14
139

Diesel

DeliveredSainshand

$/liter

Base
Low
High

0.95
0.61
1.39

0.96
0.61
1.40

0.98
0.63
1.43

1.01
0.65
1.47

1.05
0.67
1.53

1.08
0.69
1.58

1.12
0.72
1.64

1.16
0.74
1.70

1.20
0.77
1.76

1.25
0.80
1.82

1.29
0.83
1.89

1.34
0.86
1.95

1.38
0.89
2.02

1.43
0.92
2.09

1.48
0.95
2.16

1.53
0.98
2.23

1.58
1.01
2.31

1.63
1.05
2.39

1.69
1.08
2.47

Use of this Report is subject to certain restrictions set forth in the Important Notice.

11-19

Table 11.6 Commodity Price Assumptions Developed by CRU


Commodity

Unit

Case

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

Gold

London(globalprice)

$/oz

Base
Low
High

1,741
1,240
2,340

1,782
1,269
2,395

1,824
1,299
2,452

1,867
1,329
2,509

1,911
1,361
2,568

1,956
1,392
2,628

2,002
1,425
2,690

2,049
1,459
2,753

2,097
1,493
2,818

2,146
1,528
2,884

2,196
1,564
2,952

2,248
1,601
3,021

2,301
1,638
3,092

2,355
1,677
3,165

2,410
1,716
3,239

2,467
1,756
3,316

2,525
1,798
3,393

Silver

London(globalprice)

$/oz

Base
Low
High

25
18
34

26
18
35

27
19
36

27
20
37

28
20
38

29
21
39

30
21
40

31
22
41

32
23
43

33
23
44

34
24
45

35
25
47

36
25
48

37
26
50

38
27
51

39
28
53

40
29
54

Sulfuricacid

exWorksSainshand

$/tonne

Base
Low
High

75
15
145

78
17
152

82
18
158

86
19
165

90
21
172

94
22
179

98
24
187

102
26
194

107
27
202

111
29
209

116
31
218

120
32
225

124
34
233

129
35
241

133
37
249

137
38
256

142
39
264

Diesel

DeliveredSainshand

$/liter

Base
Low
High

1.75
1.12
2.55

1.81
1.16
2.64

1.87
1.19
2.73

1.93
1.23
2.82

1.99
1.28
2.91

2.06
1.32
3.01

2.13
1.36
3.11

2.20
1.41
3.21

2.27
1.45
3.31

2.34
1.50
3.42

2.42
1.55
3.53

2.49
1.59
3.64

2.57
1.64
3.75

2.64
1.69
3.86

2.72
1.74
3.98

2.81
1.80
4.10

2.89
1.85
4.22

Use of this Report is subject to certain restrictions set forth in the Important Notice.

11-20

Table 11.6 Commodity Price Assumptions Developed by CRU


Commodity

Unit

Case

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

AlternateSiteTavanTolgoi
Metallurgicalcoke

TavanTologi

$/tonne

Base
Low
High

392
251
572

398
255
581

404
259
590

411
263
600

417
267
609

423
271
618

429
275
626

433
277
632

441
282
644

451
289
658

462
295
674

473
302
690

484
310
707

496
318
725

509
326
743

521
334
761

534
342
780

547
350
799

560
358
818

Cokingcoal

TavanTolgoi

$/tonne

Base
Low
High

153
98
224

155
99
226

156
100
228

158
101
230

159
102
232

161
103
235

159
102
232

160
102
233

163
104
238

167
107
243

171
109
249

175
112
255

179
115
261

183
117
268

188
120
275

193
123
281

198
126
288

203
130
296

208
133
303

exWorksOyuTolgoi

$/tonne

Base
Low
High

0.0
0.0
2.8

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
14.7

0.0
0.0
37.7

7.1
0.0
52.6

13.4
0.0
62.3

17.3
0.0
68.9

19.8
0.0
73.6

22.3
0.0
78.1

24.4
0.0
82.0

26.2
0.0
85.5

28.2
0.0
89.4

30.8
0.0
94.1

32.8
0.0
98.5

34.9
0.0
103.1

AlternateSiteOyuTolgoi
Sulfuricacid

TC,RC,Gold,Silver,CopperCathodeSameasSainshandLocation
AlternateSiteDarkhan
Ironoreconcentrate

DeliveredDarkhan

$/tonne

Base
Low
High

130
93
175

108
77
145

85
61
114

71
51
95

62
44
84

57
41
77

55
39
74

54
38
72

53
38
72

54
38
72

55
39
73

55
39
74

57
40
76

58
41
78

59
42
79

60
43
81

62
44
83

63
45
85

65
46
87

Ironorepellets

DeliveredDarkhan
orexworksDarkhan

$/tonne

Base
Low
High

168
120
226

144
103
194

120
85
161

105
75
141

97
69
130

92
66
124

90
64
121

90
64
120

90
64
121

91
65
123

93
66
125

95
68
128

97
69
131

99
71
134

102
73
137

104
74
140

107
76
144

110
78
148

113
80
151

HBI

exworksDarkhan

$/tonne

Base
Low
High

419
298
563

362
258
487

304
216
408

269
191
361

248
177
334

237
169
319

232
165
312

231
165
311

233
166
313

236
168
317

240
171
323

246
175
330

252
179
338

258
184
347

265
189
356

272
194
366

280
199
376

287
204
386

295
210
396

Dolomite

DeliveredDarkhan

$/tonne

Base
Low
High

136
97
183

139
99
187

143
102
193

148
106
199

154
109
207

160
114
215

166
118
224

173
123
233

181
129
243

188
134
253

196
140
264

205
146
275

213
151
286

221
157
297

230
163
308

238
170
320

248
176
333

258
184
346

268
191
360

Bentonite

DeliveredDarkhan

$/tonne

Base
Low
High

226
161
304

232
165
312

240
171
323

250
178
336

260
185
350

272
193
365

283
202
381

296
210
397

308
220
415

322
229
433

336
239
452

351
250
472

365
260
491

380
271
511

395
281
531

411
293
553

428
305
575

446
317
599

464
330
623

Lime

DeliveredDarkhan

$/tonne

Base
Low
High

119
85
160

121
86
163

125
89
168

129
92
173

134
95
179

138
99
186

144
103
194

150
107
202

156
111
210

163
116
219

170
121
228

177
126
238

184
131
247

191
136
256

198
141
266

206
146
276

214
152
287

222
158
298

231
164
310

Sulfur

exWorksDarkhan

$/t

Base

12
0
40

1
0
26

0
0
26

0
0
26

0
0
26

1
0
27

17
0
49

26
0
63

32
0
72

37
2
79

41
4
86

45
6
92

50
9
98

54
12
105

59
15
112

64
17
120

69
20
127

73
23
134

78
25
141

Low
High

Use of this Report is subject to certain restrictions set forth in the Important Notice.

11-21

Table 11.6 Commodity Price Assumptions Developed by CRU


Commodity

Unit

Case

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

AlternateSiteTavanTolgoi
Metallurgicalcoke

TavanTologi

$/tonne

Base
Low
High

574
367
837

587
376
857

601
385
878

616
394
899

631
404
921

646
413
943

661
423
965

677
433
989

694
444
1013

710
455
1037

728
466
1062

745
477
1088

763
489
1115

782
501
1142

801
513
1170

821
525
1198

841
538
1228

Cokingcoal

TavanTolgoi

$/tonne

Base
Low
High

213
136
311

218
140
319

224
143
327

230
147
335

235
151
344

241
155
353

248
158
361

253
162
370

259
166
378

265
170
387

271
173
396

277
177
405

283
181
413

289
185
422

296
189
432

301
193
440

307
196
448

exWorksOyuTolgoi

$/tonne

Base
Low
High

37.1
0.0
108.0

39.5
0.0
113.0

41.9
0.0
118.3

44.5
0.0
123.8

47.2
0.0
129.5

50.1
0.0
135.5

53.1
0.0
141.7

55.8
0.0
147.6

58.7
0.0
153.7

61.7
0.0
160.0

65.0
0.0
166.8

67.7
0.0
172.8

71.0
0.0
179.6

74.7
0.0
186.8

77.6
0.0
193.1

80.7
0.0
199.6

83.8
0.0
206.3

AlternateSiteOyuTolgoi
Sulfuricacid

TC,RC,Gold,Silver,CopperCathodeSameasSainshandLocation
AlternateSiteDarkhan
Ironoreconcentrate

DeliveredDarkhan

$/tonne

Base
Low
High

67
47
89

68
49
92

70
50
94

71
51
96

73
52
98

74
53
100

76
54
102

78
55
104

79
56
107

81
58
109

83
59
111

85
60
114

86
61
116

88
63
118

90
64
120

91
65
123

93
66
125

Ironorepellets

DeliveredDarkhan
orexworksDarkhan

$/tonne

Base
Low
High

115
82
155

118
84
159

121
86
163

124
88
167

127
90
171

130
93
175

133
95
179

136
97
183

140
99
188

143
102
192

146
104
197

150
107
202

153
109
206

157
111
210

160
114
214

163
116
219

166
118
223

HBI

exworksDarkhan

$/tonne

Base
Low
High

302
215
406

310
221
417

318
226
427

326
232
438

334
238
448

342
243
459

348
248
468

354
252
476

361
257
485

368
262
494

374
267
503

377
268
507

379
270
510

382
272
513

384
274
516

387
275
520

389
277
523

Dolomite

DeliveredDarkhan

$/tonne

Base
Low
High

279
199
375

290
206
390

302
215
405

314
223
422

326
232
439

340
242
456

353
251
475

367
261
493

380
271
511

395
281
531

409
292
550

424
302
570

440
313
591

455
324
611

471
335
633

487
347
655

505
359
678

Bentonite

DeliveredDarkhan

$/tonne

Base
Low
High

483
344
649

503
358
676

523
373
703

545
388
732

567
404
762

591
421
794

615
438
826

639
455
858

663
472
891

689
491
926

715
509
961

741
528
996

769
547
1033

796
567
1070

825
587
1108

854
608
1148

885
630
1190

Lime

DeliveredDarkhan

$/tonne

Base
Low
High

240
171
323

250
178
336

260
185
349

270
192
363

281
200
377

292
208
392

304
216
408

315
224
423

327
233
439

339
241
456

352
250
472

364
259
489

377
268
507

390
278
524

404
287
543

418
297
562

432
308
581

Sulfur

exWorksDarkhan

$/t

Base

83
28
149

88
30
157

93
33
165

98
35
173

103
38
181

109
41
190

115
44
199

121
47
209

127
50
218

133
54
229

140
57
240

148
61
251

154
65
261

161
68
272

168
72
283

176
76
295

184
80
308

Low
High

Use of this Report is subject to certain restrictions set forth in the Important Notice.

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Final Report
11.4.5. OPERATIONS PERIOD LABOR COST
The Economic Model calculated labor costs for each plant based on the estimated staffing
levels in Appendix 7A.
Salaries for Mongolian labor were calculated by multiplying the estimated number of
Mongolian employees by average salaries reported in the Mongolian Statistical Yearbook
2010 for the economic sector corresponding to each plant, as illustrated in Table 11.7
below:
Economic Sector

Applicable Industrial Plant /


Utilities & Infrastructure

Average Monthly Salary


(Mongolian Tugrug)

Mining and quarrying

Coke plant, iron ore pelletizing


plant, DRI/HBI plant, coal
gasification plant, copper
smelter, cement plant

572,200

Electricity, gas and water


supply

Power plant, water utilities

337,500

Transport, storage and


communications

Transportation and materials


handling facilities

369,000

Source: Mongolian Statistical Yearbook 2010, Section 4.12

Table 11.7: Mongolian Labor Cost Assumptions


Salaries for Mongolian labor were escalated to the first year of operation of each plant and
annually thereafter using year-by-year forecast annual Mongolian wage increases provided
by NDIC in Table 11.5 above.
Mongolian salaries were increased by 13% to account for the following employer funded
costs for employees, as required under Mongolia law:

Pension insurance: 7.0%

Benefit insurance: 0.5%

Health insurance: 2.0%

Unemployment insurance: 0.5%

Industrial accident and occupational disease insurance: 3.0%

To estimate expatriate labor cost at each plant, Bechtel subdivided the total expatriate
headcount provided in the table in Appendix 7A into three positions in the proposed
organizational hierarchy general manager, department head, and other expatriate staff
and applied the cost assumptions per person outlined in Table 11.8 below.
Position

Annual Salary
( in 2011 US$)

Benefits as Percentage of
Salary (%)

General Manager

$200,000

50%

Department Head

$125,000

40%

Other Expatriate Staff

$90,000

30%

Table 11.8: Expatriate Labor Cost Assumptions

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

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Sainshand Master Plan Project


Final Report
The percentages for employee benefits in the table above were assumed to include the 13%
increment used to calculate the cost of employer-funded benefits required under Mongolia
Law for Mongolian employees.
Table 11.9 below shows the estimated expatriate headcount and labor cost in 2011 US$ for
each plant. Expatriate salaries were assumed to increase at 2.5% per year, in line with the
assumed general inflation rate in developed economies.
Industrial Plant / Utility

Total Expatriates
(Appendix 7A)

General
Manager

Department
Head

Other
Expatriates

Total Expatriate
Labor Cost
(2011 US$)
3,574,000

Cement Plant

27

22

Iron Ore Pelletizing Plant

30

25

3,925,000

DRI/HBI Plant

14

2,053,000

Coke Plant

27

22

3,574,000

Power Plant

17

12

2,404,000

Coal Gasification Plant

13

1,936,000

Copper Smelter & Refinery

92

84

11,353,000

Railway

10

1,527,000

Common Facilities

45

40

5,680,000

Total Sainshand

275

38

228

36,026,000

Table 11.9: Expatriate Labor Cost by Plant


11.4.6. NON-LABOR OPERATING COSTS
Non-labor costs during the operations period can be subdivided into two broad categories:
variable operating costs; and non-labor fixed O&M costs and other variable costs.
11.4.6.1.VARIABLE OPERATING COSTS
Variable operating costs include primarily the costs of feedstock, water, and electricity used
in the industrial process. These costs were computed as the product of (i) annual quantities
determined by Bechtel and presented in the material balance tables in Section 2 for
Sainshand and Section 6 for the alternate sites, and (ii) forecasted commodity prices
developed by CRU (in the case of feedstock) or prices determined by the Power Plant, Coal
Gasification, and Utilities Modules of the Economic Model (for power, syngas, steam, and
water generated by plants located at SIP).
11.4.6.2.NON-LABOR FIXED O&M COSTS AND OTHER VARIABLE COSTS
Included in this category are contracted professional and technical services, regular and
major maintenance, spare parts, periodic replacement of business equipment and fixtures,
and other consumables. Based on discussions with technology suppliers and Bechtels
experience, Bechtel estimated an average annual cost for each plant to cover miscellaneous
non-labor fixed O&M and variable costs.
Annual insurance cost during operations was assumed to be 0.5% of the EPC cost of each
plant.
11.4.6.3.ESCALATION
Unless a 30-year forecast was available (such as feedstock price forecasts developed by
CRU), operating costs were escalated in the Economic Model at an annual escalation rate
of 2.5%, in line with the expected long-term inflation rate in developed economies.

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

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Final Report
11.4.7. VALUE ADDED TAX AND CUSTOMS DUTIES
Where applicable, the Economic Model calculated the impact of value added taxes (VAT)
during the construction period and throughout the operation period of each plant, as
required by Mongolian Law.
11.4.7.1.CONSTRUCTION PERIOD
VAT and customs duties were calculated based on the following:

Custom duties were assumed to be 5% applied to the estimated cost of imported


equipment, consistent with the Mongolian Law on Customs Duties.

VAT was calculated as 10% of the total EPC cost plus customs duty minus freight
and insurance, consistent with the Law on Value Added Taxes in Mongolia (Law on
VAT).

For most plants, VAT and customs duty together amounted to about 11% of EPC cost,
based on the split among various components (e.g., equipment, insurance, direct labor, and
subcontracted services) of the EPC cost.
For income tax purposes, the Economic Model assumed that VAT and customs duty levied
on the EPC cost would be capitalized with other costs during construction and depreciated
along with tangible assets during the operations period.
11.4.7.2.OPERATIONS PERIOD
According to the Law on VAT, VAT rates on all exported finished products of the mining
industry are zero rated. Based on the definition of finished products of the mining
industry, the economic analyses assumed that the products of the coke plant, the DRI/HBI
plant, and the copper smelter would be exported at zero VAT rate. Following this
assumption, the economic analyses of these plants assumed that VAT paid for production
inputs (purchases) would be refunded, rather than added to operating costs of the plants.
This means that VAT does not have any impact on net cash flows at these three industrial
plants. To simplify the analysis, VAT payment and its subsequent refund were excluded
from the economic analyses of the three plants.
Due to the high freight cost to value ratio of cement, the economic analysis for the cement
plant assumed that its output would be sold domestically. For the economic analyses of the
cement plant, coal gasification plant, power plant, and the other utilities at Sainshand, VAT
was assumed to be added to the sales price of the final products and passed through to
customers, enabling the plants to recover VAT paid on their purchases (and collect VAT on
the value added portion on behalf of the Mongolian tax authorities). The Economic Model
simplified the analysis by excluding collection of VAT (on both the value of input and the
value added) from the revenues and payment of VAT from the operating costs of the
projects.
11.4.8. DEPRECIATION, INCOME TAX, AND WITHHOLDING TAX
As explained previously in Section 11.3.1, depreciation and tax assumptions used in the
Economic Model were intended to reflect the total impact of Mongolian and foreign taxes on
the after-tax returns to international investors. Because more than 30 countries, including
many countries in Europe and Asia, where potential investors will likely be based, have
signed double taxation agreements with Mongolia, the economic analysis assumed that
generic international investors would make their investments in SIP through holding
companies based in the Netherlands, a popular holding company jurisdiction for European
investors, and that dividends from the Mongolian projects to the Dutch holding companies
would be exempt from tax. (This holding company structure may be replicated for Asian
Use of this Report is subject to certain restrictions
set forth in the Important Notice.

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Sainshand Master Plan Project


Final Report
investors in a holding company jurisdiction in Asia such as Singapore.) This leaves
Mongolia as the only relevant tax regime that is expected to have an impact on project
economics. Accordingly, tax assumptions in the Economic Model were based on Mongolian
tax law:

The corporate income tax rate is 10% on the first 3 billion MNT of taxable income,
and 25% on any taxable income above 3 billion MNT.

Tax losses are carried forward to up to 8 future years to offset future taxable income.

Dividends paid to the Dutch holding company are subject to a withholding tax of 10%
(reduced from 20% by treaty).

To calculate depreciation deductions for income tax purposes, the Economic Model adopted
the following depreciation schedules, per Mongolian tax law:

Tangible assets, assumed to include 100% of EPC cost, owners contingency,


financing costs, and other costs during construction, were depreciated on a straight
line basis over three years (accelerated schedule for production machinery and
equipment located within an industrial park under Mongolian law 7).

Financing fees were amortized over the life of the loans on a straight line basis.

Intangible assets (primarily capitalized development costs) were depreciated on a


straight line basis over 10 years.

It should be noted that, to the extent that any of the generic tax assumptions in the
Economic Model do not apply to certain potential investors, the attractiveness of the
investment to such investors would differ from the analysis results.
In particular, we note that the U.S. and Japan are two significant sources of potential foreign
direct investment that do not have tax treaties with Mongolia. Absent any tax treaties,
investors from those countries may face higher effective tax rates (due to taxes imposed by
their countries of domicile and the fact that there is no treaty reduction to the 20% Mongolian
dividend withholding tax) than was assumed in the Economic Model. However, this may be
offset by credits available in those countries for taxes paid in Mongolia.
At a later stage, when potential investors are identified, tax and depreciation assumptions
may be refined to more accurately evaluate the project investment from the investors point
of view.
11.4.9. FINANCING ASSUMPTIONS
As discussed in Section 11.3.1, Bechtel assumed generic international financing terms in
the Economic Model. These generic assumptions include:

Debt Ratio: 70%

Debt Tenor: 14 years after completion, mortgage style amortization

Interest Rate: 275 basis points above LIBOR, or approximately 5.5% including the
cost of swap to a fixed interest rate

Debt Service Reserve Fund: 6 months of debt service (interest + principal


repayment)

Bank Agent Fee: US$150,000 per year during debt term

Buildings located within an industrial park are subject to a somewhat longer depreciation schedule
than production equipment (20 years as opposed to 3 years). For this master planning level of
analysis, the portion of buildings cost within the total EPC cost was assumed to be negligible.

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

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Sainshand Master Plan Project


Final Report
At this stage of the analysis, no other reserves (e.g., major maintenance reserve fund) were
assumed.
Certain facilities and infrastructure inside the park were assumed to be financed by the
GoM. Consequently, these financing assumptions were not applied in the economic
analyses of the following utilities and common facilities:
Water utilities
Materials handling facilities
Inside the park rail infrastructure
Roads inside the park
Interconnecting piping
Telecommunications infrastructure
Site infrastructure
As discussed in Section 11.3.3, the GoM may finance these facilities and infrastructure
through the government budget or sovereign borrowing.
11.4.10. WORKING CAPITAL ASSUMPTIONS
Change in working capital from year to year was calculated for each plant based on typical
payment terms between business enterprises in the industrial sector. In the Economic
Model, the following payment terms and cash balance were assumed:

Accounts receivable 21 days of revenue


Accounts payable 21 days of operating cost
Operating cash 3 days of operating cost

Similar to other generic assumptions in this study, working capital assumptions should be
reviewed and updated to reflect payment terms negotiated between each industrial plant
and its suppliers and customers. Such refinements are beyond the scope of this study.

11.5.

COKE PLANT

11.5.1. ASSUMPTIONS
Sections 11.3 and 11.4 document the general assumptions that were applied universally to
all industrial plants, including the coke plant. This section describes assumptions that are
specific to the coke plant economic analysis.
Based on discussions with equipment and technology providers, Bechtel assumed annual
operating cost excluding labor, feedstock, and utilities of US$3.7 million (in 2011 US$),
escalated at the assumed general inflation rate of 2.5% per year. This includes the costs of
consumables, spares and replacement of parts estimated to total US$2.3 million.
Gypsum, a by-product of the flue gas desulfurization process at the coke plant, was
assumed to be marketed and sold at a price equivalent to the cost of its removal from the
plant, without any impact on project cash flows.
11.5.2. RESULTS
The calculated unleveraged after-tax IRR of the coke plant in the Base Case was in excess
of 15%. Allocation of annual infrastructure charges as described in Section 11.3.3. is not
expected to have a significant impact on the economics of the coke plant.

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set forth in the Important Notice.

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Final Report

11.6.

IRON ORE PELLETIZING PLANT

11.6.1. ASSUMPTIONS
Sections 11.3 and 11.4 document the general assumptions that were applied universally to
all industrial plants, including the iron ore pelletizing plant. This section describes
assumptions that are specific to the iron ore pelletizing plant economic analysis.
In Bechtels view, the products of the iron ore pelletizing plant do not meet the definition of
finished products of the mining industry in the Mongolian Law on VAT to qualify for zero
rating for VAT purposes. Thus different VAT treatments are required for the portion of iron
ore pellets that is proposed to be directly exported (875 kTPA) versus the portion which is
proposed to be sold to the DRI/HBI plant at SIP (3,625 kTPA):

Exported Iron Ore Pellets Consistent with the Mongolian Law on VAT, the
analysis assumed that the export portion would be exempt from VAT. VAT paid by
the iron ore pelletizing plant for purchases of production inputs would not be
refunded, and the plant would not be able to collect VAT from foreign buyers of iron
ore pellets. The VAT paid for purchases was thus treated as a tax deductible
expense in the economic analysis.

Iron Ore Pellets Sold to DRI/HBI Plant On the other hand, the analysis assumed
that the portion of iron ore pellets proposed to be sold to the DRI/HBI plant at
Sainshand would be sold at the forecasted price plus VAT. This would enable any
VAT paid by the iron ore pellet plant in the purchase of production inputs to be
passed through to the buyer. Similar to the modeling approach adopted for the
DRI/HBI plant, VAT associated with this portion of output was excluded from both the
revenue and operating cost of the project.

Based on discussions with equipment and technology providers, Bechtel assumed annual
operating cost excluding labor, feedstock, and utilities of US$10.6 million (in 2011 US$),
escalated at the assumed general inflation rate of 2.5% per year. This includes the
expenses incurred during annual shutdowns for maintenance, estimated to total US$6.0
million.
11.6.2. RESULTS
The unleveraged after-tax IRR of the iron ore pelletizing plant was estimated to be 0.7%
before allocation of infrastructure charges was applied. According to the pro forma financial
statements developed based on the assumptions, imposing annual infrastructure charges is
expected to turn the project to cash flow negative on an annual basis, causing the otherwise
weak project economics to deteriorate further (IRR could not be calculated because of poor
economics).

11.7.

DRI/HBI PLANT

11.7.1. ASSUMPTIONS
Sections 11.3 and 11.4 document the general assumptions that were applied universally to
all industrial plants, including the DRI/HBI plant. This section describes assumptions that are
specific to the DRI/HBI Plant economic analysis.
A one-time licensing fee of US$8.75 million (2011 US$, escalated at 2.5% per year), based
on proposals received from technology providers, was assumed to be paid at
commissioning of the plant. This amount was capitalized and treated as a capital cost in the
Economic Model.

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

11-28

Sainshand Master Plan Project


Final Report
Based on
operating
escalated
expenses
million.

discussions with equipment and technology providers, Bechtel assumed annual


cost excluding labor, feedstock, and utilities of US$9.0 million (in 2011 US$),
at the assumed general inflation rate of 2.5% per year. This includes the
incurred during annual shutdowns for maintenance, estimated to total US$6.0

11.7.2. RESULTS
The analysis showed that, with Base Case assumptions, the DRI/HBI plant is expected to
run operating losses in excess of US$200 million before tax and payment of infrastructure
charges, because estimated annual operating revenues are not expected to cover estimated
annual operating costs. With such an unfavorable expected cash flow profile, calculations of
IRR, ROE, and payback period are not meaningful.

11.8.

COPPER SMELTER

11.8.1. ASSUMPTIONS
Please refer to Sections 11.3 and 11.4 for general assumptions that were applied universally
to all industrial plants. Assumptions specific to the copper smelter economic analysis are
documented below.
11.8.1.1.REVENUES
The economic analysis of the copper smelter assumed that the plant would operate as a
custom smelter, buying copper concentrate from the Oyu Tolgoi mine at market prices
(assumed to be the London Metal Exchange copper price) minus treatment charges and
refining charges, and deductions for copper, gold, and silver content in the concentrate.
Deductions allow the smelter the opportunity to profit from recovering and selling a portion of
the copper and precious metal content (represented by the deductions) at prevailing market
prices per standard industry practice. Specific assumptions used to estimate the various
revenue streams under this commercial arrangement are described below.
Treatment and Refining Charges
Typically, the primary sources of revenue for copper smelters and refineries are treatment
charges (TC) and refining charges (RC) negotiated with suppliers of copper concentrate.
Much like copper prices, TC/RC have exhibited significant historical volatility, depending in
large part on the balance between supply of copper concentrate and demand for refined
copper, as well as the availability of smelting/refining capacity in the global market. Per
Bechtels understanding, even copper smelters that have entered into long-term concentrate
supply contracts generally cannot negotiate fixed TC/RC terms in their contracts over a
multi-year period.
According to CRU, TC are expected to average about 4% of the London Metal Exchange
(LME) copper price over the long term, while RC for copper are expected to average 2.65%
of the LME copper price. These assumptions, together with CRUs forecast of LME copper
price, were used to forecast TC and RC for copper on an annual basis (in US$ per dry
metric tonne of copper concentrate) over the assumed economic life of the copper smelter.
RC revenue for gold was calculated separately at US$6 per ounce of payable gold (gold
content minus deductions for gold, as described in the following section); similarly, RC
revenue for silver was calculated separately at US$0.50 per ounce of payable silver. Both
RC assumptions are typical for the industry according to CRU, and are assumed to be
escalated at 2.5% inflation per year.

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Copper and Precious Metals Recovered from Concentrate
Other revenue streams were based on customary commercial arrangements in the industry.
One such customary commercial term assumed was that the price the copper smelter would
pay for the concentrate would be calculated based on a copper concentration that is 1%
lower than the copper concentration in the assay (known as a 1% deduction in the industry).
Accordingly, the percentage of payable copper in this analysis was assumed to be 29%,
based on 30% copper content in the copper concentrate (study basis for copper smelter as
described in Section 2.2.3). (Stated differently using industry terminology, the economic
analysis assumed a 1% minimum deduction in the determination of payable copper.)
Similarly, deductions for gold and silver were assumed to be 1 gram per tonne of
concentrate and 30 grams per tonne of concentrate respectively. In other words, the
analysis assumed that the copper smelter would not have to pay for these portions of the
gold and silver content in the price of copper concentrate.
At this master planning stage of the analysis, the Economic Model assumed 100% recovery
of copper, gold, and silver from the concentrate. On this basis, revenues from full recovery
and sale of the 1% deduction for copper (i.e., 10,000 TPA), as well as the deductions for
gold and silver (known in the industry as free metals revenues), were calculated using the
long-term forecasts of copper, gold, and silver prices developed by CRU.
Sulfuric Acid
Sulfuric acid is produced as a by-product of the smelting process and may be sold to
produce another revenue stream for the project. However, sulfuric acid prices are typically
volatile, even in larger markets such as China. Due to a lack of credible sulfuric acid price
data in the Mongolian market in the volume that the copper smelter is expected to produce 8,
the Economic Model used estimated sulfuric acid prices based on CRUs forecast for a
reference location in China adjusted for freight cost to the plant location. Due to the special
handling required in shipment of sulfuric acid, freight cost assumed was twice the standard
rate for commodities (4 per tonne per km in 2011 US$ for the Mongolian section of the
route). In any year in which the freight cost was estimated to exceed the price of sulfuric
acid in China, the Economic Model assumed a price of zero in other words, sulfuric acid
was assumed to be given away or disposed of without any cost to the plant owner.
Penalty Charges and other Revenue Sources
Some copper smelters are compensated through penalty charges for processing
concentrate with out-of-specification levels of elements harmful to the smelting and refining
processes, such as arsenic. In this study no penalty charges were assumed in the
economic analysis of the copper smelter, based on the copper assay provided to Bechtel as
the basis for this study.
Slag produced by the smelter was assumed to be processed into 300kTPA of railroad
ballast and saleable at US$30/tonne, escalated at 2.5% per year.
Other potential revenue sources, such as price participation terms linked to LME prices, and
metal premium, were assumed to be zero in the analysis. The economic impact of such
terms may be analyzed as part of a more detailed economic analysis that is beyond the
scope of this study.

There may not be sufficient domestic demand for the 925 kTPA sulfuric acid produced by the
copper smelter; consequently, the sulfuric acid price assumed in the Economic Model was based on
the assumption that the sulfuric acid would be exported to China.

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11.8.1.2.OPERATING COSTS
Labor cost was estimated using the assumptions and approach described in Section 11.4.5.
Unlike the product prices of other industrial plants, which were estimated on an ex-factory
basis, the forecast prices of the copper smelters primary product (copper cathode) were
based on the LME benchmark. As a result, the copper smelter economic analysis included
outbound freight cost based on an assumed transportation cost of US$0.02 per tonne per
km.
As is customary in the industry, the cost of inbound shipment of copper concentrate was
assumed to be borne by the copper concentrate supplier.
Based on discussions with equipment and technology providers, Bechtel assumed annual
operating cost excluding labor, feedstock, and utilities of US$41.9 million (in 2011 US$),
escalated at the assumed general inflation rate of 2.5% per year. Major components of this
estimate include:
Consumables and spares US$37.4 million per year
Expenses incurred during annual shutdown for maintenance US$3.5 million per
year
In addition, the following major maintenance costs (in 2011 US$, escalated at 2.5% inflation
per year) were assumed:
Flash smelter furnace rebuild every 15 years, at an estimated cost of US$12 million
Flash converting furnace rebuild every 10 years, at an estimated cost of US$12
million
A one-time licensing fee of US$15 million (2011 US$, escalated at 2.5% inflation per year)
was assumed to be paid at commissioning of the plant. This amount was capitalized and
treated as a capital cost in the Economic Model.
11.8.2. RESULTS
According to the pro forma financial statements developed based on these assumptions, the
copper smelter was estimated to generate positive cash flows annually during its economic
life, before allocation of infrastructure charges was applied. However, the expected cash
flow generated is small compared with the estimated investment required, resulting in poor
project economics. Imposing annual infrastructure charges is expected to turn the project to
cash flow negative on an annual basis, causing the otherwise weak project economics to
deteriorate further (IRR could not be calculated because of poor economics).

11.9.

COAL GASIFICATION PLANT

11.9.1. ASSUMPTIONS
Section 11.4 documents the general assumptions that were applied universally to all
industrial plants, including the coal gasification plant. This section describes assumptions
that are specific to the coal gasification plant economic analysis.
As discussed in Section 11.3, the Coal Gasification Module of the Economic Model solved
for a syngas price (in 2011 US$, escalated at 2.5% inflation per year) that would enable the
project to achieve a required after-tax IRR of 10-12%, corresponding to an ROE of 15% if
project-financed. Syngas sold to the DRI/HBI Plant as reducing gas was assumed to be
priced the same as syngas sold to other industrial plants at SIP as fuel gas.
Revenue from sale of sulfuric acid produced as a by-product of the coal gasification plant
was calculated using forecasted prices in China adjusted for freight to the Sainshand
location, as discussed in Section 11.8.1.1.
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Ash produced by the plant was assumed to be marketed and sold (as road base material or
fill) at a price equivalent to the cost of its removal from the plant, without any impact on
project cash flows.
Non-labor O&M cost was assumed to be US$8.5 million (2011 US$) per year, escalated at
2.5% inflation.
11.9.2. RESULTS
Based on the assumptions, the Economic Model determined a Base Case syngas price of
US$9.6/MMBtu in 2011 US$ (US$8.4/MMBtu if allocation of infrastructure charges were
excluded). While it is difficult to benchmark this result, due to the lack of a comparable
commodity such as local source natural gas (a functional substitute for syngas), it is two to
three times the prevailing price of natural gas at the Henry Hub in Louisiana, U.S.9, but
competitive against the delivered prices of liquefied natural gas (LNG) to South Korea and
Japan (US$10-15/MMBtu), where LNG prices are typically indexed to crude oil prices.

11.10. CEMENT PLANT


11.10.1. ASSUMPTIONS
Sections 11.3 and 11.4 document the general assumptions that were applied universally to
all industrial plants, including the cement plant. Assumptions unique to the cement plant
economic analysis are described below.
11.10.1.1.

CEMENT PRICE

Unlike pricing assumptions for other industrial plants, which were developed with the
assistance of a market consultant, the price forecast of cement was developed by
comparing the current domestic price of US$134 per tonne (excluding VAT) provided by
NDIC with (i) the forecasted delivered price of alternative sources of cement from across the
border in China and (ii) the forecasted benchmark cement price in major international
market such as the U.S.
Bechtel understands that the price of cement in Mongolia is high in comparison with prices
in the U.S. or China because domestic production has yet to catch up with rising demand as
a result of rapid growth in economic and construction activity in recent years. According to
Bechtels research 10, the cement price across the border in Inner Mongolia, China has been
steady at about US$70/tonne over the last three years and, should Chinas domestic
demand slow down, Chinese imports could relieve price pressure in Mongolia. To develop a
reference price of imported cement from Inner Mongolia, Bechtel developed a forecast of
the delivered price of cement based on a 3.5% annual escalation in the China cement price,
a 2.5% annual escalation in transportation cost, and assuming the 5% customs duty on
imports to remain unchanged over the forecast horizon.
The Base Case cement price forecast assumed that the price would stay flat at the current
US$134/tonne level until 2022, when it is expected to be at parity with the estimated
delivered price of imported Chinese cement from Inner Mongolia. Thereafter, cement price
was assumed to increase at 2.5% annually.
As shown in Figure 11.4, Bechtel developed cement price sensitivities on either side of the
Base Case as follows:
9

Since early 2012, natural gas price at Henry Hub has been trading below US$3/MMBtu.
J.P. Morgan equity research report on cement industry in China titled Greater China Hard Hat
2012: Whats next after credit tightening and supplier discipline?, dated October 14, 2011.
10

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For the high case, assume cement price to increase at 2.5% annually from
US$134/tonne in 2012.
For the low case, assume that the price premium of Mongolian cement over the
delivered price of imported Chinese cement to decline linearly over 5 years between
2013 and 2017. After 2017, cement price was assumed to increase at 2.5%
annually.

Cement Price Forecast

US$/tonne
400

Delivered Chinese Cement

350

Sainshand Base Case


300

Sainshand High Case

250

Sainshand Low Case

200
150

100
50
0
2012

2017

2022

2027

2032

2037

2042

2047

Source: Bechtel estimates, based on 2011 Mongolia price data provided by NDIC and China price
data from J.P. Morgan research

Figure 11.4
11.10.1.2.

Cement Price Forecast

OPERATING COSTS

The basis for operating cost assumptions was the FL Smidth Feasibility Study Report 11
(FLS Report) that Bechtel relied upon as a source of information for this study. Due to the
proximity of the proposed location of the cement plant in the FLS Report (the Sugdukh
limestone deposit) to Sainshand (45 km to the southeast) and its comparable capacity (1
MPTA, same as the proposed cement plant in this study), Bechtel considered the operating
cost assumptions in the FLS Report applicable to the economic analysis. Consequently,
Bechtel applied the variable operating cost assumptions from the FLS Report in the
economic analysis of the cement plant, with one exception to maintain consistency of
assumptions across the economic analyses of all industrial plants at Sainshand, CRUs
forecast of thermal coal delivered prices at Sainshand was used.
Operating costs other than the costs of feedstock and utilities were estimated as follows:

11

Labor cost as described in Section 11.4.5.

Feasibility Study for a 1.0 MTPA Cement Plant, FL Smidth for Yalgun International Mongolia

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Routine O&M (excluding labor) was assumed to be US$2.5 million (2011 US$) per
year, escalated at 2.5% inflation annually.

Other variable operating cost was assumed to be US$10 per tonne of cement
produced.

Although the results of the FLS Report have been used for this Master Plan Study Report,
Bechtel has not independently confirmed the assumptions sourced from the FLS Report.
11.10.2. RESULTS
Based on these assumptions, the calculated unleveraged after-tax IRR of the cement plant
is 6.5% before allocation of annual infrastructure charges are included. According to the pro
forma financial statements developed for the cement plant, imposing infrastructure charges
as discussed in Section 11.3.3 is expected to turn the operating cash flows of the cement
plant from positive to negative on an annual basis, significantly hurting project economics.

11.11. POWER PLANT


Please refer to Sections 11.3 and 11.4 for general assumptions that were applied uniformly
to all industrial plants. Assumptions unique to the power plant economic analysis are
documented below.
11.11.1. ASSUMPTIONS
The power plant is designed to exclusively supply the electric load and steam needs of the
industrial plants, utilities, and the community in SIP and is not expected to import/export
power from/to the grid during normal operations. As proposed, it is also to receive thermal
energy in the form of steam from some of the industrial plants for use in the generation of
electricity.
To more accurately determine the economics of steam exchanges between the power plant
and other industrial plants at SIP and the impact of such steam flows on the economics of
power generation, the Power Plant Module of the Economic Model was set up and run to
determine the price of power generated by the power plant as well as prices of all steam
flows between the power plant and the industrial plants. These prices were set such that,
taking into account the revenues from power and steam sales, the amount paid for incoming
steam and syngas, and other cash flows, the power plant would achieve its assumed aftertax IRR of 10-12% and ROE of 15% (if project-financed).
An iterative computation process was required to solve for the prices of power and steam.
Steps 1 through 3, described below, were used to establish the price of power and a transfer
price of steam based on its value as a source of thermal energy for power generation,
solving for one variable while holding other variables constant during each step. Step 4
completes the feedback loop between the Power Plant Module and other related modules
allowing the power and steam prices determined in the previous steps to work their way
through the Coal Gasification Plant and Water Utilities Modules, then update syngas and
water prices in the Power Plant Module.

Step 1 The Economic Model solved for a price of power to achieve the required
return in a hypothetical scenario assuming no steam input from the industrial plants
and the price of outgoing steam to be set at zero. (In this step, the analysis assumed
the capital cost of a hypothetical plant with a larger boiler than is proposed for SIP to
supply the load at SIP using only syngas as fuel). The initial syngas price and water
price used were estimates that would be improved through subsequent iterative
calculations as described in Step 4 below.

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Syngas Price
Water Price
(from Utilities)

Power Price
(to all plants)

Power Plant
(syngas, no
steam)

Step 2 The Model was re-run with the incoming steam flows to the power plant
included and estimated capital cost developed in Section 10 restored, but with the
price of outgoing steam set at zero, to solve for a price that the Power Plant would
be willing to pay for the incoming steam (in US$ per MMBtu of heat content) in lieu of
purchasing syngas for power generation, while charging the same price for power
determined in the first step. Different streams of steam flow to the power plant (e.g.,
100 bar steam from Coke Plant, 60 bar and 15 bar steam from Copper Smelter)
were assigned different prices based on their heat content relative to one another.

Power Plant
(syngas +
steam in)

Coal
Gasification
Plant
Power Price
Oxygen Price
Water Price
Nitrogen Price
(from Utilities)
(from ASU)

Steam Price

Coal
Gasification
Plant

Step 3 The steam price per MMBtu for incoming steam calculated from Step 2 was
used to replace the outgoing steam price, which had been set at zero in previous
steps. With the additional revenue from the steam sale properly reflected in the
Economic Model, the power plants after-tax IRR and ROE would be higher than the
required 10-12% and 15%, respectively. Therefore, the power price was recalculated
to restore the required 10-12% IRR and 15% ROE.

Power Plant
(syngas + steam
in & out)

Coal
Gasification
Plant

Steam Price
(to Industrial
Plants)

Step 4 The power price and steam prices determined from the previous step were
used as inputs in the Coal Gasification Plant Module and Utility Modules of the
Economic Model to determine syngas and utility prices as described in Sections 11.9
and 11.12. If the prices of syngas and water so obtained were significantly different
from the prices assumed in Step 1, Steps 1 through 4 were then repeated until the
results converged.

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Coal
Gasification
Plant

Power Plant
(syngas + steam
in & out)

An escalation rate of 2.5%, based on the long-term general inflation rate in developed
economies, was assumed for power and various steam prices.
11.11.2. RESULTS
The following table shows the first-year prices of power and steam (in 2011 US$) that are
expected to be required to enable the power plant owner to achieve its required after-tax
IRR (and ROE, if project-financed).
Commodity at SIP

Producer(s)

Purchaser(s)

Estimated Price (2011 US$)


Before Allocation*

After Allocation*

Electric Power

Power Plant

All SIP Plants

$183/MWh

$202/MWh

HP Steam (535C 100 bar)

Coke Plant

Power Plant

$41/tonne

$45/tonne

HP Steam (316C 48 bar)

Coal Gasification
Plant

Power Plant

$35/tonne

$38/tonne

HP Steam (60 bar)

Copper Smelter

Power Plant

$35/tonne

$38/tonne

MP Steam (15 bar)

Copper Smelter,
Power Plant

DRI/HBI Plant

$36/tonne

$39/tonne

Power Plant

Copper Smelter

$31/tonne

$34/tonne

LP Steam (5 bar)

* Allocation of annual charges for infrastructure as described in Section 11.12.3

Table 11.10: SIP Base Case Power Plant Economic Analysis Results
It should be noted that the power price estimated by the analysis is significantly higher than
the grid price assumed for economic analysis of the alternate sites (115 MNT/kWh in 2013,
or approximately US$85/MWh in 2011 US$). Primary reasons for this high price include: (i)
the cost of syngas, which is estimated to cost significantly more on a US$/MMBtu basis than
coal; (ii) additional capital cost required to ensure reliability of power supply at SIP without
grid back-up; and (iii) the cost of infrastructure at SIP, which has been shown in economic
analyses of other industrial plants to be a significant economic burden.
Based on the power plant economic analysis methodology described above, the steam price
estimates are linked to the estimated power price and syngas. Hence the estimated steam
prices in the results above should reflect the high estimated price of power and the price of
syngas.

11.12. UTILITIES AND COMMON FACILITIES


The general approach and assumptions described in Sections 11.3 and 11.4 apply to the
economic analyses of utilities and common facilities at SIP. Assumptions specific to each
facility are documented below.
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11.12.1. AIR SEPARATION UNIT
11.12.1.1.

ASSUMPTIONS

To determine the prices of oxygen and nitrogen, the ASU Module of the Economic Model
assumed a 2:1 ratio between the prices of oxygen and nitrogen, based on historical market
prices of the two commodities.
11.12.1.2.

RESULTS

The analysis estimated the prices of oxygen and nitrogen at SIP would be US$86/tonne and
US$43/tonne respectively, after allocation of annual infrastructure charges as described in
Section 11.3.3. Without allocation of infrastructure charges, the prices of oxygen and
nitrogen would be US$79/tonne and US$39/tonne (2011 US$) respectively, to enable the
owner of the ASU to achieve a 10-12% after-tax IRR, corresponding to about 15% after-tax
ROE if project-financed.
11.12.2. WATER UTILITIES
11.12.2.1.

ASSUMPTIONS

The Economic Model assumed a raw water cost of 150 MNT/tonne the current cost of raw
water used by the mining industry, according to NDIC. While raw water rates are regulated,
the Economic Model assumed a 2.5% escalation rate per year (long-term average general
inflation rate in developed economies) over the life of the project.
The Economic Model solved for an industrial water price (in US$/tonne) that is expected to
recover the capital cost and operating cost of all water related facilities, including raw water
treatment and waste water treatment. At a later stage of the analysis (not part of this Master
Plan Study), the analysis may be refined to develop separate charges for raw water and
waste water treatment. Such refinement may enable a more precise evaluation of the
economics of each plant at SIP.
Non-labor operating cost was estimated at 1% of capital cost, based on Bechtels
experience with studies of similar utilities internationally.
11.12.2.2.

RESULTS

The estimated water price was US$3.5/tonne after allocation of annual infrastructure
charges as described in Section 11.3.3. Without allocation of infrastructure charges, the
water price would be US$2.5/tonne.
11.12.3. OTHER INFRASTRUCTURE AT SIP
11.12.3.1.

ASSUMPTIONS

Based on its international experience with similar studies, Bechtel estimated annual nonlabor operating and maintenance cost for the transportation infrastructure at SIP at US$12.6
million (2011 US$). This includes general maintenance for road and railway, parts and
contracted services for locomotives, consumables and miscellaneous expenses, as well as
annual amounts set aside to cover highway rehabilitation every 10 years and rail
replacement every 20 years.
Non-labor operating costs of other infrastructure were estimated at 1% of capital cost, based
on Bechtels experience with studies of similar facilities internationally.

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11.12.3.2.

RESULTS

Based on the assumptions described in Section 11.12.3.1 and Section 11.3.3, total annual
charges (in 2011 US$) were estimated as follows:
Material Handling Facilities

$ 97 million

Inside the Park Rail Infrastructure

$ 51 million

Roads Inside the Park

$ 8 million

Interconnecting Piping

$ 103 million

Telecommunications

$ 1 million

Site Infrastructure

$ 126 million

Total Annual Charges

$ 386 million

Large portions of these annual charges are capital charges annual charges that are
expected to enable the GoM, as the proposed owner of the infrastructure, to recover the
capital investment plus a 6% after-tax return on investment over its 30-year assumed
economic life. Applying the assumed allocation bases in Table 11.4, annual charges were
allocated as follows (in 2011 US$):
Coke Plant

$ 56 million

Iron Ore Pelletizing Plant

$ 54 million

DRI/HBI Plant

$ 30 million

Copper Smelter

$ 72 million

Coal Gasification Plant

$ 39 million

Cement Plant

$ 51 million

Power Plant

$ 26 million

Water Utilities

$ 18 million

Community Facilities

$ 40 million

Total Annual Charges

$ 386 million

11.13. ALTERNATE SITES


11.13.1. IRON PLANTS AT DARKHAN
11.13.1.1.

ASSUMPTIONS

The general approach and assumptions used in the economic analyses of the iron ore
pelletizing plant and DRI/HBI plant at Darkhan are as described in Sections 11.3, 11.4, 11.6
and 11.7. Primary differences in assumptions between these analyses and the economic
analyses for the same plants at Sainshand include:

Capital cost (as described in Section 10.4)

Prices of various feedstock (iron ore, dolomite, bentonite, and lime) to the iron ore
pelletizing plant and the DRI/HBI plant (adjusted for freight costs)

Ex-factory price of iron ore pellets and DRI/HBI (adjusted for freight costs)
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CRUs forecast of sulfur price was used in lieu of the sulfuric acid price, because the
DRI/HBI plant at Darkhan is designed to produce sulfur rather than sulfuric acid

The power price at Darkhan was assumed to be the grid price at Mongolias Central
Regional Energy System (CES), which is scheduled to increase to 115 MNT/kWh at the end
of 2013. While the source of coal for the coal gasification plant at Darkhan was assumed to
be the Sharyngol mine, the price of coal was assumed to be the same on a US$ per MMBtu
(cost per unit heating value) basis as the price of coal from Tavan Tolgoi assumed for the
coal gasification plant at Sainshand. As discussed in Section 2.6.3, coal from the Sharyngol
mine was assumed to be compatible in quality with the range of thermal coal from Tavan
Tolgoi; the prices of thermal coal from the two sources should thus be similar.
While it would be preferable to evaluate the combined economics of the iron ore pelletizing
plant and DRI/HBI plant at Darkhan as an integrated unit, due to significant differences in
expected economics between the iron ore pelletizing plant and DRI/HBI plant at SIP, we
have allocated the capital costs and operating costs of each common facility at the Darkhan
site between the iron ore pelletizing plant and the DRI/HBI plant to enable an indicative
comparison of project economics between the two. For example:

Capital and variable operating costs of the coal gasification plant were allocated 85%
to the DRI/HBI plant and 15% to the iron ore pelletizing plant, based on their
respective expected syngas consumption rates.

Raw water cost was allocated based on expected industrial water usage of the two
plants.

Other infrastructure costs were allocated 59% to the DRI/HBI plant and 41% to the
iron ore pelletizing plant, based on the ratio of capital costs between the two plants.

It should be noted that the economic analysis results obtained as a result of this allocation
are indicative of relative economic performance only.
11.13.1.2.

RESULTS

The economics of the iron plants at Darkhan are not expected to differ materially from those
at SIP. The iron ore pelletizing plant is expected to have a low unleveraged after-tax IRR
(below the assumed cost of debt), while the DRI/HBI plant at Darkhan is not expected to
break even from year to year.
11.13.2. COPPER SMELTER AT OYU TOLGOI
11.13.2.1.

ASSUMPTIONS

The general approach and assumptions used in the economic analysis of the copper
smelter at Oyu Tolgoi are as described in Sections 11.3, 11.4 and 11.8. Primary differences
in assumptions between this analysis and that for the copper smelter at Sainshand include:

Capital cost (as described in Section 10.4)

Ex-factory price of sulfuric acid (adjusted for freight costs)

Copper cathode outbound transportation cost (adjusted for Oyu Tolgoi location)

Power price at Oyu Tolgoi was assumed to be the grid price in the CES, which is
scheduled to increase to 115 MNT/kWh at the end of 2013

11.13.2.2.

RESULTS

The economics of the copper smelter at Oyu Tolgoi are not expected to differ materially from
that at SIP. The calculated unleveraged after-tax IRR of 0.3% is below the assumed cost of
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debt and below what international investors typically expect from an investment of similar
risk profile.
11.13.3. COKE PLANT AT TAVAN TOLGOI
11.13.3.1.

ASSUMPTIONS

The general approach and assumptions used in the economic analysis of the coke plant at
Tavan Tolgoi are as described in Sections 11.3, 11.4 and 11.5. Primary differences in
assumptions between this analysis and that for the coke plant at Sainshand include:

Capital cost (as described in Section 10.4)

Delivered price of coking coal and ex-factory price of metallurgical coke (adjusted for
freight costs)

Power sale to the grid (as described below)

As proposed, the coke plant at Tavan Tolgoi is designed to generate more power from
waste heat than its estimated internal load, allowing it to sell approximately 183 MW of
power to the grid at Tavan Tolgoi. According to NDIC, Tavan Tolgoi will be connected to
Mongolias CES by 2015. Therefore, the economic analysis of the coke plant at this location
included a revenue stream from sale of power at an assumed price equal to the average
cost of electric generation (including capital cost, fuel cost and other operating expenses,
the cost of debt financing and a reasonable return on investment) in the CES.
According to NDIC, generation cost currently accounts for approximately 47.77 MNT/kWh of
the 79.80 MNT/kWh electricity tariff to large industrial users in the CES. The Mongolian
Parliament has approved a tariff increase to 115 MNT/kWh in the CES by the end of 2013.
The economic analysis assumed that the price of power sold to the grid would be
US$55/MWh in 2013, estimated by assuming the generation component of the tariff would
remain unchanged as a percentage of the total electricity tariff.
11.13.3.2.

RESULTS

The calculated unleveraged after-tax IRR for the coke plant at Tavan Tolgoi, based on the
assumptions described above, is 9.0%. The lower unleveraged after-tax IRR at Tavan
Tolgoi compared with the same plant at SIP may be attributed to the lower power sale
revenue at Tavan Tolgoi the assumed grid price is lower than the power price estimated at
SIP12 which is expected to reduce the profitability of the coke plant, a net producer of
electricity.

11.14. OBSERVATIONS FROM BASE CASE ECONOMIC ANALYSIS


Table 11.11 summarizes the Base Case economic analysis results for SIP and the alternate
sites. To illustrate the impact of infrastructure charges on project economics, unleveraged
after-tax IRRs are shown before and after allocation of infrastructure charges to each
industrial plant.

12

In the Base Case, the coke plant at SIP is assumed to generate revenue from sale of steam to the
power plant at SIP. As described in Section 11.11, the price of steam at SIP is calculated in the
Power Plant Module based on the price of power.

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set forth in the Important Notice.

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Industrial Plant

Base Case
Sainshand
(Before
Allocation*)

Base Case
Sainshand
(After
Allocation*)

Base Case
Alternate Sites

Coke Plant

15.9%

15.2%

9.0%

Cement Plant

6.5%

N/A

N/A

Iron Ore Pelletizing Plant

0.7%

N/A

1.0%

DRI/HBI Plant

N/A

N/A

N/A

Copper Smelter

N/A

N/A

0.3%

Coal Gasification Plant

10.5%**

10.5%**

N/A

Power Plant

10.4%**

10.4%**

N/A

* Allocation of annual charges for infrastructure e.g., materials handling, roads and rail, telecommunications,
interconnecting piping, site preparation
** Based on the generic financing and tax assumptions, after-tax unleveraged IRR of 10.4%-10.5% is
associated with an after-tax leveraged return on equity of 15%
N/A Not applicable; either because the plant is not in analysis scope or because after-tax unleveraged IRR
cannot be calculated due to poor project economics

Table 11.11: Base Case Results Summary


In reviewing the results and pro forma financials of the Base Case economic analysis,
Bechtel observed and discussed with NDIC the following major contributing factors to
project economics:

The high cost of power at SIP is expected to have a significant negative impact on
the economic performance of all industrial plants and utilities, except the coke plant,
which is designed to be a net producer of energy in the form of steam and should
therefore benefit from high prices of power and steam at SIP. This high cost of
power is a result of the equipment redundancy required to power the plant in the
event of steam shortage from the industrial plants.

The capital and operating costs of infrastructure are significant, both at SIP and at
the alternate sites. At SIP, these contribute to high annual charges for infrastructure,
especially for projects with otherwise marginal economics. At the alternate sites, the
cost of infrastructure is expected to reduce economic returns significantly, as
evidenced by comparing the expected unleveraged after-tax IRRs of industrial plants
at the alternate sites with the expected unleveraged after-tax IRRs, before allocation
of infrastructure charges, of their counterparts at SIP.

Low operating income and high capital costs contribute to the low expected
unleveraged after-tax IRR of the copper smelter.

While a number of factors may contribute to the poor expected economic


performance of the DRI/HBI plant, the price of syngas produced by the coal
gasification plant is the primary reason why the project is not expected to break even
at the estimated price, the syngas cost is estimated to exceed the difference
between annual DRI/HBI sales revenues and iron ore pellet costs.

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

11-41

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11.15. POTENTIAL ENHANCEMENTS TO PROJECT ECONOMICS


In view of the low expected unleveraged and leveraged returns estimated for some of the
industrial plants at SIP and the alternate sites that resulted from using the Base Case
assumptions, NDIC directed Bechtel to evaluate the impact of potential changes to
Economic Model assumptions on the economic feasibility of SIP. These changes included:

Supplying power from the grid, instead of constructing a dedicated power plant to
supply the electric load within SIP as proposed in Task 2

GoM ownership and financing of SIP infrastructure

Other changes to the design bases of industrial plants at SIP that are likely to
improve project economics, such as increasing plant capacity to take advantage of
economies of scale in construction and production

Potential government incentives to encourage private investment in SIP

Per NDICs request, Bechtel conducted economic analyses for a Revised Base Case for
the industrial plants at SIP, as well as additional scenarios incorporating various options
(including changes in design bases and government incentives) aimed at enhancing the
economic viability of the industrial plants at SIP.
11.15.1. REVISED BASE CASE SIP WITH GRID POWER
11.15.1.1.

ASSUMPTIONS

In the Revised Base Case for SIP, the coke plant was assumed to be equipped with a power
block to generate net output of 187 MW from waste heat to supply power to other plants in
SIP. Other plants at SIP were estimated to require an electric load of 250 MW, resulting in a
net SIP electrical load of 63 MW that is proposed to be supplied by the grid at 115 MNT/kWh
(2013 price; assume 2.5% escalation rate per year). Discussions among Bechtel, NDIC and
the SIP working group confirmed that this assumption is reasonable in light of the GoMs
latest plans to build coal-fired plants at Tavan Tolgoi and/or another site close to Sainshand.
Furthermore, all common facilities at SIP were assumed to be owned and financed by the
GoM, and no infrastructure charges would be imposed on the plants at SIP.
Table 11.12 shows the material balance at SIP in the Revised Base Case.

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set forth in the Important Notice.

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Final Report

Unit

Iron Ore
Direct
Coal
Copper
Pelletizing Reduction Iron Gasification Smelter
3.0 trains
1,312
1,000
4,459
5
15
82
23
45
-

RAW MATERIALS
Thermal Coal
Coking Coal
Copper Concentrate
Iron Ore
Limestone
Lime
Silica
Gypsum
Bentonite
Dolomite
Basalt
Steel Slag
Clay

kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA

PRODUCTS
Direct Reduction Iron
Copper
Metallurgic Coke
Cement
Sulfuric Acid
Gold
Silver

kTPA
kTPA
kTPA
kTPA
kTPA
TPA
TPA

(2,500)
-

INTERMEDIATE PRODUCTS
Iron Ore Pellets
Reducing Gas
Hydrogen
Nitrogen
Oxygen
Acid Gas (as Sulfur)

kTPA
kTPA
kTPA
kTPA
kTPA
kTPA

(4,500)
-

3,625
1,109
160
50
-

(1,109)
1
981
(8.3)

2
333
-

WASTE PRODUCTS
Ash
Gypsum (FGD)
Slag
Waste Water

kTPA
kTPA
kTPA
kTPA

(25)

(25)

(99)
(924)

(571)
(39)

UTILITIES
Raw Water
BFW/Condensate
Industrial Water
Potable Water
Sanitary Sewer
Coke HP Steam (535C 100 bar)
Gas HP Steam (316C 48 bar)
Copper HP Steam (60 bar)
MP Steam (15 bar)
LP Steam (5 bar)
Electrical Power
Fuel Gas
Fuel Oil

kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
kTPA
MW
MW
kTPA

700
9.0
(7.2)
22.5
144
-

3,025
3.8
(3.0)
1,346

3,800
4.3
(3.4)

3,097
19.3
(15.5)

(1,346)
36.6
(144)
-

26.6
5.9
14

46.9
-

(300)
(925)
(10)
(64)

Coke
Oven

Cement Sulfur Unit

2,900
22
-

127
1,310
50
250
16
40

(2,000)
-

Bulk
Handling

Air
Separation

Raw
Water

Waste Community
Water
Facilities

Net

1,439
2,900
1,000
4,459
1,310
42
82
50
23
45
250
16
40

(1,000)
-

(26)
-

(2,500)
(300)
(2,000)
(1,000)
(951)
(10)
(64)

8.3

(163)
(1,364)
-

(875)
-

(44)
(194)

(25)

(4,298)

5,372

(99)
(44)
(571)
(158)

1,316
7.0
(5.7)
(187)
-

198
6.2
(5.0)
22.0
-

5.2
3.0
-

4.1
(3.3)
10
-

1.0
(0.8)
74
-

13,224
(7,828)
(1,097)
(1.4)
3.0
-

(5,197)
1.7
1,242
3.0
-

859
1,036
(1,194)
3.0
-

13,224
(25)
(4.1)
3.2
(0)
63.2
6.3
14

Table 11.12: Material Balance Revised Base Case


Subject to the same assumptions, clarifications, and exclusions set out in Section 10 for the
Base Case and in the remainder of this Report, the estimated total capital cost (including
costs of FEED and pre-FEED work) of the facilities within the boundaries of SIP in the
Revised Base Case is US$ 8.6 billion. Table 11.13 summarizes the estimated cost
elements for each plant.

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set forth in the Important Notice.

11-43

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Final Report
SIP Revised Base Case Capital Estimate Summary (part 1 of 2)
Estimated Capital Cost in 2011 US$ Thousands
Estimated Capital Cost Element
Major Equipment
Bulk Materials
Subcontracts
Construction
Professional Services
Other (Freight, Insurance, etc.)
Subtotal
Contractor Fee
Owner's Cost
Contingency
Total Cost
Direct Construction Hours

Coke Plant

Copper Plant

Cement Plant

Iron Ore Pellets

371,825
431,763
591,095
203,517
178,029

323,920
280,170
486,640
167,055
134,006

31,900
55,926
102,944
35,445
19,746

66,530
57,980
107,328
36,952
27,702

1,776,229

1,391,791

245,961

296,492

142,099
1,541
345,576

111,344
1,541
270,842

19,677
1,335
48,055

23,719
1,027
57,823

2,265,445

1,775,517

315,029

379,061

18,844,060

15,514,013

3,281,816

3,421,601

SIP Revised Base Case Capital Estimate Summary (part 2 of 2)


Estimated Capital Cost in 2011 US$ Thousands
Estimated Capital Cost Element
Major Equipment
Bulk Materials
Subcontracts
Construction
Professional Services
Other (Freight, Insurance, etc.)

DRI/HBI Plant

Coal Gasification Common Facilities

Total SIP

109,048
111,447
135,407
46,621
48,647

125,283
62,654
54,491
84,301
48,523
42,709

531,280
390,390
108,247
802,685
106,961
207,206

1,559,787
1,390,330
162,738
2,310,401
645,073
658,046

Subtotal

451,170

417,962

2,146,770

6,726,375

Contractor Fee
Owner's Cost
Contingency

36,094
1,027
87,892

33,437
26,236
85,974

171,742
7,731
418,725

538,111
40,438
1,314,887

576,184

563,609

2,744,967

8,619,812

4,316,770

2,687,490

25,437,056

73,502,806

Total Cost
Direct Construction Hours

Table 11.13: Revised Base Case Capital Cost Estimates


Other assumptions were unchanged from the Base Case.
To enable a like-for-like comparison with the industrial plants at SIP in the Revised Base
Case, Bechtel re-ran the economic analyses for the alternate sites with the capital costs of
the supporting infrastructure and utilities excluded. Because the capital costs of the
industrial plants were not expected to differ between SIP and the alternate sites, and
because both SIP and the alternate sites were assumed to be supplied with power from the
grid, the only significant difference in assumptions between SIP and the alternate sites was
commodity prices adjusted for their respective locations.
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set forth in the Important Notice.

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11.15.1.2.

RESULTS

The assumption changes in the Revised Base Case led to an improvement in project
economics across SIP, except the coke plant, which suffered a decrease in unleveraged
after-tax IRR as a result of lower power sale revenue. (As a net producer of power, the coke
plant economics generally deteriorate as the power price decreases.) Despite the decrease
in unleveraged after-tax IRR, the coke plant remained economically feasible, in Bechtels
view, given this stage of the analysis. Meanwhile, the unleveraged after-tax IRR of the
cement plant at SIP improved to a level comparable with the coke plants.
With the capital costs of supporting infrastructure and utilities excluded, project economics
at the alternate sites are not expected to differ significantly from that at SIP, as shown in
Table 11.14 below.

Industrial Plant

Revised Base Case


Sainshand
(Grid Power; No
Infrastructure Costs)

Revised Base Case


Alternate Sites
(No Infrastructure
Costs**)

Coke Plant

10.4%

9.8%

Cement Plant

10.8%

N/A

Iron Ore Pelletizing Plant

6.1%

6.7%

N/A

N/A

1.8%

N/A

10.5%*

N/A

DRI/HBI Plant
Copper Smelter

Coal Gasification Plant

* Based on the generic financing and tax assumptions, after-tax unleveraged IRR of 10.5% is associated
with an after-tax return on equity of 15%
** Capital costs were adjusted to eliminate capital cost of infrastructure, which was assumed to be funded
by the GoM
N/A Not applicable; either because the plant is not in analysis scope or because after-tax unleveraged
IRR cannot be calculated due to poor project economics

Table 11.14: Revised Base Case Unleveraged after-tax IRRs Sainshand vs. Alternate
Sites
Table 11.15 compares the expected unleveraged after-tax IRRs of the industrial plants at
SIP in the Revised Base Case against the results in the original Base Case.

Use of this Report is subject to certain restrictions


set forth in the Important Notice.

11-45

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Industrial Plant

Base Case
Sainshand
(Before Allocation*)

Revised Base Case


Sainshand
(Grid Power; No
Infrastructure Costs)

Coke Plant

15.9%

10.4%

Cement Plant

6.5%

10.8%

Iron Ore Pelletizing Plant

0.7%

6.1%

DRI/HBI Plant

N/A

N/A

Copper Smelter

N/A

1.8%

Coal Gasification Plant

10.5%**

10.5%**

Power Plant

10.4%**

N/A

* Allocation of annual charges for infrastructure e.g., materials handling, roads and rail, telecommunications,
interconnecting piping, site preparation
** Based on the generic financing and tax assumptions, after-tax unleveraged IRR of 10.4%-10.5% is associated
with an after-tax leveraged return on equity of 15%
N/A Not applicable; either because the plant is not in analysis scope or because after-tax unleveraged IRR
cannot be calculated due to poor project economics

Table 11.15: Revised Base Case vs. Base Case


11.15.2. OTHER SCENARIOS TO ENHANCE ECONOMIC FEASIBILITY
The Revised Base Case represented an improvement in overall SIP economics over the
Base Case, although the expected unleveraged after-tax IRRs of the iron plants and the
copper smelter were still below the range that might be considered economically feasible.
To identify options that may further enhance the economics of the copper smelter, the iron
ore pelletizing plant, and the DRI/HBI plant, NDIC requested economic analyses of
additional scenarios involving changes to design bases of the plants, as well as Mongolian
government incentives.
11.15.2.1.

CHANGES TO DESIGN BASES OF INDUSTRIAL PLANTS

To take advantage of greater economies of scale in construction and production, N