Sie sind auf Seite 1von 41

BGR Bundesanstalt fur

Geowissenschaften
und Rohstoffe
A contribution to the Integrated Mineral Resources Initiative (IMRI)

GOLD IN MONGOLIA
Overview of value chain
from mine to fine gold jewelry

Technical Report
prepared by Bundesanstalt fur Geowissenschaften und Rohstoffe (BGR)

and Mineral Resources Agency of Mongolia (MRAM)

Funded by
Bundesministerium fur wirtschaftliche Zusammenarbeit und Entwicklung
(Federal Ministry for Economic Cooperation and Development)

Bundesministerium fiir
wirtschaftliche Zusammenarbeit
und Entwicklung
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

The report aims to provide in fo rm a tio n and data fo r the production


stages o f the va lu e -a d d e d chain from the m ining o f gold to the
fa b rication and retailing o f g old jewelry. It addresses open questions
and describes opportunities and shortcom ings in the value chain from
raw g old to jewelry products, and therefore, it is a useful inform ation
source fo r decision makers and entrepreneurs in the g o ld jewelry sector.

BMZ (Bundesministerium fu r w irtschaftliche Z usam m enarbeit und


Entw icklung/Federal M inistry fo r E conom ic C o o p e ra tio n and
Developm ent) strives to underpin dem ocratization and poverty
reduction by creating a sound m ineral resources based econom ic
developm ent o f M o n g o lia . An extension o f the value chain o f g old to
integrate local jewelry h andicraft workshops and the retailing o f jewelry
is in line with this concept because it contributes to the diversification of
the M o n g o lia n sm a ll-a n d -m e d iu m enterprises landscape.

C o llectio n and processing o f data in M o n g o lia started in A pril 2 0 1 2 .


O fficia l statistics, data present in the M ineral Resources A uthority of
M o n g o lia , interviews with num erous experts in this field and the study of
published com pany reports were the main sources o f data. Soon after
com m encing the data co lle ctio n , it becam e a p p a re n t that much o f the
raw m aterial supply, m anufacturing and retailing o f g o ld jewelry takes
place in an inform al "shadow e co n o m y" and that a discrepancy exists
between official statistics and the real w orld picture. As a result, some of
the data were contradicting o r inconsistent and, therefore efforts were
put in to reconcile the conflicting in form ation. This was especially the
case when inform ation on the pro d u ctio n and trade o f the go ld produced
in the inform al sm all-scale mines was collected. Inconsistencies in the
m aterial flows, missing o r contradictory info rm a tio n was checked with
com p arable data published elsewhere and reviewed in all conscience
and the authors believe th a t the data presented portrays the reality as
closely as possible.

This technical report is a co n trib u tio n to the Integrated M ineral


Resources Initiative financed by BMZ. The Integrated M ineral Resources
Initiative comprises three operative m odules w hich are a m odule
carried o u t by G IZ together with N D IC , a second m odule in w hich PTB
and M ASM w ork together, and a third m odule w hich is im plem ented by
BGR togethe r with MRAM. This report has been prepared by the BGR/
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

M RAM m odule with the aim to provide basic data on a va ila b ility and
retailing o f the raw m aterial g o ld and its fa b ric a tio n opportunities in the
fine jewelry sector.

Decisions on the extension o f the value chain o f go ld in M o n g o lia will


require a d d itio n a l specialized investigations. The data and info rm a tio n
contained in this report w ill contribute to fo llo w -u p studies.
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

Glossary o f technical terms and abbreviations 5

1. Introduction 9

W hat is gold? 9
W hat is a value chain? 9
2. G eneral production steps and tax regime of a value chain 10

3. M ining and beneficiation 12

3 .1 . Status o f gold m ining operations 12


3 .2 . Types o f gold occurrences in M o n g o lia 13
3 .3 . G o ld m ining: production statistics, em ploym ent,
mining costs 14
3 .4 . Beneficiation 19
4. Registration of production, trade and retail channels of gold 20

4 .1 . State Assaying Agency (MASM Assay Department) 20


4 .2 . The role o f the Bank o f M o n g o lia (BoM)
in the gold market 20
4 .3 . Formal and inform al channels o f trading gold
in the domestic market 22
4 .4 . G o ld export and im port 24
4 .5 . Determ ination o f contem porary gold price 24
5. Refining 26

6. Fabrication and end uses 27

6.1. A vailability o f gold fo r local jewelry fabrication 27


6 .2 . Coins, bars fo r safe-haven investment 27
6 .3 . Electric and electronic industries 28
6 .4 . Dentistry, medical uses 28
6 .5 . M edals and im itation coins (nonm onetary coins) 28
6.6. Jewelry fabrication and trade 29
7. Some thoughts on the form ation o f a gem and
fine gold jewelry cluster in M o n g o lia 35

8. C onclusion and Recommendations 36


GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

A llu vial: the product o f sedim entary processes in rivers, resulting in the
deposition o f alluvium (soil deposited by a river).

A SM : Artisanal S m all-scale M ining

B eneficiation: beneficiation refers to the various physical and chem ical


processes and treatm ents o f a prim ary ore by the rem oval o f im purities
from the g old to prepare it fo r smelting)

BGR: Bundesanstalt fu r Geowissenschaften und Rohstoffe (Federal


Institute fo r Geosciences and N atural Resources, Hannover, Germ any)

BMZ: Bundesministerium fu r w irtschaftliche Z usam m enarbeit und


Entwicklung (The Federal M inistry fo r Econom ic C o o p e ra tio n and
D evelopm ent, G erm any)

BoM: Bank o f M o n g o lia (M o n g o lia n C entral Bank)

C o m m in u tio n : C o m m in u tio n is the crushing and g rinding o f ore to


m ake g old (or other minerals) a va ila b le fo r treatm ent

D o re (also: dore): Im pure alloy o f g o ld , often produced at a mine,


usually consisting o f 8 5 - 9 0 % g old on average, to be refined to
a higher purity. The o ther 1 0 - 15 % is mostly metals like silver and
copper.

EDGAR: (Electronic data gathering, Analysis and Retrieval system o f


the US Securities and Exchange C om m ission (SEC)

G IZ : Deutsche G esellschaft fu r Internationale Zusam m enarbeit (GIZ)


G m bH

G o ld Bullion: It is a refined and stam ped w eight o f go ld . G o ld b ullion


is traded in com m odity markets in the form o f ingots, bars, o r coins.
U nlike money and jewelry, g old b u llion is valued by its purity and its
mass and it has no artistic value. G o ld bullion must be a t least 9 9 .5 %
pure.

C u t-o ff g ra d e (surface m ines): The m inim um grade at w hich a unit


o f ore w ill be mined to achieve the desired e co n o m ic outcom e

Fine gold: Pure g old o f at least 9 9 5 parts per 1 ,0 0 0


GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

Fineness: System o f denoting the purity o f p latinum , g o ld and silver


alloys by parts per thousand o f pure m etal by mass in the alloy. For
exam ple, an a llo y co n ta in in g 75% g old is denoted as " 7 5 0 " . M any
European countries use decim al h a llm ark stamps (i.e. " 5 8 5 " , " 7 5 0 " ,
etc.) rather than " 1 4 K ", "1 8 K ", etc., w hich is used in the United
K ingdom and United States.

G ra d e : The quantity o f g o ld contained w ithin a unit w eight o f g o ld -


bearing m aterial, generally expressed in ounces per short ton o f ore
(oz/t), o r gram s per m etric tonne (g/t).

Good delivery bar: G old bar which meets the London good delivery status

g /t: G ram s per tone

in fo rm a l sector (or in fo rm a l econom y): a broad term that refers to


that part o f an econom y that is not taxed, m onitored by any form o f
governm ent, o r included in any gross n a tional product (GNP), unlike
the fo rm a l economy. O th e r terms used to refer to the inform al sector
include Black M arket, the Shadow Economy o r U nderground Economy.
By th e ir nature, in fo rm a l e co n o m ic activities escape regulation but that
does not necessarily im ply that they are sensu strictu crim inal.

JORC: Australasian C o d e fo r Reporting Exploration Results, M ineral


Resources and O re Reserves

Karat: (symbol K): A karat is the m easure o f the actual a m o u n t of


pure g old present. Pure g old is known as 2 4 karat go ld . If go ld jewelry
is then taken as consisting o f 24 parts, jewelry o f 1 8 karat g old w ould
m ean that 1 8 parts are pure g o ld , and the rem aining six parts are other
metals. Particularly prevalent in India and the M id d le East (and also in
M o n g o lia ) is jewelry o f 2 2 and 21 karat w hich is m ade o f 91% and
87% pure g o ld respectively. N o t to be confused with Carats w hich are
a unit o f m easurem ent o f the w eight o f dia m o n d s and o ther gemstones
(1 ca ra t equals 0 .2 grams)

kg: Kilogram s

London gold fixing o r gold fix: it the procedure by w hich the price
o f g o ld is determ ined twice each business day in London by the
five members o f The London G o ld M arket Fixing Ltd. The G o ld Fix
establishes the price a t w hich the gross a m o u n t o f g old on buy orders
matches the gross a m o u n t o f g old on sell. The g old price set at the
London G o ld Fix is used by large g old owners, including refineries and
go ld m ining com panies, C entral Banks, to value th e ir inventories.
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

London good d elivery status: A w arded by the London Bullion M arket


Association to refiners th a t meet certain criteria with respect to their
refining standards. This status gives refiners international recognition
fo r the quality and purity o f th e ir products

LBMA: London Bullion M a rke t Association

M in e ra l resource: A m ineral resource is a concentration o r occurrence


o f m aterial o f e co n o m ic interest in o r on the earth's crust in such fo rm ,
quality and quantity th a t there are reasonable and realistic prospects fo r
eventual econom ic extraction. The lo ca tio n, quantity, grade, continuity
and oth e r g e o log ica l characteristics o f a m ineral resource are know n,
estimated from specific g e o log ica l evidence and know ledge, o r
interpreted from a w ell-constrained and portrayed g e o log ica l m odel.
M ineral resources are subdivided, in o rd e r o f increasing g e o lo g ica l
confidence, into inferred, indicated and measured categories. The
m ineral resources are inclusive o f those resources w hich have been
m odified to produce ore reserves.

M A S M : M o n g o lia n Agency fo r Standardization and M etrology

M N T : M o n g o lia n Togrog (M o n g o lia n currency; average exchange rate


in 201 1 was 1 ,2 2 8 M N T per 1 U S$

M R A M : M ineral Resources A uthority o f M o n g o lia

N D IC : N atio n al D evelopm ent and Innovation C om m ittee

N S O : N a tio n al Statistical O ffic e o f M o n g o lia

O r e Reserve: An 'O re Reserve' is the e co n o m ica lly m ineable part o f


a M easured a n d /o r Indicated M ineral Resource. It includes diluting
m aterials and allow ances fo r losses, w hich may o ccu r when the m aterial
is m ined. A p p ro p ria te assessments and studies have been carried out,
and include consideration o f and m o d ifica tio n by realistically assumed
m ining, m e ta llu rg ica l, e co n o m ic, m arketing, legal, environm ental,
social and governm ental factors. These assessments dem onstrate
that a t the tim e o f reporting, extraction could reasonably be justified.
O re Reserves are sub-divided in o rd e r o f increasing confidence into
Probable O re Reserve and Proved O re Reserve.

1 C IA, The W orld Factbook, M o ngolia


(h ttp s ://w w w .c ia .g o v /lib ra ry /p u b lic a tio n s /th e -w o rld -fa ctb o o k/g e o s/m g .h tm l)
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

O u n c e : In gold m ining and trade, the term ounce refers to one troy
ounce w hich equals 31.1 0 3 5 grams.

Placer: accu m u la tio n o f valuable minerals form ed by gravity separation


during sedimentary processes

PTB: Physikalisch-Technische Bundesanstalt (N ational M e tro lo g y


Institute, Germany)

Refining: The final p urification process o f a metal o r m ineral

SEC: United States Securities and Exchange C om m ission

SEDAR: (System fo r Electronic D ocum ent Analysis and Retrieval) is the


system used fo r electronically filing most securities related inform ation
with the C a n a dia n securities regulatory authorities. Filing with SEDAR
started January 1, 1 9 9 7 , and is now m andatory fo r most reporting
issuers in C anada. Inform ation on the rules fo r electronic filin g can be
found in http://w w w .sedar.com /sedar/sedar_rules_form s_en.htm

Sm elting: A pyro -m e ta llu rg ica l o p e ra tio n in which g old is further


separated from im purities.

Spot price: the current price o f a metal fo r im m ediate delivery

t: tonne, used in metric statistics, equal to 1 ,0 0 0 kilogram s. The term


"to n " is used in im perial statistics, it is equal to 2 ,0 0 0 pounds and also
referred to as a "sh o rt ton". In this report, the metric tone (t) is used.
To avoid confusion with the im perial ton, it is also known as the metric
tonne and m etric ton. The symbol "t" is used fo r the tone (metric) in
this report

Total cash costs: Total cash costs include site costs fo r all m ining,
processing and a dm inistration, reduced by contributions from
by-products and are inclusive o f royalties and production taxes.
A m ortization, re h a b ilita tio n , corporate adm inistration, retrenchm ent,
capital and exploration costs are excluded. Total cash costs per ounce
are the a ttributable total cash costs divided by the attrib u ta b le ounces
o f g old produced.

Total production costs: Total cash costs plus a m ortization,


retrenchm ent, reh a b ilita tio n and o ther non-cash costs. C o rp o ra te
adm inistration and exploration costs are excluded.
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

W h a t is gold?

The chem ical symbol o f go ld is A u, derived from the G reek word


aurum . G o ld possesses unique properties:

G o ld is virtually indestructible because it is corrosion resistant.

G o ld form s alloys with most metals. Those most com m only


encountered are mercury, silver, lead, and copper. G o ld and
mercury form alloys over the com plete range o f proportions. This
characteristic is used in the a m a lg a m a tio n process. M ercury can
be separated from go ld by d istilla tion , leaving a go ld product
containing 0.1 -1 % Mercury.

Its electrical conductivity is ranked third behind silver and copper.


It is the most m alleable metal and it can be ham m ered into
extremely thin sheets w ithout structural dam age.

G o ld is b io co m p a tib le and n o n -a lle rg ic and therefore it is used in


dentistry and m edical applications.

G o ld is raw m aterial fo r m any industries and it is a monetary


asset.

W h a t is a v a lu e chain?

A value chain links the steps a product takes from the prim ary producer
to the consumer. It includes research and developm ent, input suppliers
and finance. For exam ple, the g old value chain spans the production
steps from the ore in the ground to the retailing o f the fine g old jewelry.

A value chain may be viewed and analyzed from the perspective o f a


g lo b a l enabling environm ent, a national enabling environm ent, o r a
com pany enabling environm ent.

Schmitz (2005) postulates that the analysis o f a value chain has becom e
an increasingly useful a p p ro a ch to gain a com prehensive view o f the
various inter-locking stages involved from taking a g ood o r service
from the raw m aterial to production and then to the consumer.
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

G e n e ra l production steps

The m ining cycle o f g old begins with the search, exploration and
assessment o f an ore deposit which is then developed into a mine.

M inin g o f the ore takes place in sm all-scale alluvial d iggings, as a


mechanised m ining o p eration in soft o r hard rock, o r g old may be a
by-product o f other m ineral m ining activities. Beneficiation is a com plex
process and com prises crushing, co m m in u tio n , and concentration of
crushed ore by gravity o r o ther processes like leaching and flo ta tio n .
Fine- to coarse-grained native g old from a g ra vitationally prepared
concentrate is smelted to a g o ld -rich dore which contains a b o u t 8 5 -
90 % g old and a high content o f silver. Very fine-grained g old and gold
contained in hard rocks is dissolved in cyanide, precipitated, and the
precipitate is then smelted to dore bars. By-product g old contained in
co pp e r ore remains in the co p p e r concentrate and is recovered in the
co pp e r smelter.

Dore and the g o ld recovered from the co p p e r smelter are refined to


bullion gold bars co ntaining 9 9 .5 % go ld . The balance norm ally is
silver and copper. For special ap p lica tio n s, gold may be refined to 9 9 .9
% gold content. A generic model o f the inputs and outputs o f the gold
production steps are shown in figure 1.

final products world


P roduction steps wide
%age
Locate d e p o s it\ M inin g \ \
& develop ) & \ Refining \ Fabrication
jewellery industry 50%
mine beneficiation / /
good delivery bars 40%
G o ld ore in
financial
ground
Dore Refined bullion coins a pp lica
Capital tions
gold gold
Nature Labor
M ain Capital Labor
resources coated glass 10%
inputs Energy
(ore body) Labor Capital technical
Nature electronic/electrical applica
Energy Energy
resources industry tions
(land, water)
medical
G old ore Refined Various
Outputs Dore gold
in ground gold products food industry

Figure 1: Production steps, inputs and outputs at the


various stages o f the value chain o f gold
from mine to final products
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

Tax regim es an d reven u e created by gold m ining:

C urrent tax rates on g o ld exploitation are:

Royalties2: flat-rate royalty o f 5 % plus surtax-royalties which


depend on the price o f g o ld , e.g., when the g old price is above
1 3 0 0 U S$/oz, a surtax-royalty o f 5 % is applied

C orpo ra te incom e tax: 1 0 % (25 % fo r taxable profit exceeding 3


billion MNT)

VAT: sold g old is VAT exem pted3

Customs: 5% fo r export; im ports are custom free.

A part from tax revenues and royalties, g old m ining creates revenues
throug h the paym ent o f exploration and m ining fees.

Exploration fees:
Exploration fees in US$ fo r 1 hectare are
US$ 0.1 fo r the first year
US$ 0 .2 fo r the second year
US$ 0 .3 fo r the third year
US$ 1 fo r each o f the forth to sixth years
US$ 1.5 fo r each o f the seventh to ninth years.

M ining licence fees: fo r gold and other metals: 15 US$ fo r each


hectare.

In the year 2 0 1 0 the total revenue fo r the State Fund from taxes,
exploration and m ining licence fees fo r g old m ining am ounted to
7 8 ,6 7 2 .5 4 m illion MNT.

The income tax fo r small-scale gold miners organized in partnerships is


a flat tax o f 5 3 ,0 0 0 M N T per month per m iner to the local governm ent,
regardless of incom e4. However, the law is not being enforced. In the
Bornuur Soum, where the local N G O assumes the position as intermediary
between government institutions and partnerships, recent negotiations focus
on the procedure which regulates how the partnerships should pay taxes.

2 M inerals Law Article 4 7 and am endm ent to A rticle 4 7 passed on


N ovem ber 2 5 , 2 0 1 0
3 VAT Law o f M o n g o lia , A rticle 9, 9 .2 .1 5
4 Law on Income tax on Citizens Running Production and Services W ith Income
N o t Identifiable, A rticle 1 6, am ended in the year 201 0
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

3 .1 . Status o f gold m ining o peratio n s

G o ld mines in M o n g o lia fall into three groups according to th e ir size,


m ode o f o p e ra tio n and status. These are:

Illegal artisanal m ining operations.

Illegal m ining takes place outside o f regulations and state control.


It is very destructive to the organized m ining operations and the
environm ent, because sometim es the illegal miners encroach on
legal concessions, they rew ork cultivated m ine dum ps and do not
restore the m ined out sites.

O rganized partnerships o f artisanal m ining

To overcom e the problem s caused by illegal m ining, the governm ent


created a legal fram e fo r the artisanal miners. Regulation N o.
3 0 8 , entitled "Extraction O p e ra tio n s o f M inerals from Small
Scale M ines" was passed on D ecem ber 1, 2 0 1 0 . A ccording
to Resolution 3 0 8 , sm all-scale miners may form partnerships
w hich are controlled and advised by the so u m /d istrict governor.
A ccording to Article 3 .1 0 o f the regulation, the partnerships
subm it reports on their operations to the MRAM before the 15th
February each year. However, the fo rm a tio n o f partnerships is still
in the incipient stage, and reporting o f production has not been
established yet. Regulation 3 0 8 also applies to sm all-scale gold
m ining and therefore, ASM g old miners are no lo n g er illegal.

M echanized m ining.

The size o f mechanized go ld mines varies considerably. It includes


sim ple w orkings in alluvial placers using trucks and m echanized
shovels, operations in rivers using large dredges, and the m odern
mines w hich exploit lo w -g ra d e g old deposits and refractory ores
in hard rocks. The g old m ined from mechanized operations is
sold to the BoM o r com m ercial banks. The Boroo G o ld C om pany
sends its production directly to refineries in C a n a da . The annual
production figures o f the mechanized mines range from some tens
o f kg o f g o ld to m ore than 1 tonne per m ining opera tio n .
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

3 .2 . Types of gold occurrences in M o n g o lia

Placer gold deposits5

The im po rta n t p la ce r mines are located alo n g flo o d plains in the


Zaam ar, Bayangol and Tolgoit areas.

G o ld placers m ined in large o p e n -p it operations contain 1 to 5 gram s


o f g o ld /m 3, and the ore is m ined from between 5 to 4 0 m o f depth
(Photo 1). O ftentim es, the technology em ployed is o ut-dated and
wasteful. O re recovery is low and invites illegal miners to wash gold
from the waste dumps.

Placer m ining is very dependent


on clim a tic conditions, as w ater is
instrum ental fo r separating g old from
the sand and gravel. For a typical
placer g old mine in M o n g o lia , w ater is
a vailable fo r only 155 days a year6 and
this short w in d o w o f o p p o rtu n ity has
immense im plications fo r the viability o f
Photo 1: Mid-sized alluvial mine,
placer operations.
Sharyn G o l; June, 2 0 1 0

Dry placers

Dry placers o ccu r in the South G o b i,


where g o ld is extracted utilizing dry-
washers. M in in g o f dry placers is steadily
increasing.

H a rd -ro c k deposits

G o ld in this deposit type occurs as


A . 1'
Photo 2: Boroo open pit m ine; dissem inations in altered rocks (skarn),
O c to b e r 2 0 0 7 supergene enrichments, vein deposits or it
may be associated with sulphide minerals.

5 Placer gold deposits are accum ulations o f free go ld flakes, grains o r larger nuggets
in loose, unconsolidated material (rubble, sand, also slope scree) that have been
eroded from rocks. Placer go ld is often associated with other heavy minerals.
Placer go ld , located near rivers, is extracted from the sediments by m anual or
mechanized washing and consumes large am ounts o f water
6 Grayson, R. and B. Tumenbayar, The role o f placer m ining com panies in the
State-sponsored g o ld rush in M o n g o lia ; W orld Placer Journal volum e 5 :
Decem ber 2 0 0 5 , 3 5 p.
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

At the present tim e, tw o large g old mines are w orking in hard-rocks,


which are the Boroo go ld m ine (Photo 2) and O lo n O v o o t. The Boroo
go ld m ine lies approxim ately 1 1 0 km northwest o f U laanbaatar. The
op eration started in 2 0 0 2 and at the present tim e the high-grade
portions are m ined o u t and the com pany extracts g old from the low-
grade m aterial and prepares cyanide heap-leaching. The proven and
prob a b le ore reserves o f the mine were 1 6 ,3 4 9 m illio n tonnes which at
a grade o f 1.2 g /t contained 6 1 5 ,0 0 0 ounces o f gold (1 9,1 2 9 kg). The
reserves have been estimated based on a gold price of $ 8 2 5 per ounce7.

By-product gold in co p p er ore

O yu Tolgoi ranks am ong the w o rld 's largest co p p e r mines with gold
and silver as by-products. The g old grades in the ore are 0 .3 7 g /t in the
ore reserve, and 0 .4 7 g /t in the m ineral resources. Altogether, abo u t
1 ,4 3 0 tonnes o f go ld (46 m illio n ounces8) o f g old could be present in
m easured, indicated and inferred resources o f all ore bodies at O yu
Tolgoi, using a 0 .3 % Cu equivalent cu t-o ff grade. The O yu Tolgoi
mine expects to produce a b o u t 2 0 tonnes o f g old an n u a lly starting
from 201 3. This go ld however, w ill not enter the M o n g o lia n m arket, as
it is sold with the co p p e r concentrate.

In m in o r am ounts, gold is also present in the sulfide ores m ined by


the Erdenet M in in g Com pany.

3 .3 . Gold mining: production statistics, em ploym ent, m ining costs

Production statistics - The g lo b al picture

W orldw ide g old production is increasing; this is due to the steadily


increasing prices. M a jo r producers are C h in a , fo llo w e d by Australia,
the U.S.A., Russia, and South A frica. G lo b a l production figures are
shown in ta b le 1.

The M o n g o lia n situation

The g old pro d u ctio n figures fo r M o n g o lia , the g lo b a l production and


the M o n g o lia n co ntribution to the g lo b a l go ld pro d u ctio n are shown
in table 1.

7 Technical Report on the Boroo G o ld M ine, M o n g o lia ; C enterra G o ld Inc.,


D ecem ber 1 7, 2 0 0 9 , Toronto, C anada
8 O yu Tolgoi Project, Technical Report, June 201 0
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

D uring peak pro d u ctio n (2 0 0 5 to 2 0 0 7 ), M o n g o lia contributed


between 0 .9 to 0 .7 7 % to w orld production.

O f the ten largest g old m ining sites in M o n g o lia , eight exploit placer
g o ld , while tw o operations mine hard-rocks. M any o f the placer
gold mines are located in the terraces o f the Tool River e.g., the Tuul
golyn goldrol (Bulgan Province, Buregkhangai district), Tosongy goldrol
(Tuv province, Z a a m a r district), Baruun zakh zag (Bulgan Province,
B uregkhangai district), Tosongyn goldrol (Tuv Province, Z a a m a r district)
and the Baga khailast (Tuv Province, Z a a m a r district); Ikh dashir is another
big placer gold mine and is located in the Bayangol district o f Selenge
province; the Olt g ro u p o f placer mines occurs in the Uyanga district
o f U vurkhangai province; and Buurugyn am is located in the Jargalant
district o f B ayankhongor province.

The Boroo g old mine (Selenge province, Bayangol district) is by fa r


the largest g old mine in M o n g o lia . In 201 1, it produced 1 8 4 2 kg of
gold and expects to produce the same a m o u n t in 2 0 1 2 . O/on Ovoot
is another im portant h ard-rock go ld m ine. Because if its im portance,
the production figures o f the Boroo g old mine are shown separately in
table 1.

Together, the 1 0 largest mines produced 4 .9 t o f g old in the year 201 0,


which is a b o u t 82 % o f the total pro d u ctio n . The rem aining 1 8 % is
produced by a b o u t 100 com panies.

Since 2 0 0 5 , g old production in M o n g o lia has been decreasing. The


reasons are m a n ifo ld : the collection o f the w indfall profit tax from 2 0 0 6
until the end o f 2 0 1 0 ; the in troduction o f the Law on Prohibition o f
E xploration and M in in g o f M inerals in the Protection Zones o f W ater
and River sources and Forest Zones in the year 201 0 ; and a tem porary
shut down o f the mine and la b o r strike at the Boroo go ld m ine9. Also,
the easily and at low cost m ineable placer deposits o f go ld are com ing
to an end and g o ld m ining is increasingly taking place in hard rocks.
H ard-rock gold m ining is m ore costly and requires m ore technical skill
and equipm ent than placer m ining.

It rem ains to be seen w hether the high go ld prices will increase future
gold production.

9 Centerra G old . Inc., (201 0), Annual report 2 0 0 9 ; Toronto, O n ta rio ; C anada, 112 p.
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

Year 2006 2007 2008 2009 2010 2011

Total official gold


production in 2 1 .2 6 7 1 8 .0 8 7 15.184 9 .8 0 3 6 .0 3 7 5 .7 0 3
M o n g o lia (t)10

Production o f
8 .7 9 6 7 .9 1 7 5 .9 9 2 4 .6 8 3 3 .4 5 7 1.842
Boroo mine (t)11

W orld gold
2 ,3 7 0 12 2 ,3 6 0 12 2 ,2 9 0 12 2 ,4 5 0 12 2 ,5 6 0 12 2 5 3 0 13
production, (t)

C ontribution of
M o n g o lia to w orld 0 .9 0 0 .7 7 0 .6 6 0 .4 0
production (%)

Table: 1 M o ngolia n and glob al gold production

A special case: gold production by A S M 14

Special attention is drawn to the g old produced by ASM in M o n g o lia .


Because th e ir production is not o fficially registered, estimates o f their
production depend on the estim ating institution. The governm ent
estimated th a t before partnerships were established, illegal m ining
produced a few tonnes o f g old per year and th a t a b o u t 3 0 ,0 0 0 people
engaged in it, w hile estimates o f others15,16, indicate annual gold
production ranging from 5 to 1 0 tones/year before 2 0 0 5 and that
at that tim e around 1 0 0 ,0 0 0 people were involved. The most recent

10 MRAM and M ongolian Statistical Office, Monthly Bulletins December 2009, 2010, 201 1
11 Various com pany reports
12 USGS, M ineral C om m odity Summaries, January 2 0 1 2
13 Raw M aterials Data page, Raw M aterials G ro u p (RMG), Sweden
14 There is as yet no w idely accepted definition o f artisanal and sm all-scale mining.
The terms have, therefore, been used to cover a broad spectrum o f activities. The
broadest distinction is between artisanal m ining, which may involve only individuals
o r fam ilies and is purely m anual, and sm all-scale m ining, w hich is more extensive
and usually m ore mechanized. The distinctions are based on som e com m on criteria,
such as: production, depth o f workings, capital investment, m ineral type, use o f
m achinery o r explosives, num ber o f w orkers, size o f concession, etc. ASM may be
carried out form ally o r informally. Partnerships e.g. are form al ASM operations.
15 G rayson, R. et al. (2004): The People's G o ld Rush in M o n g o lia - Rise o f the 'N in ja '
Phenom enon; W orld Placer Journal 2 0 0 4 , Volume 4, 112 pages
16 Project-Consult (2005): Project docum ent on the Support fo r A rtisanal M ining
Project in the fram ew ork o f Sustainable N atural Resources M anagem ent fo r Poverty
A lleviation in rural M o ngolia 1 /7 /2 0 0 5 - 3 1 /1 2 /2 0 0 6 ; Bad V ilbel, 2 0 0 5
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

figures indicate that the annual production o f ASM g o ld mines are


between 4 to 7 t/y e a r17.

To check the plausibility o f the production figures estimated fo r ASM,


one may start by assuming a daily production o f 0 .5 gram s per person.
A ccepting that 4 0 ,0 0 0 o r m ore miners are involved and th a t they w ork
150 to 2 0 0 days/year, one arrives at a total production o f 3 to 4 t
per year. A lthough this calcu la tio n is very crude, it shows that the gold
outpu t o f ASM is in the m agnitude o f "several tonnes a year"

The SAM project succeeded in establishing efficient and environm entally


friendly gold processing plants fo r sm all-scale go ld m ining. O n e plant,
fo r processing ore from h ard-rock mines and which is well described by
the SAM project, has been built in Bornuur. This plant is able to recover
81 % o f g old from the ru n -o f-m in e ore by solely using gravitational
m ethods, w ithout the use o f cyanide o r mercury. The high recovery and
e lim ination o f mercury in the g old pro d u ction process are key incentives
fo r the high acceptance by the miners. O n a daily average, a b o u t 80
miners access the processing plant and on an annual average produce
a b o u t 75 kg o f ore thro u g h the plant.

The G overnm ent Resolution o f M o n g o lia N o. 3 0 8 (Regulation on


extraction o f m inerals from small scale mines, Article 9.1) states they
"shall sell th e ir extracted m inerals to legal persons authorized by
the a p p lica b le legislation fo r selling and buying". The com m ercial
pathways o f go ld processed in the processing plants are obscure. An
interviewed ow ner o f a processing pla n t c o m p la in t that the partnerships
sell only a small part o f their gold to the processing plant and that, as a
consequence he has to w ait over three months to co lle ct enough gold
to sell it to the BoM.

17 Swiss Agency fo r D evelopm ent and C oop era tion SDC (2011): SDC experiences with
Form alization and Responsible Environmental Practices in Artisanal and Small-scale
G o ld M ining in Latin Am erica and Asia (M ongolia)
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

N u m b e r o f m in e s a n d e m p lo y m e n t sta tis tic s

The num ber o f operative, o fficia lly registered g old mines is shown in
table 2.

A ccording to the latest censorship (MRAM, internal data) 155


partnerships fo r gold m ining existed in the year 2011 with 1 136
registered miners. In 2 0 1 0 , m echanized mines em ployed a total staff
o f 3 3 0 3 , o f w hich 104 were foreigners.

2008 2009 2010 2011

Total 100 120 98 110

P la c e r m inin g 97 117 95 107

H a rd -ro c k m inin g 3 3 3 3

Table: 2 N u m b e r o f re g iste re d go ld m in e s 18

P ro d u c tio n costs

G o ld production costs fo r placer m ining in M o n g o lia range from


3 5 ,0 0 0 to 5 2 ,0 0 0 M N T /g ra m , with an average o f 4 5 ,0 0 0 M N T /
gram (878 to 1 3 5 8 U S $/ounce, assuming an exchange rate o f 1 ,2 3 5
M N T to 1 US$). A note o f caution is introduced here when com paring
M o n g o lia n g old production costs with costs reported in o ther countries.
A part from production costs, the cost reporting scheme used by the
com panies to report their costs to MRAM includes costs fo r rehabilitation
and recultivation, exploration expenses, fees fo r nature resource usage,
taxes, royalties, licence fees, etc. and therefore are different from the
com m only reported total cash costs19 o r total production costs20.

18 Source: MRAM, unpublished data


19 Total cash costs include site costs fo r all m ining, processing and adm inistration,
reduced by contributions from by-products and are inclusive o f royalties and
production taxes. Am ortization, rehabilitation, corporate adm inistration,
retrenchment, capital and exploration costs are excluded
20 Total production costs include costs such as mining, processing, adm inistration,
royalties, depreciation, and am ortization but exclude am ortization, reclam ation
costs, financing costs, capital developm ent and exploration
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

Total operating costs o f the Boroo g old mine, retrieved from SEDAR,
are:

2 0 0 8 :4 9 0 U S$/oz
2009: 673 U S$/oz
2 0 1 0 : 78 6 U S$/oz
201 1: 8 2 8 US$/oz.

G o ld production costs will increase in the future; hitherto m arginal


operations w ill go into production because o f the increasing g old price.

3 .4 B eneficiation

Figure 2 shows the schematized flowsheets fo r the processing o f typical


gold ores w hich occur in M o n g o lia . Today, the a m a lg a m a tio n line
o f processing is not allow ed in M o n g o lia , although it has been used
extensively by ASM in the past. For the sake o f co m p le tio n , it is included
and m arked by dotted lines in figure 2.

Free-gold ore Refractory ore

Free gold from hard rock G old in


Alluvial o r dry Au in sulfides,
mines (oxide zone, quartz copper
placer gold tellurides from hard
veins) concentrate
rock mines

C om m inution Crushing

A m algam a
tion Gravity
concentration Flotation
(to separate
~ ~ T ~
coarse gold)
O xidation
_ _ r (roasting,
Retorting bio-oxidation,
pressure oxidation)
Cyanide
leaching
Leaching
(agitation, vat)

Precipitation Extraction
(carbon-on-pulp)
~ T ~
Raw gold

Smelting of
dore g old with approximately
85 % g old contents

Figure 2: Schematized flowsheet fo r processing of


com m on go ld ores in M o n g o lia
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

4 .1 . State Assaying A gen cy (M A S M Assay D e p a rtm e n t)

G o ld produced by license holders must be assayed and registered by


the State Assaying Agency, w hich is a special g old lab o ra to ry o f MASM.
The legal ways o f recording the production and trading g old are like
this: M ine production is recorded at the State Assaying Agency21. This
laboratory smelts the delivered material to a gold dore. The lab returns the
gold to the m iner and inform s MRAM ab o u t the am ount o f gold assayed.

Fineness o f gold delivered from the mines varies from 7 0 0 to 9 0 0 .


The g old laboratory analyses the delivered concentrate only fo r go ld ,
platinum g roup metals and silver, as m andated in the Treasury Law,
A rticle 1 2 /3 . Each bar is m arked with a num ber and a record is
prepared fo r this specific bar.

4 .2 . The role o f th e Bank o f M o n g o lia (BoM) in th e gold m a rk e t

In 2 0 0 2 , a process o f deregulating the gold m arket was initiated. In the


m onetary policy guideline o f 2 0 0 2 it has been laid down that the BoM
is to liberalize the dom estic g old m arket22. In the same year, article 3 .3
o f the Treasury Law was am ended to provide legal grounds fo r dom estic
precious metal refining. After m aking am endm ents to the M inerals Law
in 2 0 0 6 and passing some regulations23 the BoM is still the m ain gold
buyer but no longer the sole trader.

The participation of the Treasury Fund of the BoM concerning the value chain
of gold is laid out in the Treasury Law. The BoM is the main actor regarding

purchasing o f gold

sending gold abro a d fo r refining

storing g old b ullion bars

supplying the dom estic g old m anufacturing sector (However, the


BoM has not sold any g old on the dom estic m arket in recent years).

21 The M inerals Law o f M o n g o lia , 2 0 0 6 , A rticle 46.1


22 h ttp://w w w .m o ngolb ank.m n/do cum e nts/m o neyp olicy/m on etarypolicy_
g u id elines2 002 e.pd f
23 Regulation Nr. 11 7, Ministry o f Finance, 2 0 0 2 ; jo in t Regulation Nr. 7 0 5 /2 2 2 by
Customs and C ham ber o f Industry and Trade, passed 2 0 0 3 and im plem ented 2 0 0 4
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

The BoM prepares a tender fo r the refining o f dore g o ld and selects


the best offer.

Every w orking day the BoM announces the g old buying price in M N T
per gram o f g o ld , which is based on the London G o ld Fix24 (see chapter
4.5). W hen buying g o ld , the BoM also covers assay discrepancy risk
exposure. Assay discrepancies may be high. In 2 0 0 9 , fo r exam ple, they
am ounted to a loss o f USD 1.4 m illion.

To increase gold sales to the BoM , in M arch 2 0 0 9 the BoM revised the
m ethodology o f purchasing g old and offered a centralized service fo r
purchasing, physical delivery, verification o f assay, encasing, storage,
confirm ation and signing o f g old tra d in g contracts, and its m onitoring
to the precious metals Treasury Fund.

Table 3 summarizes the am o u n t o f g old bought and sent abro a d fo r


refinem ent. The table also shows the total official production minus the
Boroo pro ductio n , because this is the gold source accessible to the
BoM.

In the years 2 0 0 8 , 2 0 0 9 and 2 0 1 0 the am o u n t o f g old send ab ro a d


fo r refinem ent was higher than the a m o u n t o f gold bo u g h t by the BoM.
This is possibly due to an overhang o f g old bought in previous years.

2008 2009 2010 2011

Total o ffic ia l g o ld p ro d u c tio n m in u s B o ro o 9.1 92 5.1 20 2 .5 8 0 3.861


p ro d u c tio n (t)

A m o u n t o f go ld b o u g h t by B oM , ro unde d
8.2 5.0 2.1 3.3
(t)

G old p u rc h a s e s o f B oM as % o f officia l 89 % 98% 82% 85 %


g o ld p ro d u c tio n a p a rt fro m B oro o

G old sen d a b ro a d by B oM fo r re fin e m e n t 1125 5 .2 26 2 .3 26

Table 3: A m o u n t o f g o ld p u rch a se d by B oM and re fined

24 h ttp://w w w .m o ngolb ank.m n/en g/db listgoldsilverprice.aspx.


25 Source: BoM , Annual Report 2 0 0 9
26 Source: BoM , Annual Report 2 0 1 0
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

The d ro p in g old bo u g h t by the BoM in 2 0 0 9 was m ainly due to


the te rm in a tio n o f m ining activities o f the "Altan D ornod M o n g o l"
com pany, which sold 2 .7 tons o f g old to the Bank o f M o n g o lia in 2 0 0 8 .
Furtherm ore, a decrease in the sales o f g o ld by the "M o n g o l G a z a r"
com pany to the Bank o f M o n g o lia by 1.2 tons o r 6 8 percent from the
previous year accounts fo r this drop.

4 .3 Form al an d in fo rm a l channels o f tra d in g gold in th e


dom estic m a rk et

The legal and illegal flo w o f g old from the mines to the fa b rica tio n sites
is shown in figure 3.

Form al gold tra d e

O ffic ia l statistics do not indicate how much g o ld was sold by the ASM
gold miners. The only figure available was presented by the SDC27 at
a technical m eeting, saying that 2 3 7 kg o f g old were sold by the ASM
to the BoM in 2 0 0 7 . As the annual ASM pro d u ctio n is in the o rd e r o f
several tonnes/year, it is a p p a re n t that tons o f g o ld mined by the ASM
disap pe a r in an underground economy.

Also, no statistics are a va ila b le to quantify the a m o u n t o f g old w hich


has been bo u g h t by the local jewelry industry. From jewelry w orkshops it
was learned that the procedure to buy g o ld from the BoM o r any other
com m ercial bank is to o bureaucratic to be practical.

The B oM 26 notes that illegal operations such as g old sm uggling and


selling a b ro a d are so volum inous that they have created an artificial
dem and fo r foreign currency.

The reality o f retail channels o f A S M gold p ro du ctio n 28.

The sm all-scale miners sell th e ir raw g old o r dore to trusted private g old
buyers. They may be local shop keepers, o r they may be buyers w ho
perio d ica lly travel to the mine sites. A p a rt from buying g o ld , they provide
loans, because the ASMs are usually distant from com m ercial banks.

27 M . Dubach (2008): G overnm ent o f M ongolia-E xternal Partners' Technical M eeting,


January 2 8 -2 9 , 2 0 0 8 , U laanbaatar, M o ngolia . The M o n g o lia n M inin g Sector -
Key Issues from the Artisanal M in e r's perspective. Swiss Agency fo r D evelopm ent
and C oop era tion, SDC
28 International Labor O ffice (2 006): Inform al G o ld M inin g in M o n g o lia ; ILO,
Bangkok, 1 1 2 p.
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

The gold bought by the local buyers is sold to b ig g e r interm ediaries.


Finally, the gold ends up in the hands o f foreign clients, m ainly from
C hina and Korea.

The reasons why sm all-scale g old miners do not sell to the BoM are
m anifold:

The inform al miners do not have the tim e and m oney to travel to
U la a n b a a ta r

G o ld must be purified to dore g old before selling it to the BoM , a


process which requires fin a n cial resources

The interm ediaries provide credit and trade g o ld fo r supplies

W ith the advent o f partnerships, some o f the g old mined in artisanal


operations enters the officially recorded g old flow. However, it is
anticipated that not all sm all-scale miners w ill be organized in
partnerships and therefore, illegal g old trading w ill continue.

------- Fat lines: m ost sig nifican t legal flo w o f g o ld


-------- Thin lines: legal flo w o f g o ld
--------Dashed lines: Ille gal routes o f g o ld
D otted lines: sales are possible, but not practised

Figure 3: Flow o f gold from


m ine to fabrication
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

4 .4 . G o ld export an d im po rt

The a m o u n t o f exported g o ld is shown in ta b le 4.

Raw go ld has not been im ported in the past years

2008 2009 2010 2011

G old e x p o rte d (n o n -re fin e d )29 2 2 .1 3 1 0 .877 5 .0 6 0 2.7

Table: 4 G old e x p o rt (t), 2 0 0 8 until 2011

A ccord in g to a re g u la tio n 30 issued in 2 0 0 4 , g o ld m ining com panies


and individuals are perm itted to export go ld . Requirements are that
the gold bars should be assayed in the State G o ld Laboratory, all taxes
must be paid, and a certificate o f origin has to be presented.

4 .5 . D e te rm in a tio n o f c o n te m p o ra ry gold price

G o ld prices are determ ined at the London G o ld M arket Fixing Ltd. This
g ro u p consists o f representatives o f 5 banks, all members o f the London
Bullion M arket A ssociation (LBMA). The London G o ld Fix represents the
price o f balanced supply and dem and. The actual and historic London
G o ld Fixes (AM and PM) can be obtained from the LMBA w ebpage.

The London G o ld Fix applies to the in ternationally traded standard


ba r w hich conform s to the specifications o f the London Bullion M arket
A ssociation fo r "g o o d delivery bars." It must have a purity o f 9 9 5 fine
m inim um (typically ranging between 9 9 5 and 9 9 8 fine), carry a serial
number, be o f good appearance and regular shape, and bear the stamp
o f one o f the fo u r dozen o r m ore refiners w o rld w id e that are on the
A ssociation's list o f approved "sm elters." Individual goo d delivery bars
may range in w eight from 3 5 0 to 4 3 0 ounces (1 0 ,8 8 6 to 1 3 ,3 7 4 g).

29 N ation al Statistical O ffice , various M onthly Bulletin Statistics


30 Regulation Nr. 7 0 5 /2 2 2 passed by Customs and C ham ber o f Industry and Trade in
2 0 0 3 and im plem ented 2 0 0 4
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

$2,000
$1,900
$1,800
$1,700
$1,600
$1,500
$1,400
$1,300
$ 1,200
$ 1,100
$ 1,000
$900
$800 ,------------- ,---------------,-------------- 1--------------1-------------- 1--------------,
01 JUL 09 2010 01JUL10 2011 01JUL11 2012

Figure 4: historical gold prices,


in US$/oz

A part from the London G o ld Fix, spot o r OTC prices are


quoted. Spot prices are oriented towards the London G o ld
Fix, but they are buyer-seller agreem ents and include gold
which does not meet the G o o d Delivery Bar specifications.
An overview o f the gold prices in the years 201 1 and 201 2 is given in
figure 4. G o ld prices also reflect the strength o f the currency quoted
and inflation, and therefore they do not necessarily portray the value or
the supply/dem and situation.
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

G e n e ra l characteristics o f sector

Refining g o ld makes the fin a l product w hich may be used as raw m aterial
fo r the fa b rica tio n o f m any products and as a m onetary instrum ent. The
term "g o ld refining" is used fo r p urification o f dore g old o r any other
form o f g old concentrate from mines (prim ary go ld ), the recycling o f
go ld from scrap m aterial and fo r the recovery o f g old from dust, filings
and sweeps from jewelry workshops (secondary gold).

Refineries may be sm all workshops in the case where g old scrap is


recycled o r under the circumstances when goldsm iths prepare th e ir own
raw m aterial from re-m elting go ld . M any types o f equipm ent fo r small
refinery workshops are com m ercially a v a ila b le and prices range from a
few hundred dollars upw ard.

The most p o p u la r processes a pplied by large com m ercial refineries are


the "M ille r" process and the "W o h lw ill" process. The M ille r process
o f refining g old is the easier o f the tw o but it produces a low er grade
quality o f g old o f at least 9 9 .5 percent purity. The W ohlw ill process
produces a higher quality g old at 9 9 .9 5 to 9 9 .9 9 percent purity and
is done electrochem ically. The M ille r process is w hat most refinem ent
agencies em ploy to refine and process gold.

The M o n g o lia n situation

The pureness o f the g old processed by the local g o ld - and silversmiths


may vary considerably. Secondary gold (re-melted jewelry) may have been
soldered with low-grade soldering material, lowering the fineness stamped
on the main body o f the re-melted jewelry. Raw g old worked by local
goldsm iths may com e from prim itive processing plants and iron may be
admixed from abrasion o f the m ining and processing equipm ent. A lluvial
gold may contain a variable am ount o f silver. For these reasons, refining
prim ary and secondary gold before fabricating jewelry is very im portant.

W hen asked a b o u t refining facilities in U laanbaatar, the authors were


inform ed by the small w orkshop owners th a t the goldsm iths could refine
the go ld on th e ir ow n, using acid (aqua regia process). The licensed
m anufacturers m aintain refining laboratories away from the jewelry
w orkshops, because the acid process emits toxic fumes.

No internationally recognized commercial refineries are operating in Mongolia.


GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

6 .1 . A vailab ility o f gold fo r local jew elry fab ricatio n

The g lo b al picture

The consum ption o f g old produced in the w orld is a b o u t 50% in jewelry,


40% in investments, and 10% in industry.

G o ld consum ption in the jewelry and technical fields is expected to


decrease because the high price w ould lim it jewelry purchases and
redesign and the usage o f substitutes fo r g old in the technical area will
also decrease consum ption.

O n the othe r hand, the purchase o f g o ld as a safe haven fo r investments,


hedge against e co n o m ic fa ilu re and d ow nturn, p o rtfo lio diversifier and
as a store o f wealth is increasing.

The M o n g o lia n situation

The Law o f M o n g o lia on Licencing states that fo r the m anufacturing o f


jewelries o f precious metals and stones a licence must be o b ta in e d 31.

An estim ation o f the local g old consum ption is difficult. An im p o rta n t


consum er is the jewelry industry, but this sector obtains most o f its raw
m aterial from inform al sources (chapter 4.3). It is not known how much
raw g o ld is stored by individuals as a safe-haven fo r money. G o ld
consum ption by o ther sectors (technical and m edical) is insignificant.

N o statistics exist w hich provide in fo rm atio n regarding the dom estic


go ld trade. From the disclosures o f the BoM, w hich is the largest g old
buyer in M o n g o lia , no g o ld has been sold to local buyers.

6 .2 . C oins, bars fo r s a fe -h a v e n investm ent

The g lo b a l picture

W hile the a m o u n t o f g o ld used fo r the fa b rica tio n o f jewelry, in the


technical fields and fo r dental and m edical uses decreased, m inting
o f go ld coins recognized as a m onetary means was the only end use
which showed a m arked increase.

31 Law o f M o n g o lia on Licencing, 2 0 0 1 , A rticle 1 5 .1 0 .2 .


GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

The M o n g o lia n Situation

G o ld coins recognized as m onetary instruments o r refined b ullion bars


are not produced in M o n g o lia .

6 .3 . Electric an d electronic industries

T he g lo b al picture

For electrical and electronic products, base metals clad with go ld alloys
are w idely used to reduce the usage o f expensive go ld . In m any cases,
p a lla d iu m , p latinum , silver and som etim e co p p e r may substitute fo r
gold and the industry tries to redesign these products with the objective
to m aintain high-utility standards with low er g old content.

T he M o n g o lia n situation

As these items are mass produced and require advanced technology,


they are not m anufactured in M o n g o lia .

6 .4 . Dentistry, m ed ical uses

T he g lo b al picture

O w in g to an increase o f n o n -m etallic substitution (ceramics) the usage


o f gold displays a slow decline.

T he M o n g o lia n situation

Several dentists m a intaining their own dental laboratory have been


interviewed. Very few patients ask fo r g o ld inlays, dentures o r tooth
crowns o f go ld . O n average, 4 gram s w ould be required fo r one tooth
crow n. Some dental clinics have small stocks o f im ported raw m aterial,
w hile others w ould require the patient to bring his/her own g o ld . The
am o u n t o f gold consum ed in dentistry and m edical uses in M o n g o lia
is negligible.

6 .5 . M e d a ls an d im ita tio n coins (n o n m o n e ta ry coins)

T he g lo b al picture

Because o f the vo la tile and current high g old price, a marked decrease
is noted.
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

The M o n g o lia n situation

In an era o f the centrally planned economy, the com pany Zoos G oyol
was an im portant p ro d u ce r o f gold medals, coins and gold plated
medals. In 1 986 the com pany produced a b o u t 6 m illio n coins, 5 0 0
m edals and badges, 4 0 0 pendants and inlays and 70 thousand gold
and silver articles in fo u r workshops. In 1 9 9 8 , the com pany was fully
privatized and production has since decreased drastically.

G o ld plated medals are sold in many places. Possibly, a p a rt from Zoos


G o yo l m ore fo rm a l and inform al m edal plating com panies exist.

6 .6 . Jew elry fab ric a tio n an d tra d e

The g lo b al picture

The jewelry sector includes g o ld , silver, costum e and fashion jewelry.


Jewelry m ade o f g o ld , silver and platinum is refered to as fine jewelry
so as to distinguish it from the less valuable form s o f jewelry. Jewelry in
its w id e r sense also includes accessories such as cufflinks, tie-pins and
watches m ade o f precious metal.

The to p six g old jewelry m anufacturing


countries are (in descending order):
India, C hina, Italy, Turkey, the U.S.A. and
Saudi A rabia. G o ld jewelry production
in C hina shows a strong and consistent
increase, w hile the fa b rica tio n in o ther
countries shows a decrease.

A part from g o ld , raw materials fo r gold


Photo 3. ready-to-use jewelry m aking are a variety o f natural
yellow color gold grain
o r synthetic gemstones and natural o r
cultured pearls. Pure (refined) g o ld is
to o soft fo r g o ld jewelry and therefore
it is mixed with oth e r metals to make
it m ore w e a r-a n d -te a r resistant and to
give it different shades o f color.
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

Raw m aterials may be b o u g h t from


com m ercial suppliers o r m ade by
goldsm iths themselves from gold
of known fineness. C o m m e rcia lly
a va ila b le raw m aterial is sold in the
form o f ready-to-use casting grains,
w ire, tubes, plates o r solder in many
c o lo rto n e s (yellow, white, brow n, green,
Photo 4: Example o f go ld wire grey, etc.) and a w ide range o f karatage
(e.g., 9, 1 4, 1 8, 22 karat). Examples o f
pre-fabricated raw materials are shown
in photos 3 and 4.

Jewelry may be classed into hand m ade jewelry and m achine m ade
jewelry.

The tools used fo r hand m ade jewelry are the tra d itio n a l smith's
ham m ers, drills, punches, gravels, files and blow torch. H andm ade
fine gold jewelry products are m ore intricate and artistic than m achine
made and the p ro d u ce r can dem and a higher price fo r unique design.

The basic m ethod o f m echanized pro d u ctio n is fo r com ponents to be


cut and stam ped with individual steel dies, which are m anufactured fo r
each com p o n e n t o f each individual item o f jewelry. As die m anufacturing
is an expensive o p e ra tio n it is cost-effective only where high num bers of
the same item are being produced.

The typical cost structure o f jewelry m anufacturing is:

Fine jewelry: 7 0 -8 0 % raw m aterials, 1 0 -2 0 % labor, plus


unspecified consum ables and associated costs

C ostum e/fashion jewelry: 5 0 -7 0 % raw materials 2 0 -3 0 % labor,


plus unspecified consum ables and associated costs.

The precise rate o f gross p ro fit depends upon the product mix o f goods
but some typical gross profit rates are:

Low quality jewelry: 23% to 33%

M edium q uality jewelry: up to 5 0 %

High quality jewelry: 5 0 % plus.


GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

The M o n g o lia n situation: w orkshop structure and production


techniques, sources o f ra w m aterials, retailin g

It was difficu lt to arrange enough interviews with g o ld - and silversmiths


to obta in a m eaningful picture o f the sector. For the most part
requests fo r an interview were either declined o r excuses were found
to evade the request, and in general, the interviewed persons were
not very forthcom ing. This reaction o f the w orkshop owners is self-
explanatory and confirm s the findings that much o f the business is done
underground: unregistered small w orkshops exist; gold is obtained
from inform al sources, and production is underdeclared.

a) Local production techniques:

A b o u t five goldsm iths in U la a n b a a ta r


are able to m ake gold jewelry w hich
is com petitive with im ported jewelry.
O n ly tw o goldsm iths m anufacture
earrings. Necklaces and chains are not
m ade in M o n g o lia . O n e o f the larger
establishments which has a total staff
o f a b o u t 2 0 , uses C A D /C A M systems
Photo 5: Local g o ld -a n d silversmith design and co m puter sculpt the wax
workshop in Ulaanbaatar models. The big jewelry workshops
posses th e ir own outlets in U laanbaatar.

They also run their own refineries, utilizing acid (aqua regia) to purify
the gold . As m entioned earlier, because o f the toxic fumes they are
located away from the workshops and have not been visited.

The techniques a p p lie d fo r m aking rings and earrings, are die casting,
casting in wax and ham m ering the g old into metal form s (casts).
Die casting is a p p lie d in the larger establishments and permits the
production o f large quantities o f the same design.

The gold jewelry fabricated in M o n g o lia is o f high purity. M ost pieces


are o f 22 karat; this corresponds to a fineness o f 91 6.

A typical m edium -sized g o ld - and silversmith w orkshop is shown in


photo 5.
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

b) Sources o f raw m aterials and consum ption by the jewelry


m anufacturing sector:

Sources o f g old are either the inform al g old m ining sector, pawnshops
o r purchases o f old jewelry from individuals w ho w ant to have a new
piece m ade o r turn jewelry items into cash. If gemstones o r pearls are
m ounted, they are mostly im ported from Korea.

In recent years, the BoM has not sold any g old to local g old jewelry
w orkshops. The general consensus o f the interviewed goldsm iths is
that the process is to o bureaucratic and that they can buy g o ld much
cheaper through interm ediaries from the inform al g old mines. At a
tim e when the London G o ld Fix PM stood at 6 7 ,7 0 0 M N T /g ra m , it was
observed th a t a local g o ld - and silversmith offered 5 1 ,0 0 0 M N T fo r 1
gram to an in co g nito in d ivid u a l. The g o ld was coarse-grained alluvial
g o ld , indicating th a t it was m ined with prim itive recovery technology.

The N a tio n al Statistical O ffic e 32 provides the production figures shown


in table 5:

2009 2010 2011

J e w e lle ry (p ie c e s ) 1,255 1,325 1,048

Table 5: R e c o rd e d local je w e lry p ro d u ctio n , 2 0 0 9 to 2011

Assuming that the m anufactured jewelry is mostly fin g e r rings with a


fineness o f 7 5 0 (1 8 karat) and average w eight o f perhaps 4 gram s per
ring, one arrives at a g old consum ption o f 3 1 4 4 gram s (3 .1 4 4 kg).

A rough b a ck-of-the-envelope ca lcu la tio n is m ade to verify the


m agnitude o f this apparently low figure fo r official g old consum ption:

As a rule, a goldsm ith may produce 5 sim ple, hand m ade fin g e r rings
per day. This was confirm ed in an interview, were the authors were
inform ed th a t one goldsm ith may process a b o u t 2 0 gram s o f raw gold
per day. Assuming th a t there are dozens o f inform al establishments
in M o n g o lia one arrives at an annual production o f a few tens o f
thousands o f pieces produced in the one-m an workshops. The three
o r five big jewelry m anufacturers, because o f th e ir mechanized
pro d u ctio n , may possibly produce above o r a b o u t 1 0 0 ,0 0 0 pieces
o r m ore per year. The sm all-scale workshops alto g e th e r may produce

32 N ational Statistical O ffice , M onthly Bulletin o f Statistics, D ecem ber 2011


GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

up to 2 0 ,0 0 0 pieces a year. A very conservative estim ation arrives at


an annual production o f 1 2 0 ,0 0 0 pieces (4 gram s each) w hich w ould
require ab o u t 4 5 0 kg o f m aterial per year. Taking an average fineness
o f 7 5 0 (1 8 karat), this equals the consum ption o f a b o u t 3 4 0 kg o f pure
prim ary and secondary go ld . This num ber is fa r from the 3 .1 4 4 kg
calculated above from the data w hich is shown in table 5. The rough
calcu latio n indicates th a t only a fraction o f the local jewelry production
is reported to the N SO . O n e may safely assume that a certain portion
o f the production m ade in licensed com panies disappears in inform al
retail channels (e.g. underdeclaration o f revenue figures, evasion o f
taxes).

From interviews and observations it is known that a large part o f the


prim ary gold which enters jewelry production comes from the ASM (see
ch apter 4.3). As the ASM production is several tonnes per year and only
a few hundred kilogram s are absorbed by the local jewelry workshops,
it follow s th a t most o f the A S M -produced g old is unaccounted for. It
may be that the shadow jewelry sector is m uch la rger than assumed,
o r m uch o f the A S M -produced gold is sm uggled across the b o rd e r or
stored fo r safekeeping.

c) Retailing, im port and export:

The large g o ld - and silversmith workshops established either th e ir own


jewelry shops in U laanbaatar, o r they sell to established retail shops.
M ost o f the upper-end jewelry workshops located in shopping arcades
however, do not offer M o n g o lia n -m a d e fine g old jewelry.

The small workshops either sell directly to customers w ho com e to


the w orkshops, o r they sell to jewelry markets where many traders
rent small stalls to o ffe r locally produced o r im ported jewelry. The
locally fabricated jewelry is readily recognized by its deep yellow color.
A pproxim ately 7 0 % o f the sales are im ported jewelry.

The price o f the jewelry depends on the London G o ld Fix o f the day when
the jewelry was m ade. A t the beginning o f July, when the London G o ld
Fix was 6 7 ,7 0 0 M N T /g r, one g r o f jewelry (cast ring) sold fo r 9 0 ,0 0 0 to
1 0 0 ,0 0 0 MNT. Each piece seen in the displays was hallm arked by the
State Assaying Agency (see chapter 4 .1).
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

The N S O 33 provides the num ber o f jewelry im ports and exports (table
6). However, the N SO im port- and export values are aggregated values
o f HS code 71 and include silver and g old jewelry, pearls and jewelry
im itations.

A rough estimate o f how m uch o f the im ported jewelry is fine gold


jewelry can be m ade by using the data from the United N ations
C om m o d ity Trade Statistics D atabase34 (UN com trade), but this data is
only a va ila b le up to 2 0 0 7 .

A search in the "U N c o m tra d e " data base shows th a t in 2 0 0 7 , the


im p o rt value o f HS35 code 7 1 1 3 1 9 (Articles o f jewelry and parts thereof,
o f other precious m etal, w hether o r not plated o r clad with precious
metal) am ounted to 9 3 ,8 4 5 US$. Silver jewelry (H S 7 1 1311) and gold
plated jewelry (HS 7 1 1 3 2 0 ) are not included because they have their
own code. Platinum jewelry is aggregated under HS code 71131 9, but
platinum jewelry sales are insignificant in M o n g o lia , and therefore fo r
practical reasons one may assume that HS code 7 1 1 3 1 9 m irrors an
im p o rt value o f 9 3 ,8 4 5 US$ fo r fine go ld jewelry. The N S O 36 reports an
im p o rt value o f 5 8 7 .6 thousand US$ fo r the aggregated item "n a tu ra l
and cultural pearls, precious metals and jew ellery" fo r the year 2 0 0 7 . It
follow s, th a t o f the aggregated jewellery im p o rt (5 8 7 ,6 0 0 US$), abo u t
1 6 % (9 3 ,8 4 5 US$) were fine g old jewelry in the year 2 0 0 7 .

2009 2010 2011

Im port: p re c io u s m e tal, je w e lle ry


8 3 2 .9 1 ,3 70.8 2 ,8 9 1 .8
(C IF va lu e , th o u s U S $)

E xport: p re c io u s m e tal, je w e lle ry


3 0 8 ,5 2 5 .2 1 7 8 ,3 5 1 .5 11 3,18 5.0
(C IF v a lu e , th o u s U S $)

Table 6: Im p o rt a n d e x p o rt o f a g g re g a te d silver, g o ld an d im ita tio n je w e lry (H S


co d e 71)

33 N ational Statistical O ffice , M onthly Bulletin o f Statistics, D ecem ber 2011


34 (h ttp ://c o m tra d e .u n .org/db/dqB asicQ ueryR esults.aspx?cc=71 13 ,% 2 0 7 1 131 1 ,% 20
71 1319,% 2071 1 3 2 0 & p x = H 2 & r= 4 9 6 & s o = 9 9 9 9 & rp a g e = dqB asicQ uery& qt= n)
35 H arm onized C om m odity Description and C oding System
36 M o n g o lia n N ation al Statistical O ffice , M onthly Bulletin o f Statistics, D ecem ber 2 0 0 8
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

A p art from g o ld , w hich is the subject o f this study, o ther raw materials
are needed. These are precious stones which w ould have to be im ported
and sem i-precious stones w hich may partly be mined in M o n g o lia
and partly im ported. The investigation o f the raw m aterial base fo r
precious and sem i-precious stones requires specialized g e o lo g ica l,
m ineralogical and g e m m o lo g ica l investigations.

The form atio n o f a gem and jewelry cluster w ould affect industries and
the services o f g old m ining, beneficiation/recovery, refining, g o ld trade,
jewelry m anufacturing and retailing, sem i-precious stone m ining and
cutting and polishing. Q u a lity control institutions and skills training
facilities w ould have to be established and capacitated adequately;
procedures fo r the trade o f raw materials and the final products w ould
have to be determ ined and im plem ented. Peripheral businesses like
the financial industry to provide capital and credit, security services
and insurance industry, im p o rt businesses fo r m achinery and raw
materials etc. w o u ld also be involved. In short, a gem and jewelry
cluster w ould penetrate many o ther sectors and produce considerable
socio-econo m ic effects.

Expanding the jewelry industry w ould certainly contribute to diversifying


the m ineral-based econom y o f M o n g o lia .
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

Conclusion

The a va ila b le data is to o scarce and incom plete to m odel the value
chain from mine to jewelry. Especially in the ASM subsector, to o much
data is missing to provide hard evidence fo r the net incom e o f the ASM
g old miners o r the profit o f interm ediaries.

However, an attem pt is m ade to co m p ile inputs, revenues and gross


m argins37 from one m a jo r production step to the next (see table 7).
C ornerstones to investigate the value increase from mine to final
product are:

The estimated average o f 4 5 ,0 0 0 M N T (see chapter 3.3) is


used as reference fo r the production costs, because small and
m edium sized alluvial g old mines w ill be the preferred supplier
in a form alized raw g o ld trade. This value is close to all-inclusive
costs, but an entre p re n e u rs'sa la ry and business risk and the costs
fo r m aking g old dore bars and assaying costs should be added
as these are not included in the cost calcu la tio n presented by the
m ining com panies. These a d d -o n s are estimated to raise the cost
price to 5 0 ,0 0 0 M N T /g ra m o f gold.

There are no com m ercial refineries in M o n g o lia , and refining o f the


dore g old is carried out in the jewelry workshops. The best estimate
fo r refining costs in the jewelry subsector is provided by SHORT,
R. and B. RADEBE38. They suggest an average o f 1.5 %. A fo rm a l
g o ld p ro d u ce r therefore w ill be w illin g to pay the London G o ld Fix
minus the refining charges, w hich comes dow n to 68 ,8 8 1 M N T /
gram o f g o ld , taking a London G o ld Fix o f 6 9 ,9 3 0 M N T /g ra m 39.

The selling price o f fine g old jewelry (21 o r 2 2 karat): average


1 1 0 ,0 0 0 M N T /g ra m . This translates to a b o u t 9 8 ,0 0 0 M N T /g ra m
o f pure gold.

37 gross m argin is the difference between cost price and sales revenue, expressed as a
percentage o f cost price; includes VAT
38 Short, R. and B. Radebe (2008): G O L D in South Africa 2 0 0 7 M inin g, Refining,
M anufacturing, Retail, Investment; Genesis Analytics (Pty) Ltd, 61 p. (h ttp ://w w w .
g o ld in s o u th a fric a .c o m /im a g e s /G o ld jn _ S A _ 2 0 0 7 .p d f)
39 London G o ld Fix PM as o f July 2 7 , 2 0 1 2 : 1 6 2 8 .2 5 U S $/troy ounce; exchange rate
1 US$ buys 1345 M N T
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

From this data, the value increases fo r a m ining-beneficiation-separation


step and a re fin in g -fab rica tio n -re ta ilin g step could be estim ated. The
total value added from the gold in the ground to the jewelry piece in
the jewellers shop adds up to 9 6 % and is c o m p a ra ble with numbers
obtained in the literature from o ther countries38'40. The m ark-up o f the
m ining step is a b o u t 3 8 %, while the m ark-up o f the refinery-fabrication-
retail step is a b o u t 4 2 %. If the w orkshops are able to recover the silver
contained in the g o ld , they can im prove their m argin. The silver recovery
has not been taken into account in the indicative value chain estim ation.

This study shows that the supply side o f g o ld is fragm ented and thus
presents com petitive, p o lyp olic m arket conditions and it also shows that
the jewelry industry w ould not depend on im ported go ld . In the sub
section on "Sources o f raw materials and consum ption by the jewelry
m anufacturing sector" (section 6.6) an input o f a few hundred kilogram s
o f go ld per year into the jewelry fa b rica tio n was estim ated. The supply
o f this a m ou n t by the dom estic m ining industry is no problem and w ould
not interfere with the activities o f the Treasury Fund o f the BoM.

As the costs fo r the raw m aterial g old may a m o u n t to up to 9 0 % o f


the production costs fo r fine jewelry, it is im perative that the legal and
adm inistrative environm ent considers low taxes, and makes provision
fo r credit and loans to the g old workshops and jewellers.

Labor costs are the second highest cost factor. A t the m om ent, M o n g o lia
still possesses a com parative advantage, but with the strong Togrog
and o ng oin g la b o r cost in fla tio n, this advantage may be lost soon.
H ard com petition can be anticipated from low cost pro d u cin g countries
(Turkey, T hailand, Republic o f Korea, Phillipines, Israel, M id d le East
and C hina). C hina is fast em erging as a m a jo r significant c o m p e tito r
fo r the international fine jewelry industry with cheap la b o r as well as
m odern and a utom ated factories.

A dequate assay facilities fo r the determ ination o f the co m position of


go ld ore exist. The Law on Treasury requires (and at the same tim e
limits) the special g o ld lab o ra to ry o f M ASM to assay g o ld and silver
only. Physical properties o f g o ld , including the color, depend on the

40 Mziray, S. (2008): The ap plicability o f m ining and trade laws on competitiveness


o f small scale go ld miners in Tanzania and Z a m bia; fo r Round Table A frica - An
overview o f go ld value chains fo r Tanzania and Zam bia, 31 p. (h ttp ://w w w .
roundtableafrica.net/getattachm ent/V alue-C hain-R esearch/V alue-C hain-research/
V alue-C hain-research/Sheila-M ziray-G old-V alue-C hain-A nalysis-of-Tanzania---
Zam bia.pdf.aspx)
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

presence o f other m etallic elements. Therefore, it w ould be desirable


that o ther chem ical elements w hich may be present in the raw gold
w ill also be analysed. These co u ld be the platinum g ro u p metals, base
metals such as copper, but also noxious elements should be determ ined.
Mercury, fo r exam ple, is a known toxic elem ent, and nickel may cause
allergies when present in higher am ounts, especially in g o ld as applied
in the m edical and dental fields.

Hallm arking the products is also carried out by the special gold laboratory
o f MASM. The laboratory has acquired an X-ray fluorescence spectrometer
and at the tim e o f w riting this report the e quipm ent is being put into
operation. In the jewelry industry, this equipm ent is known as karatmeter.
In a non-destructive method, a karatm eter determines the fineness o f the
product with an accuracy of 0.01 weight-percent which is perfectly adequate.

Production Description of inputs Value of Revenue value


steps inputs (cost (MNT/ added
price) gram) (MNT/
(MNT/gram) gram and
%age)

In-house- C o m p a n y p ro fit 6 8 ,8 8 1 9 8 ,0 0 0 2 9 ,1 1 9
re fin in g , Retail costs (w hich is
p ro d u c tio n e q u iva le n t
Taxes to
o f jew elry
a n d re ta il F a brication 4 2 %)
ing R efine m en t/sm eltin g o f
p rim a ry a n d seco ndary
g o ld in w o rksh o p

M in in g a n d C o m p a n y p ro fit a n d b u si 5 0 ,0 0 0 London 18,881


b e n e fic ia ness risk G o ld Fix (e quivale nt
tio n G o ld d o re b a r a n d assay (July 2 7 , to 3 8 %)
2012)
ing costs
m inus
Taxes, royalties 1.5 % fo r
C a p ita l costs re fin in g
R eclam ation a n d re c u lti charges:
vatio n 6 8 ,881

R e-investm ent (e x p lo ra
tio n , e n la rg e m e n t o f
m ines, processing plant)
Processing o f ore
M in in g costs (a verag e o f
p la c e r m inin g)

Table 7: Tentative inputs and revenues in m a jo r production steps o f value chain


(gold prices and exchange rates as o f July 2 7 , 2 0 1 2 )
GOLD IN MONGOLIA- Overview of value chain from mine to fine gold jewelry

R ecom m endations

The insight gained through the pre p a ratio n o f this study also allow s fo r
the provision o f some suggestions to the structuring o f a fine jewelry
production subsector.

The success o f a jewelry industry rests on a secure and long -d a te d supply


o f com petitively priced raw m aterials, m ainly the dom estically produced
gold. For com pany, internal m arketing strategies and so cio -e co n o m ic
considerations, prospective g o ld sources are the interm ediate and
sm all-scale sized mines. A challenge lies in creating a legal fram ew ork
to channel the inform al g old pro d u ctio n into the supply line. M o n g o lia
has collected m uch experience with the fo rm a liza tio n o f the artisanal
and sm all-scale go ld mines. From num erous years o f experience and
trials the architects o f the ASM resolution learned that impetus and
incentives fo r fo rm a liza tio n must be provided rather than controls and
restrictions. Thus, a legal and adm inistrative environm ent must be
created w hich makes it profitable and w orthw hile fo r the artisanal gold
miners and the goldsm ith w orkshops to use the o fficial channels o f the
gold trade.

The im plem entation o f a tho ro u g h m arket analyses is im perative before


investments are m ade o r a policy is put into place. Areas to be explored
are:

Investigation o f the local dem and profile w hich is co n tro lle d by


a small p o p u la tio n number, with strong buying pow er o f parts o f
this p o p u la tio n

Export opportunities and the effects o f seasonal tourism w ould


also be items to investigate.

Branding o f product lines and outlets w ould help to bring the


products o u t o f anonymity.

Identification o f the price range w hich yields the greatest profit

Currently, fa irtra d e -fa irm in e d (FTFM) initiatives in the jewelry sector


are experim enting in several parts o f the w orld and it w ould be
w orthw hile to share experience with this m ovem ent. FTFM counts
on the assum ption that buyers are w illin g to pay a som ewhat
higher price if the product is certified to have been m ined in an
environm entally friendly and conflict-free way.
GOLD IN MONGOLIA - Overview of value chain from mine to fine gold jewelry

W hen asked fo r needs and deficits in the jewelry fa b rica tio n , those
surveyed most often said th a t p ro p e r tra in in g o f g o ld - and silversmiths
in the design, o p eration and use o f m odern and advanced machines
and tools w ould be helpful. S upport o f the jewelry fa b rica tio n sector
w ould include building the technical and artistic capability o f staff, but
should also include fa cilita tin g access to credit lines to acquire m odern
equipm ent and production facilities.
Report researched an d p re p a re d by:

Dr. R. Muff, Bundesanstalt fur Geowissenschaften und Rohstoffe, Hannover, Germany

C on trib uters of M in e ra l Resources A utho rity of M o n g o lia (M RAM ):

Mr. Nyandag Njamtsend


Mr. Ser-Od G a n -O ch ir
Mr. Dorj Sansardarimaa

Printing:
G am m a photo agency
August 201 2

Design:
D.Bold (Gamma photo agency)

Source o f supply:
M ineral Resources Authority of M ongolia
Barilgachdyn talbai 3
Ulaanbaatar 151 70, M ongolia

Suggested citation:
MUFF, R. et al. (2012): G old in M ongolia - O verview o f value chain from mine to fine gold
jewelry. M ineral Resources Authority o f M ongolia, Ulaanbaatar, 40 p.

Disclaim er:

All data and inform a tion contained in this report has been collected and com piled
with great care. W hen data collected from reports, statistics, internet pages o r
interviews was inconsistent o r contradictory, plausibility checks were conducted
before integrating the data into the report.

The a u th o r o r contributors o f the study d o not accept any responsibility fo r the


correctness o f the inform a tio n contained herein.