2011, presentation, cluster development in mongolian mining sector, mr jim dwyer

Cluster Development in Mongolian Mining Sector

Jim Dwyer, Executive Director, Business Council of Mongolia3 November, 2011

BCM Introduction

• BCM is a leading stakeholder advocate for businesses in Mongolia. Approximately 200

members including most every large domestic and international corporate plus SMEs,

IFI‟s, NGO‟s and Embassies comprise BCM‟s membership. The following companies are

represented on BCM‟s Board of Directors:

1. AIDD 13. Monnis International

2. Boroo Gold 14. Newcom Group

3. Breakthrough PR 15. Oyu Tolgoi

4. Erdene Resources Development 16. Peabody Energy

5. Just Group 17. Petro Matad

6. Khan Bank 18. PricewaterhouseCoopers

7. Leighton Asia 19. QGX Group

8. Lynch & Mahoney 20. Rio Tinto

9. MCS 21. Sant Maral Foundation

10. MICC 22. South Gobi Energy

11. Mongolian Star Melchers 23. Tavan Bogd

12. Mongolyn Alt Corporation 24. Trade & Development Bank

25. UMC Holding

• BCM promotes trade and investment. 100 volunteers in 7 BCM working groups serving

as a forum for dialogue with the GoM, public and BCM members on important „business

climate‟ issues. Our weekly BCM Newswire is the strongest source of business,

economic and political news on Mongolia in English (members only). Bi-lingual websites

link to BCM‟s Mongolian Mining Supply Chain database of 1,300 registered companies,

90% Mongolia-owned. Monthly BCM member meetings are held in UB with top

government and industry speakers plus networking receptions. In addition several other

special workshops and events are organized.

• If your company is a stakeholder in Mongolia or is seriously considering trade or

investment in Mongolia, BCM Membership is highly beneficial.

Mongolia Mining Supply Chain

SUPPLY CHAIN DEVELOPMENT POTENTIALS $13 Billion worth of mining investments are planned

Of which $1.3 Billion worth of demand for mining services companies.

Multiplier effect of investment on the mining supply chain will be significant,

estimated at 3 - 5 times

Source: MICC Industry Estimates

MINING/MINING SERVICES SPEND

700M/200M

2,000M/200M500M/40M500M/60M

350M/100M600M/100M

7,000M/600M

Ulaanbaatar


SUPPLY CHAIN DEVELOPMENT POTENTIALS

Has approximately 1,000 identified mineral deposits and 8,000 occurrences

that include copper, gold, iron, coal, and uranium

15 deposits have been targeted by the government as strategically important

Source: (1)http://www.pnowb.org/admindb/docs/Report_PNoWB_FV_Mongolia_FINAL_12NOV09.pdf



In addition to Oyu Tolgoi, at least other 24 other resource deposits to be

developed and privatized

Government plan is to attract about US25 BN in foreign investments into

these projects in next 5 years (Source: Eurasia Capital Jan 2010)

Mining investment requirements % of total (coal case) under 30mn tons/year

production scenario

600MW Power Plant

26%Open-cut

Coal Mining22%Railway,

24%

Others 12%

Coal Beneficiation

16%



Government of Mongolia officially announced list of priority projects to

implement up to 2015 (Decree 320 from 14 Oct 2010) with approximate

estimated budget of$20.19BN including:

Oyu Tolgoi, $4BN

Tavan Tolgoi coaking coal project, $0.8BN

Tavan Tolgoi Power station, $0.5BN

Atanbulag Zamiin Ud highway, $1.2BN

Local and international highway, $1.2BN

New Railroad, of $0.8BN

Fifth power plant, $0.3BN



2,600km Millennium road – paved East-West Road – to be constructed

5,600km of new railroads to be constructed


DIFFICULTIES ASSOCIATED WITH CREATING A SUPPLY CHAIN

Mining business requires an establishment of practically complete

supply chain infrastructure, including physical and electronic and new

urban settlement. This could be hindered with:

Remoteness

Lack of infrastructure to reach the site

Lack of investment

Scarcity of skilled labor to use state of the art technology

Creating a new supply chain will require a cooperation with

neighboring industries and government. This could be hindered with:

Lack of government experience in PPP

Increase in corruption (Transparency International Ranks

Mongolia 120)

Lack of willingness for cooperation


DIFFICULTIES ASSOCIATED WITH CREATING A SUPPLY CHAIN

Existing supply chain could be a part of future supply chain, but might

create problems because of:

Old technology

Inefficiency

Bureaucracy

Labor skill


Michael E. PorterBishop William Lawrence University Professor

Michael E. Porter is a leading authority on competitive strategy, the competitiveness and economic development of nations, states, and regions, and the application of competitive principles to social problems such as health care, the environment, and corporate responsibility.Professor Porter is generally recognized as the father of the modern strategy field, as has been identified in a variety of rankings and surveys as the world‟s most influential thinker on management and competitiveness.He is the Bishop William Lawrence University Professor, based at Harvard Business School. A University professorship is the highest professional recognition that can be awarded to a Harvard faculty member. In 2001, Harvard Business School and Harvard University jointly created the Institute for Strategy and Competitiveness, dedicated to furthering Professor Porter‟s work.He is the author of 18 books and over 125 articles. He received a B.S.E. with high honors in aerospace and mechanical engineering from Princeton University in 1969, where he was elected to Phi Beta Kappa and Tau Beta Pi. He received an M.B.A. with high distinction in 1971 from the Harvard Business School, where he was a George F. Baker Scholar, and a Ph.D. in Business Economics from Harvard University in 1973.

Teaching

Professor Porter's ideas are the foundation for courses on strategy and competitiveness, and his work is taught at virtually every business school in the world.At Harvard, Professor Porter‟s course, Microeconomics of Competitiveness, is a graduate course open to students from across the university. It is also taught in partnership with more than 80 other universities from every continent using curriculum, video content and instructor support developed at Harvard.Professor Porter developed and chairs the New CEO Workshop, a Harvard Business School program for newly appointed CEOs of the world‟s largest and more complex corporations. Held twice each year by invitation only, the workshop focuses on the challenges facing new CEOs in assuming leadership. His Harvard Business Review article with Jay Lorsch and Nitin Nohria, „Seven Surprises for New CEOs‟ (October 2004), describes some of the learning from this ongoing body of work.Professor Porter speaks widely on strategy, competitiveness, health care delivery, related subjects to business, government, non-profit, and philanthropic leaders.

http://www.isc.hbs.edu/

http://www.isc.hbs.edu/


Research

StrategyProfessor Porter‟s core field is competitive strategy, which remains a major focus of his research. His book, Competitive Strategy: Techniques for Analyzing Industries and Competitors, is in its 63rd printing and has been translated into 19 languages. His second major strategy book,Competitive Advantage: Creating and Sustaining Superior Performance, was published in 1985 and is in its 38th printing. His book On Competition (2008) contains his most influential articles on strategy and competition, including the award-winning Harvard Business Reviewarticle 'What is Strategy?' (1996) and 'The Five Competitive Forces That Shape Strategy' (2008), a revised and extended version of his classic article on industry analysis. Professor Porter‟s next major book on strategy is in process.

Competitiveness of Nations and RegionsProfessor Porter's 1990 book, The Competitive Advantage of Nations, presents a new theory of how nations and regions compete and their sources of economic prosperity. Motivated by his appointment by President Ronald Reagan to the President's Commission on Industrial Competitiveness, the book has guided economic policy in countless nations and regions. Subsequent articles have expanded on the concept of clusters (geographic concentrations of related industries that occur in particular fields) and other aspects of the theory.National Competitiveness. Professor Porter has published books about national competitiveness covering New Zealand, Canada, Sweden, and Switzerland. His book Can Japan Compete? (2000) challenged long-held views about the Japanese economic miracle.Professor Porter chairs the Global Competitiveness Report, an annual ranking of the competitiveness and growth prospects of more than 120 countries published by the World Economic Forum.Clusters. Professor Porter‟s ideas on clusters, first introduced in 1990, have given rise to a large body of theory and practice throughout the world. Cluster-based economic development thinking has resulted in many hundreds of public-private cluster initiatives in virtually every country. The article “Clusters and Competition: New Agendas for Companies, Governments, and Institutions” and On Competition (1998) provide a summary.Regional Competitiveness. Professor Porter extended his work on competitiveness to states, provinces, and other sub-national regions. He led the Clusters of Innovation project which developed a framework for economic policy in U.S. regions. He also created the Cluster Mapping Project at Harvard, which provides rich data on the economic geography of U.S. regions and clusters on a special web site. Professor Porter‟s methodology is the basis for comprehensive new data on the economic geography of the 27 countries of the European Union. The article „The Economic Performance of Regions‟ (2003) summarizes some of the important findings from this data, and a new paper, „Convergence, Clusters and Economic Performance‟ (2006), with Mercedes Delgado and Scott Stern, presents the first comprehensive statistical examination of U.S. regional performance using cluster data.Innovation. Professor Porter is co-author (with Professor Scott Stern and others) of a body of work on the sources of innovation in national and regional economies, including The New Challenge to America's Prosperity: Findings from the Innovation Index (1999), 'The Determinants of National Innovative Capacity' (2000), and 'Measuring the 'Ideas' Production Function: Evidence from International Patent Output' (2000).

http://www.compete.org/nri/clusters_innovation.asp

http://data.isc.hbs.edu/isc/

Equipment

Suppliers


MONGOLIAN MINING SERVICES CLUSTER MAP

Materials

Suppliers

Airlines /

Charters

Financial

Services

Investors

DrillingAIDD, Major

Drilling

Surveying

Contract MiningConnect

Resource

Services

Camping

Logistics

Lab

AnalysisConsulting

Core: Mining Services

Multilaterals (EBRD, ADB, WB)

Government Institutions

Universities (NUM)

National

Mining

Association

National

Chamber of

Commerce

Business

Council of

Mongolia

Non Government Organizations

Organizations

for collaboration

Mining

Companies

Oil & Gas

Related ClustersUpstream

Downstream

Source: Mongolia

Mining Services

Cluster Research,

(Prof. M.E Porter,

Harvard Business School)


TYPES OF MINING SERVICE COMPANIES OPERATING TODAY

Types of Service Number of Firms Estimated revenue

Contract Mining 2 $55M

Drilling 10 $45M

Surveying 8 $30M

Camping & Logistics 7 $15M

Consulting 4 $7M

Lab Analysis 2 $2M

Source: Market Data 2009 MICC


Local Capital and Personnel Utilization Due to Seasonality

The harsh Mongolian winter climate, when temperatures drop to

extremes of -45C, halts mineral

exploration related activities for up to five months a year.66 The

impact of climate on the ability to perform

different services varies, but within exploration related

services, disruptions in one usually cause disruptions in others.

Drilling - Most severely impacted due to subsoil freezing that

makes drilling difficult.

- There are also problems with liquids freezing.

- High capital intensity makes seasonality particularly

difficult.

Source: Mongolia Mining Services Cluster Research,

Prof. Michael E. Porter, Harvard Business School


Surveying

- Varies by surveying technology - some technologies are

ineffective when the ground is snow-covered and any technology

involving bore-holes also encounters

difficulties.

- Since personnel mobility is generally lower in the winter, many

clients do not

come during the winter months and business generally slows

down.

Contract Mining

-Uninterrupted for most mineral as large mining operations can run

24 hours a day and 365 days a year.

-- Some issues result from moisture that hardens coal when frozen,

but these can be addressed (with steam for example)




Camping & Logistics

-Can be provided all year round.

- However, closely tied to the personnel and goods movement

associated with the

other services.

Consulting

-Can be provided all year round.

- Some consulting services are tied to immediate fieldwork and are

hence impacted,

while others like mine planning can be done off season.

Labs - Can be provided all year round.




Cluster Value Proposition

The Mongolian Mining Services Cluster has some unique

characteristics. First, Mongolia has strong

cultural, linguistic and political ties to China and Russia. It also

is one of few states that have diplomatic ties to

less accessible states such as North Korea and Burma.

Second, there is a demographic window of opportunity,

which coupled with strong educational institutions, can provide

a solid workforce. Third, Mongolia is politically stable with

relatively advanced democratic and market reforms. Lastly due

to the size complexity and wide range of mineral deposits

present, the demand for mining services is sophisticated and

diverse.



Mongolia Mining Supply Chainlearning from experience

to become a high performing mining industry

These characteristics lend themselves to a value

proposition with the following elements:

1. To be the supplier of choice for central Asia and

politically inaccessible states in Asia.

2. To have world-class geophysicists, geologists, and

mineral economists, combined with cutting edge

technology and the highest safety, and environmental

standards.

3. To be a one-stop-shop for a wide range of services

relating to the diversity of mineral types.




SHARED RISK

RESPONSIBILITY

REVENUE

Creation of mining supply chain is ALL ABOUT SHARING

Between stakeholders

INITIATIVE

INVESTMENT

IMPLEMENTATION JOINT

Note: Complete Study on BCM website, Mongolian Reports

Mining Supply Chain Database

BCM’s Mining Supply Chain Database

• The Business Council of Mongolia has developed and completed a database

comprised of 1,300 Mongolian-based suppliers of products and services. These

companies initially registered based upon a nationwide survey conducted by Sant

Maral Foundation as a result of broad nationwide advertising via newspaper and other

forms. The survey was initiated and funded by Oyu Tolgoi.

• The registrants are 90% Mongolian, 5% JVs and 5% foreign–owned. Their

information is classified and included under 26 different industry segments, plus

additional levels of subsegments.

• See the links to the MSC database on BCM‟s websites – bcmongolia.org and

bcm.mn. We expect to see this database improved significantly over time by an IT-

based entity and become a portfolio for international companies to seek trusted

Mongolian business partners. Now 7000 plus hits per month after upgrade of MN site.

• The size of this nationwide database will grow as the ripple effect caused by the

initial splash of the OT agreement spreads. Vocational training will have to be ramped

up significantly to provide trained and qualified Mongolian workers for this supply

chain. More “white collar” professionals needed as well.

• We intend to develop Mongolia‟s largest free B2B online system.

http://bcmongolia.org/



http://bcm.mn/

http://bcm.mn/

http://bcm.mn/

Categories

1. Construction

2. Energy

3. Fixed Plant & Equipment

4. Transport & Logistics

5. Mobile Equipment

6. Maintenance repair operations

& Consumables

7. Production Consumables

8. Textiles & Leather products

9. Agriculture

10. Lights & Lighting

11. Food & Beverage

12. Furniture & Furnishings

13. Ancillary Services

14. Civil & Mining Services

15. Facilities & Site Management

16. Information Technology

17. Maintenance Services

18. Banking Services

19. Advertising & Printing

20. Consulting & audit services

21. Environmental, Health and Safety

22. Research & Development

23. Training and Education

24. Legal consulting/Advocacy

25. Travel

26. Ecology Assessment & Environment

Minor categories

3.1 Materials Movement

3.2 Materials Processing

Sub-categories

Bucket wheels

Conveyor Belting

Conveyor Equipment & Supplies

Reclaimers

Mongolia Mining Supply Chain Database

Thanks for your attention!