03.11.2011 cluster development in mongolian mining sector, mr jim dwyer
TRANSCRIPT
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
Mongolia Mining Supply Chain
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
Mongolia Mining Supply Chain
SUPPLY CHAIN DEVELOPMENT POTENTIALS
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%
Mongolia Mining Supply Chain
SUPPLY CHAIN DEVELOPMENT POTENTIALS
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
Mongolia Mining Supply Chain
SUPPLY CHAIN DEVELOPMENT POTENTIALS
2,600km Millennium road – paved East-West Road – to be constructed
5,600km of new railroads to be constructed
Mongolia Mining Supply Chain
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
Mongolia Mining Supply Chain
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
Mongolia Mining Supply Chain
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.
Mongolia Mining Supply Chain
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).
Equipment
Suppliers
Mongolia Mining Supply Chain
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)
Mongolia Mining Supply Chain
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
Mongolia Mining Supply Chain
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
Mongolia Mining Supply Chain
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)
Source: Mongolia Mining Services Cluster Research,
Prof. Michael E. Porter, Harvard Business School
Mongolia Mining Supply Chain
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.
Source: Mongolia Mining Services Cluster Research,
Prof. Michael E. Porter, Harvard Business School
Mongolia Mining Supply Chain
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.
Source: Mongolia Mining Services Cluster Research,
Prof. Michael E. Porter, Harvard Business School
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.
Source: Mongolia Mining Services Cluster Research,
Prof. Michael E. Porter, Harvard Business School
Mongolia Mining Supply Chain
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.
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