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Preamble
Preamble The discovery of Oyu Tolgoi, Mongolia, one of the largest copperegold deposits in the world, became one of the most remarkable events in the mining industry of Mongolia during the 21st century. The authors of the book took a direct part in the events that consequently led to the discovery of Oyu Tolgoi, which is now rightly included in the global list of unique mineral deposits. In the following pages, the authors convey their discovery story interestingly and honestly. We are proud that both Mongolian geologists and their overseas counterparts successfully managed to combine their knowledge and experience, determination and persistence, capital and persuasiveness, which altogether consequently lead them to their final discovery goal. Readers will get a glimpse of how Mongolian geologists worked together with their foreign colleagues. Undoubtedly, the path toward the discovery of Oyu Tolgoi, with its geological complexity, required implementation of new technologies, some of which were applied for exploration in Mongolia for the first time. For example, advanced remote sensing and geophysical methods, well covered in the book, and also technologies of efficient deep drilling to depths of 1,300 to 1,500 m and developing mine tunnels for extended distances to 2,600 m used on later stages of exploration and development of Oyu Tolgoi. At the end of the 20th century, we hailed the completion of Erdenet Complex construction, the flagship of our mining industry. We worked together with the Soviet specialists side by side. To this day, we feel the effects of this cooperation. Former General Director of Erdenet Shagdariin Otgonbileg invited foreign experts to join their efforts in search of large copper deposits in Mongolia. For this purpose, he facilitated the creation of the joint venture ErdeneteMagma with the American mining company Magma Copper. The book lays out the details of how this process started and evolved. The copper deposit received the name Oyu Tolgoi for an apparent reasondin the past, Mongols used this term for copper oxides on the surface. Hence the discoverers selected the name for their discovery quite appropriately. Foreign investors became interested in the mineral potential of Mongolia for several reasons firstly because Mongolia became openly democratic, and secondly, due to the adoption of new laws favorable to foreign investments. There were many obstacles on the path toward the discovery of Oyu Tolgoi, often driven by economic and political risks. These and other dangers could stop
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exploration and prospecting work in the country at any moment, as depicted by the authors in this book. Awkward words by Robert Friedland at the 2005 Investment Conference in Miami caused big protests in Mongolia, resulting in changes to the legislature. Consequently, despite our frequent expressions of dissatisfaction with R. Friedland, thanks to his effort and persistence the Oyu Tolgoi project became a success. The leading mining company BHP, which played a pivotal role in the original discovery of Oyu Tolgoi, came to Mongolia twice. On one hand, it was related to the global economic crisis, and on the other, it was driven by the unstable mineral legislature of Mongolia. Another contributing factor was ongoing internal change and transformation within BHP at that time. The book contains useful, educative information about prudent approaches for the resolution of critical situations in the investment policy. Maintaining a stable environment plays a crucial role in long-term investments, and the legislature must consider any changes very thoughtfully and exceptionally carefully. The book also discusses the challenges and complexities of geological exploration and the discovery of a new mineral deposit that is economically viable. In many respects, this is more complex than extracting already discovered resources from the ground. Finding a new deposit involves a lot of unconventional thinking, persevering through various complications and challenges to determine the most effective exploration methods for different types of deposits. It is also essential to establish the right productive and collaborative environment among numerous experts on the exploration team. All these efforts may become in vain and will fail if the right setting is not established. In the book, the authors demonstrate that until Oyu Tolgoi became an obviously economically viable project and truly a world-class discovery, it was important to have a hard coordinated effort from all geologists, geochemists, geophysicists, and mining engineers. I do not remember a previous time in Mongolia when such eloquent language could describe a devoted hard work of geologists from sunrise to sunset that they were short of time not only to show off their findings but also to explain properly the importance of their discovery to those who criticize them so often and so quickly. Logically, for geologists, a rock is a source of information and understanding the importance of their future discovery. By nature, geologists are optimistic thinkers who have deep faith in their findings. Out of almost 8,000 mineral prospects registered in Mongolia, few will become commercial deposits. Discovering such economic deposits requires enormous energy and effort. Every so often, when such a successful discovery occurs, it makes a tremendous positive impact on the country’s economy.
Preamble
xi
First President of Mongolia, Doctor of Science.
Punsalmaagiin Ochirbat Discovery requires a complex sequence of actions and events based on facts, interpretation of those facts, guesswork, skill, and circumstances beyond one’s control coupled with a proper dosage of serendipity and perseverance. Discovery leading to the identification, development, and eventually construction of a significant metal mine in a remote part of the world lacking modern infrastructure furthermore requires a sustained devotion to a belief in success as well as corporate financial support along with good governmental relations. None of these actions is easy at the time, nor are they always made correctly, as the history of many deposits and prospects tells us. Understanding these events is essential for any exploration geologist, but rarely the details of the process leading to success are making to the pages of publications. Fortunately, it is possible to learn from the past, if one takes the time and spends the effort. The book entitled “Discovery of Oyu Tolgoi: Case Study of Mineral and Geological Exploration” by S. Diakov, S. Sanjdorj, and G. Jamsrandorj fills that gap in knowledge. In the book they describe in chronologic order the sequence of events and decisions that over 20 years culminated in the discovery of one of the major copper and gold resources found in the last 50 years. Beginning with a brief history of Magma Copper before the entry into Mongolia, the book follows the sequence of events through the decision to explore in Asia along with various governmental and corporate decisions required to embark on what is well known to be a long and tortuous path to a significant mineral deposit. Critical to the successful process outlined is the crucial and sometimes fortuitous steps that aided the rapidly changing political environment in Mongolia and facilitated a desire of a mostly agrarian country to begin to diversify and transform their economy. For many developing countries, this requires the usage of their natural resources and a set of legal and environmental regulations that provide a solid basis for economic activity. The book outlines the corporate and governmental steps and missteps that were made along the path that resulted in the identification of the porphyry CueAu deposits now being mined in the Gobi Desert of southern Mongolia. Advancement toward the discovery success started with the initial decision of Magma Copper to explore in Mongolia through the establishment of the joint venture exploration agreement with the Erdenet Mining Company, the operators of the Soviet-constructed porphyry CueMo mine in northern Mongolia. Before moving out in the field, the joint venture conducted a compilation of all geologic and mineral occurrence data and took decisions on which types of metal
xii Preamble
commodities to direct their focus on, followed by wide-ranging reconnaissance field reviews guided by the data compilation. The result of these initial steps in the exploration program led the explorers to focus their attention on porphyry copper targets in the accreted magmatic arcs in the Gobi, as these types of deposits were known in the region at the time. Furthermore, they had the potential to be of significant economic value to support the development of the required infrastructure in an area without roads, power, or even towns. After closing the joint venture, BHP decided to continue copper exploration in Mongolia on their own. This sequence of events finally brought them to the Oyu Tolgoi area with the resulting discovery and recognition of outcropping porphyry copper style veins in a couple of small hills rising a few meters above the desert terrain. Accompanying or perhaps overriding the on-the-ground geologic, logistical, and political events, as well as corporate decisions, personnel changes at all levels, takeovers, and mergers, and ultimately changes in exploration strategies intertwined with the internal corporate approach, are presented in a factual manner. This gives the readers an opportunity to follow the dynamics of these events during the early stages of the discovery of Oyu Tolgoi deposit. In the end, it was a corporate decision based on their internal economic analysis that paved the path for a risk-adverse project owner to exit the project to be replaced by the risk-taking company. The last change in managers of the exploration program provided the final impetus to identify the full mineral potential of the prospect and to the identification of the vast quantity of metal that has become the known Oyu Tolgoi mine. As stated in the introductory pages, the book is not intended to be a scientific document, although historical, geologic, and geophysical maps and other observations critical to decisions are described. Instead, the book is probably one of a few books that dispassionately outlines the history of the discovery of a significant metal mine, giving credit to all who contributed but also not neglecting those that may have unwittingly hindered the process. In this context the book serves a vital part of the historical geology lore, and all young geoscientist entering the business of resource exploration and extraction should take the time to become aware of the lessons presented. Richard M. Tosdal, Ph.D., P.Geo Folly Beach, South Carolina, U.S.A.
ix
x Preamble
exploration and prospecting work in the country at any moment, as depicted by the authors in this book. Awkward words by Robert Friedland at the 2005 Investment Conference in Miami caused big protests in Mongolia, resulting in changes to the legislature. Consequently, despite our frequent expressions of dissatisfaction with R. Friedland, thanks to his effort and persistence the Oyu Tolgoi project became a success. The leading mining company BHP, which played a pivotal role in the original discovery of Oyu Tolgoi, came to Mongolia twice. On one hand, it was related to the global economic crisis, and on the other, it was driven by the unstable mineral legislature of Mongolia. Another contributing factor was ongoing internal change and transformation within BHP at that time. The book contains useful, educative information about prudent approaches for the resolution of critical situations in the investment policy. Maintaining a stable environment plays a crucial role in long-term investments, and the legislature must consider any changes very thoughtfully and exceptionally carefully. The book also discusses the challenges and complexities of geological exploration and the discovery of a new mineral deposit that is economically viable. In many respects, this is more complex than extracting already discovered resources from the ground. Finding a new deposit involves a lot of unconventional thinking, persevering through various complications and challenges to determine the most effective exploration methods for different types of deposits. It is also essential to establish the right productive and collaborative environment among numerous experts on the exploration team. All these efforts may become in vain and will fail if the right setting is not established. In the book, the authors demonstrate that until Oyu Tolgoi became an obviously economically viable project and truly a world-class discovery, it was important to have a hard coordinated effort from all geologists, geochemists, geophysicists, and mining engineers. I do not remember a previous time in Mongolia when such eloquent language could describe a devoted hard work of geologists from sunrise to sunset that they were short of time not only to show off their findings but also to explain properly the importance of their discovery to those who criticize them so often and so quickly. Logically, for geologists, a rock is a source of information and understanding the importance of their future discovery. By nature, geologists are optimistic thinkers who have deep faith in their findings. Out of almost 8,000 mineral prospects registered in Mongolia, few will become commercial deposits. Discovering such economic deposits requires enormous energy and effort. Every so often, when such a successful discovery occurs, it makes a tremendous positive impact on the country’s economy.
Preamble
xi
First President of Mongolia, Doctor of Science.
Punsalmaagiin Ochirbat Discovery requires a complex sequence of actions and events based on facts, interpretation of those facts, guesswork, skill, and circumstances beyond one’s control coupled with a proper dosage of serendipity and perseverance. Discovery leading to the identification, development, and eventually construction of a significant metal mine in a remote part of the world lacking modern infrastructure furthermore requires a sustained devotion to a belief in success as well as corporate financial support along with good governmental relations. None of these actions is easy at the time, nor are they always made correctly, as the history of many deposits and prospects tells us. Understanding these events is essential for any exploration geologist, but rarely the details of the process leading to success are making to the pages of publications. Fortunately, it is possible to learn from the past, if one takes the time and spends the effort. The book entitled “Discovery of Oyu Tolgoi: Case Study of Mineral and Geological Exploration” by S. Diakov, S. Sanjdorj, and G. Jamsrandorj fills that gap in knowledge. In the book they describe in chronologic order the sequence of events and decisions that over 20 years culminated in the discovery of one of the major copper and gold resources found in the last 50 years. Beginning with a brief history of Magma Copper before the entry into Mongolia, the book follows the sequence of events through the decision to explore in Asia along with various governmental and corporate decisions required to embark on what is well known to be a long and tortuous path to a significant mineral deposit. Critical to the successful process outlined is the crucial and sometimes fortuitous steps that aided the rapidly changing political environment in Mongolia and facilitated a desire of a mostly agrarian country to begin to diversify and transform their economy. For many developing countries, this requires the usage of their natural resources and a set of legal and environmental regulations that provide a solid basis for economic activity. The book outlines the corporate and governmental steps and missteps that were made along the path that resulted in the identification of the porphyry CueAu deposits now being mined in the Gobi Desert of southern Mongolia. Advancement toward the discovery success started with the initial decision of Magma Copper to explore in Mongolia through the establishment of the joint venture exploration agreement with the Erdenet Mining Company, the operators of the Soviet-constructed porphyry CueMo mine in northern Mongolia. Before moving out in the field, the joint venture conducted a compilation of all geologic and mineral occurrence data and took decisions on which types of metal
xii Preamble
commodities to direct their focus on, followed by wide-ranging reconnaissance field reviews guided by the data compilation. The result of these initial steps in the exploration program led the explorers to focus their attention on porphyry copper targets in the accreted magmatic arcs in the Gobi, as these types of deposits were known in the region at the time. Furthermore, they had the potential to be of significant economic value to support the development of the required infrastructure in an area without roads, power, or even towns. After closing the joint venture, BHP decided to continue copper exploration in Mongolia on their own. This sequence of events finally brought them to the Oyu Tolgoi area with the resulting discovery and recognition of outcropping porphyry copper style veins in a couple of small hills rising a few meters above the desert terrain. Accompanying or perhaps overriding the on-the-ground geologic, logistical, and political events, as well as corporate decisions, personnel changes at all levels, takeovers, and mergers, and ultimately changes in exploration strategies intertwined with the internal corporate approach, are presented in a factual manner. This gives the readers an opportunity to follow the dynamics of these events during the early stages of the discovery of Oyu Tolgoi deposit. In the end, it was a corporate decision based on their internal economic analysis that paved the path for a risk-adverse project owner to exit the project to be replaced by the risk-taking company. The last change in managers of the exploration program provided the final impetus to identify the full mineral potential of the prospect and to the identification of the vast quantity of metal that has become the known Oyu Tolgoi mine. As stated in the introductory pages, the book is not intended to be a scientific document, although historical, geologic, and geophysical maps and other observations critical to decisions are described. Instead, the book is probably one of a few books that dispassionately outlines the history of the discovery of a significant metal mine, giving credit to all who contributed but also not neglecting those that may have unwittingly hindered the process. In this context the book serves a vital part of the historical geology lore, and all young geoscientist entering the business of resource exploration and extraction should take the time to become aware of the lessons presented. Richard M. Tosdal, Ph.D., P.Geo Folly Beach, South Carolina, U.S.A.