Industrial policy and supply chains 2026-04-26 10 minute read

Mongolia 2026: Oyu Tolgoi underground, Tavan Tolgoi coal, and the third neighbor hedge

Oyu Tolgoi is on a glide path to 500 thousand tonnes of copper a year by 2028. Tavan Tolgoi shipped a record 26.1 million tonnes of coal in 2024, more than 90 percent of it to China. Ulaanbaatar is using the resulting fiscal space to widen the third neighbor diplomacy with Washington, Tokyo, and Seoul, while keeping the Power of Siberia 2 file open. The squeeze is real: an enlarged 126 seat parliament, a 12.0 percent Chinggis bond coupon, and one buyer for almost every export cargo.

Mongolia entered 2026 with the strongest mining cash flow profile in its history. Oyu Tolgoi began sustainable underground production on March 13, 2023, and Rio Tinto reported 169 thousand tonnes of copper in concentrate from the mine in calendar 2024. Phase ramp targets 500 thousand tonnes a year on average from 2028 to 2030, which would make Oyu Tolgoi the fourth largest copper mine in the world. Tavan Tolgoi coal exports hit a record 26.1 million tonnes in 2024 per Erdenes Tavan Tolgoi, with more than 90 percent moving to Chinese steel mills via Gashuun Sukhait and Shiveekhuren. Bank of Mongolia put 2024 GDP growth at 4.8 percent, headline inflation at 6.0 percent, and the policy rate at 11.0 percent, with the tugrik holding near MNT 3,400 per USD. The Ministry of Finance returned to dollar markets in July 2024 with a USD 1.0 billion five year Chinggis bond at a 12.0 percent coupon. The June 28, 2024 election delivered a Mongolian People's Party majority of 68 of 126 seats in the newly enlarged parliament, with Prime Minister Luvsannamsrai Oyun-Erdene retained. China takes roughly 90 percent of exports and supplies about 60 percent of imports. The Third Neighbor Policy is the relief valve: a USD 1 billion second compact under the United States Millennium Challenge Corporation, an Economic Cooperation Roadmap signed in August 2023, and active hedging with Japan, Korea, and India.

Oyu Tolgoi underground: the ramp that resets the global copper supply curve #

Oyu Tolgoi is the single most important industrial asset in Mongolia and one of the most consequential copper projects in the world. Rio Tinto holds 66 percent through Turquoise Hill, with the Mongolian state vehicle Erdenes Oyu Tolgoi LLC holding the remaining 34 percent. The open pit has produced since 2013. The far larger underground block cave entered sustainable production on March 13, 2023, after roughly USD 7 billion of underground capex and a 2022 settlement that wrote off USD 2.4 billion of historic debt owed by the state to Rio Tinto.

Calendar 2024 production from Oyu Tolgoi reached 169 thousand tonnes of copper in concentrate per Rio Tinto investor materials, with the underground share rising quarter on quarter as the Hugo North Lift 1 panel cave drew bell. Rio Tinto guidance for the asset points to an average of 500 thousand tonnes of copper per year from 2028 to 2030, alongside roughly 16 tonnes of gold annually at the peak. At those volumes Oyu Tolgoi would deliver around 2 percent of global mine supply at a first quartile cost position, with byproduct gold and silver pulling all in sustaining costs well below 200 cents per pound.

The macro implication is straightforward: the marginal tonne of new copper supply entering the 2026 to 2030 window is disproportionately Mongolian. International Copper Study Group balances point to a thin global surplus through 2026 followed by a structural deficit as electrification demand builds. For Ulaanbaatar that translates into a fiscal windfall of roughly USD 1.5 to USD 2.0 billion a year in additional royalty, dividend, and corporate tax flows once the mine is at peak, on top of the USD 2.4 billion of copper export receipts already booked in 2024.

Metric	2023	2024	2028 plateau target
Oyu Tolgoi copper production (kt)	146	169	500
Underground share of mill feed	Initial	Rising	Dominant
Mongolia copper exports (USD bn)	2.0	2.4	5.0+
Implied Mongolia share of global copper supply	0.6%	0.7%	2.0%

Tavan Tolgoi coal: 26 million tonnes, one customer, and an IPO debate #

Tavan Tolgoi is the second pillar of the Mongolian mineral economy. The South Gobi deposit holds an estimated 6.4 billion tonnes of coal in place, dominated by hard coking coal sought by Chinese blast furnaces. The state owned Erdenes Tavan Tolgoi operates the East Tsankhi block, while the privately held Energy Resources subsidiary of MCS Group operates Ukhaa Khudag, and the joint Tavan Tolgoi JSC holds smaller licenses.

Erdenes Tavan Tolgoi reported 26.1 million tonnes of coal exports in calendar 2024, a record year, with more than 90 percent of that volume crossing into China through the Gashuun Sukhait, Shiveekhuren, and Bichigt border crossings. The Gashuun Sukhait to Gantsmod cross border railway, completed in 2022, has materially raised throughput and cut trucking costs that historically made up a fifth of delivered prices. Coal export receipts reached USD 6.2 billion in 2024 per Mongolian customs data, more than 40 percent of total goods exports.

An Erdenes Tavan Tolgoi initial public offering has been on the policy agenda since 2011 and remains live in 2026. The current proposal under the Oyun-Erdene cabinet would dual list a minority stake in Hong Kong and on the Mongolian Stock Exchange, with proceeds earmarked for a sovereign wealth fund and direct cash transfers under the Erdenes Mongol scheme. The decision point is whether to list before or after a peak in metallurgical coal prices: spot Australian premium hard coking coal averaged around USD 240 per tonne in 2024 against a 2022 peak above USD 600, and Mongolian discounts to seaborne benchmarks remain wide given the single buyer dynamic.

Coal export indicator	2022	2023	2024
Mongolia total coal exports (Mt)	31.7	69.8	83.7
Erdenes Tavan Tolgoi shipments (Mt)	Sub 10	16.6	26.1
Coal export value (USD bn)	6.5	8.4	6.2
Share to China	Above 90%	Above 90%	Above 90%

Macro and fiscal: 4.8 percent growth, a 12.0 percent Chinggis coupon, and a 126 seat parliament #

Mongolia's macroeconomy in 2024 was the cleanest it has looked since the 2017 International Monetary Fund Extended Fund Facility. Bank of Mongolia recorded real gross domestic product growth of 4.8 percent in 2024, with mining adding more than 1.5 percentage points directly. Headline consumer price inflation closed 2024 at around 6.0 percent, inside the 4 to 8 percent target band, and the policy rate sat at 11.0 percent after a steady disinflation cycle from 13.0 percent. The tugrik traded near MNT 3,400 to the dollar through the year, supported by record copper and coal flows and by central bank reserve building.

Sovereign creditworthiness improved enough to reopen dollar markets. The Ministry of Finance issued a USD 1.0 billion five year Chinggis note in July 2024 at a 12.0 percent coupon, refinancing Development Bank of Mongolia paper and pushing the principal maturity wall out to 2029. The yield is high in absolute terms, around 700 basis points over comparable United States Treasuries at issuance, but the access itself is the signal. External public and publicly guaranteed debt stood near 60 percent of GDP at end 2024, down from above 90 percent at the 2017 trough.

Politically, the June 28, 2024 election was the first under the constitutional amendment that expanded parliament from 76 to 126 seats and introduced a mixed majoritarian and proportional system. The Mongolian People's Party retained government with 68 seats, the Democratic Party rose to 42, and the new HUN Party and Civil Will Green coalition took the remainder. Prime Minister Oyun-Erdene survived intraparty pressure and announced a coalition cabinet with the Democratic Party, an explicit move to depolarize mining policy ahead of the Oyu Tolgoi underground ramp.

China and Russia: the export vise and the Power of Siberia 2 file #

Mongolia is the most China dependent landlocked economy in Asia. National Statistics Office trade data for 2024 put goods exports at USD 15.0 billion, with minerals accounting for roughly 90 percent of the total. China takes about 90 percent of those exports and supplies about 60 percent of imports, including refined petroleum products that move through the Erenhot crossing. The 2022 closure during Chinese zero COVID controls cost Erdenes Tavan Tolgoi roughly USD 1 billion in deferred revenue. The response has been throughput diversification: the Zuunbayan to Khangi line and the Tavantolgoi to Gashuun Sukhait line, both opened in 2022, have raised annual coal rail capacity above 60 million tonnes by 2025.

Russia is the second of two physically possible neighbors. Power of Siberia 2, the proposed 50 billion cubic meter per year gas pipeline from Yamal through Mongolia to China, has been under negotiation since 2020. Gazprom and the Mongolian government completed pre construction surveys, but as of late 2025 the line had not appeared in the approved Mongolian state development plan for 2024 to 2028 that parliament passed in May 2024. Beijing and Moscow remain in dispute over price linkage and offtake guarantees. Mongolia has not signed up to Russian uranium offtake or oil swap memoranda discussed in 2023 and 2024.

Refined petroleum is the second pinch point. Mongolia imports more than 90 percent of its petroleum products from Russia via the Naushki to Sukhbaatar rail line. Construction of the long delayed Sainshand refinery, financed by an Indian Exim Bank credit line of USD 1.7 billion, is scheduled for completion in 2027 and would cover roughly 70 percent of domestic gasoline and diesel demand. Sanctions exposure binds the Power of Siberia 2 calculus: Mongolian banks process payments through correspondent relationships in Hong Kong, Singapore, and Frankfurt that would not survive secondary sanctions tied to pipeline financing.

Third neighbor policy: Washington, Tokyo, Seoul, and the open data window #

The Third Neighbor Policy, codified in the 2011 foreign policy concept, is the operational hedge. The August 2023 visit by Prime Minister Oyun-Erdene to Washington produced an Economic Cooperation Roadmap covering critical minerals, aviation, and open skies, and a Memorandum of Understanding between the Department of State and the Ministry of Foreign Affairs on rare earths and uranium offtake. The United States Millennium Challenge Corporation second compact, signed in 2018 and active through 2025, is a USD 350 million water infrastructure program, and a successor compact under discussion would aim higher at the USD 1 billion threshold contingent on policy progress on procurement transparency and judicial reform.

Japan and Korea are the deeper economic partners. The Japan Mongolia Economic Partnership Agreement, in force since 2016, covers more than 96 percent of bilateral trade lines and has anchored Toyota, Mitsubishi, and JOGMEC interest in Mongolian rare earth offtake. Korea is the principal source of foreign labor remittances and a growing investor in renewable power. India has pursued a slower but explicitly strategic posture: the Sainshand refinery credit line, defense cooperation including a recurring joint exercise, and 2024 discussions on uranium yellowcake offtake.

For mining houses and multinationals, the policy translates into a workable but narrow window. Foreign direct investment outside the Oyu Tolgoi compound remains modest, at roughly USD 2.5 billion in 2024 inflows per Bank of Mongolia, and concentrated in mining services. Procurement reform under the 2024 Public Procurement Law and a new Sovereign Wealth Fund Law passed in April 2024 are the two structural levers that determine whether the next decade of mineral rents finance domestic capacity or repeat the boom and bust pattern of 2010 to 2016.

Recommendations: mining houses, sovereign creditors, multinationals #

For diversified mining houses with copper exposure, the priority is to lock offtake from Oyu Tolgoi tonnes that are not already committed to Rio Tinto's marketing book, and to bid into the small remaining license rounds for satellite porphyry targets in the South Gobi. Capex commitments above USD 500 million should be structured around stability agreements that survive a 2028 election cycle, and any debt should sit in dollar denominated structures hedged through Hong Kong settlement.

For sovereign creditors and emerging market debt funds, the 2029 Chinggis maturity wall is the analytical center of gravity. At a 12.0 percent coupon and copper revenue back ended into 2028 to 2030, refinancing risk is manageable but not negligible. The right trade is long Mongolia hard currency credit on a peak copper hypothesis with a Russia and China bilateral hedge, recognizing that a Power of Siberia 2 announcement would compress spreads sharply but would also raise contingent fiscal liabilities tied to transit infrastructure cofinancing.

For multinationals outside mining, the opening is in three places: refined fuels and petrochemicals once the Sainshand refinery comes online in 2027, the renewable build out tied to the Asian Super Grid concept linking Mongolian wind and solar resources to North Asian load centers, and digital and logistics services anchored on the third neighbor diplomacy. Expect contract structures to weight political risk insurance from the Multilateral Investment Guarantee Agency and the Japan Bank for International Cooperation more heavily than in any previous cycle, and price the single buyer risk at the China border into every base case.

Sources #

Cite this brief

@misc{hossen2026mongoliamining2026,
  author = {Hossen, Md Deluair},
  title  = {Mongolia 2026: Oyu Tolgoi underground, Tavan Tolgoi coal, and the third neighbor hedge},
  year   = {2026},
  url    = {https://deluair.com/consultancy/insights/mongolia-mining-2026},
  note   = {Deluair Consultancy briefs}
}

Hossen, M. D. (2026). Mongolia 2026: Oyu Tolgoi underground, Tavan Tolgoi coal, and the third neighbor hedge. Deluair Consultancy briefs. https://deluair.com/consultancy/insights/mongolia-mining-2026

Hossen, Md Deluair. "Mongolia 2026: Oyu Tolgoi underground, Tavan Tolgoi coal, and the third neighbor hedge." Deluair Consultancy briefs, 2026-04-26. https://deluair.com/consultancy/insights/mongolia-mining-2026.

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