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Miners ready for new Mongolia boom with one-fifth of the country to be opened for digging

A new mining boom may be just around the corner in Mongolia, mining industry executives said, as it moves to open nearly 21 percent, a bit more than one-fifth, of the country for exploration to shore up its finances following an IMF-led bailout.

This month Mongolia's government removed the main obstacle to its $5.5 billion IMF-led bailout. It annulled a controversial banking law that would have required companies like Rio Tinto to funnel all sales revenues from foreign investment projects through Mongolian banks and proposed the wider exploration area.

Andrew Stewart, managing director and CEO of Xanadu Mines, told CNBC's "Street Signs" that the reform along with other steps to opening the mining sector should see investment grow.

A small-scale miner holds his gold that was melted together at a processing plant located around 100km (62 miles) north of the Mongolian capital city Ulan Bator .
David Gray | Reuters
A small-scale miner holds his gold that was melted together at a processing plant located around 100km (62 miles) north of the Mongolian capital city Ulan Bator .

"It is an important thing for Mongolia as a whole. I think the reaction and the commitment you are seeing from the Mongolian government over the last two weeks to repeal this tax, it shows its firm commitment to really get the foreign investments going and particularly that is very much settled on the mineral exploration and the mining industry in Mongolia", Stewart said.

Stewart told CNBC that Xanadu's flagship Kharmagtai project, located 120km south of Oyu Tolgoi, demonstrates that Mongolia offers increasingly favorable odds for discovering significant copper and gold deposits when compared to mature mining jurisdictions such as Australia and Canada.

Minister of Mining and Heavy Industry Ts. Dashdorj was said to have remarked that the landlocked country bordering China and Russia and among the top 20 countries by landmass needs to take the step to resolve economic woes that go back several years. IMF data shows that the economy only grew 1 percent in 2016 from 2.4 percent in 2015.

Given that mining accounts for around a quarter of GDP and more than 80 percent of exports in Mongolia, by increasing mining exploration, Mongolia could potentially raise GDP and economic security.

Stewart said he feels that encouraging exploration is critical to establishing a healthy mining industry and great discoveries are often made when there are structural changes in the industry.

The 2017 Asian Development Outlook report by Asian Development Bank stated that Mongolia's growth will accelerate this year on large mining investments. Growth is forecast to accelerate to 2.5 percent this year but moderate slightly to 2.0 percent in 2018 on the base effect of the surge in coal production in 2017.

This is based on the assumption that investment in the second phase of Oyu Tolgoi mine will rise from $200 million last year to $1 billion in 2017 and $1.2 billion in 2018.

While Oyu Tolgoi is Mongolia's highest profile mining operation, the country plays host to a number of the copper, gold and coal mines.

David Paull, managing director of Aspire Mining, told CNBC over email that Mongolia is richly endowed with mineral resources - The Erdenet Copper Mine has been operating for several decades and the indications are that there is still a number of decades of mine life to come.