Glencore: An outlook for the world’s largest commodity producer

Rajinder Dhesi

This week the commodities giant Glencore announced pre-tax earnings of $14.7 billion for 2017, a 44% rise compared to the previous twelve-month period. Its share price has subsequently risen by up 22% to 399.3 pence (21st February 2018). There are several reasons for this strong performance. First, and perhaps most significantly, the renewable energy metal triad of copper, cobalt and nickel have seen incredible price growth over the last year. The price of cobalt soared by 130% from $32,000 to $75,000 on the London Metal Exchange last year, owing to a rising demand, primarily from electric vehicle (EV) manufacturers (each EV uses approximately 8 kg of cobalt per lithium-ion battery). Around two-thirds of the world’s cobalt production occurs in the Democratic Republic of Congo, a country in which Glencore operate almost as a monopoly; their only rivals being small-scale, independent mines who sell on to larger processors including Glencore. As a result, numerous automobile manufacturers, including Tesla and Volkswagen have been in talks with Glencore to secure supply of cobalt.

Supplementing this is Apple’s announcements last week that they are looking to secure several thousand tonnes of cobalt directly from miners to be used in the supply chain producing Apple products. Glencore are likely to be a large beneficiary of Apple’s investment, given that the technology giant requires both a vast supply of cobalt, as well as an ethical supply chain – the operations of smaller mines would be far harder for Apple to observe and manage.

Away from the renewable energy boom, there are other reasons for Glencore’s bullish forecast. Glencore have stuck with their coal portfolio – an industry which major competitors such as Rio Tinto have divested from. Thus, in the short term, Glencore have benefited from a 30% rise in the price of coal over 2017. The other arm of Glencore’s operations, trading, has also experienced remarkable growth, with pre-tax earnings up to $3 billion, the largest sum since before the financial crisis.

Hints at Glencore’s future plans also evoke optimism. Large earnings have produced the company’s highest ever free cash flow of $2.3 billion. Simultaneously, this has allowed a repayment of the company’s debts, higher dividend payments to shareholders and a number of possible acquisition opportunities for Glencore. Most notably, Glencore are looking to expand their operations into agriculture through the acquisition of Bunge Ltd., a grain merchant trading on the NYSE.

However, analysts still warn of uncertainties for Glencore. Proposed new laws will have the potential to reduce Glencore’s earnings through taxes, though the extent to which this will have an impact is unknown. Adding to this, current research into lithium-ion batteries has the possibility of wiping out the need for any cobalt. This is certainly being incentivised by the recent drastic cobalt price increases.

Despite some levels of uncertainty, Glencore have a strong foundation based on renewed future growth given the surge of interest in EVs, as well as the company’s own strategy of reducing debt and diversifying through acquisition. This makes Glencore a good company to buy shares in for investors.

The digital Gold Standard?

Richard Holland

Amongst the backdrop of Bitcoin and cryptocurrencies, a London-based FinTech company has teamed up with Lloyds Banking Group and MasterCard to bring the world’s oldest currency back into the digital age: gold.

In November 2017, Glint launched its multi-currency account, app and card that allows customers to use gold to buy goods and services, settle debts and send money to their friends and family.

The way the app works is as follows: once you have successfully created an account, you will then be able to top up your account with Pound Sterling. You can then either chose to leave your money in Sterling, or convert it into gold at 0.5% above the spot price and have it stored in allocated accounts within secure vaults in Zurich (for which you are charged a flat fee for this privilege). When it comes to using your card to pay for items, it works in the same way as any other MasterCard would, but you can choose which ‘wallet’, either the currency or gold, you would like to spend from. Glint automatically converts the gold into the desired currency in real time to provide a frictionless method of using gold to purchase items.

The company was co-founded by Jason Cozens and Ben Davies who have become increasingly disenchanted with our current monetary system. Since the Pound was untethered from the Gold Standard in 1931, the value of a £10 note now solely relies upon its widespread acceptance in society as a medium of exchange. Yet if a shopkeeper one day refused to accept your £10 note, your money would become worthless as you would not be able to trade it for anything. When the UK was part of the Gold Standard, you could have exchanged your £10 at the bank for its equivalent in gold, a physical asset with which to trade. Nowadays, money has no inherent value and it is in fact a social construct that humanity, either sub-consciously or consciously, has chosen to live by.

The benefit of Glint, as Jason Cozens the CEO reasons, is “gold can’t be wiped out, devalued or corrupted” which is in contrast to our current monetary system. They believe that central banks have been able to print money at will to fund overspending that has led to the global economy staggering from an ever-bigger boom to an ever-bigger bust and Davies, the COO and co-founder, believes that people are starting to realise that something is fundamentally wrong with our monetary system.

The focal point of Glint’s advantage over cryptocurrencies is that it has a tangible backing in the form of gold which bitcoin does not. Davies also believes that bitcoin is of little use as a currency – with extremely high volatility, lengthy transaction times and steep fees, it is nearly impossible to use as a means of exchange. Yet gold is renowned as being a hedge against stock market volatility and with access to the spot price of gold being readily available, the transaction times with Glint should be momentary at worst.

Glint will certainly have its critics, but to date the FinTech company has raised £6.1 million with significant backing from Bray Capital and other high profile individual investors. In 2018, they plan to launch the app for Android users as it is currently only available on the iOS platform, as well as adding a wider range of currencies to the ‘wallet’ too. Glint may still be in its infancy, but it is certainly a company worth watching.

Gold outlook for 2018

Veronika Tomilina

The price of gold has fallen in recent weeks from highs of around $1360 towards the end of January. In this article I will discuss whether this downward trend will continue, and also consider the main factors that will influence gold price in 2018.

2018 is promising to have multiple rate hikes by different central banks around the world.  Monetary policy is an important instrument that has an effect on gold. The US Federal Reserve looks set to hike interest rates three times this year, the Bank of England could raise interest rates once or twice, whilst the ECB looks set to end their quantitative easing programme by September. All of these monetary policy changes will further influence their respective currencies and gold.

There are two other factors that may influence gold prices. Firstly, the US dollar has weakened by 10.5% under President Trump’s tenure, and any further depreciation would tend to raise the price of gold. Also, equities performed strongly in 2017, which pushed the price of gold down; however, from the beginning of 2018 we have witnessed large corrections in the market and if this trend continues, it will benefit Gold.

Physical market drivers are another important factor for the gold price, and out of these income growth is one of the most vital.  Most emerging markets economies are predicted to see their growth accelerate in 2018, for example India and Brazil. Also, China is predicted to maintain its growth rate over the last few years of around 6.5%. As India and China are the world’s two largest gold markets, stable economic growth will benefit gold.

Trading indicators show that traders around the world are buying gold more than selling, which is a bullish market indicator and pushes prices up. Technical analysis by many analysts is predicting gold to rise as well.  The trading range of the gold price continues to squeeze tighter and tighter on a monthly basis, a technical sign that implies a breakout is coming. The technical analysis cannot predict when it will happen, but it shows that gold should go up at some point. Moreover, there are some rumours about the decline in gold supply from mine production, which will push the price up.

There are some factors however that could decrease the price of gold. For example, unexpected rate hikes with no increase in inflation will push the price of gold down.  Also, if the equity markets can repeat their performance in 2017 this would have a negative effect on gold.

Overall, on balance, it appears that the gold price will rise in 2018. However, this is completely dependent on economic conditions that are notoriously hard to predict.

Copper: time to be taken seriously

Alexander Le Grys

After a brilliant year for copper, 2018 so far has not matched the upward trend experienced in 2017. On 28th December copper reached its highest price in almost 4 years, and a 30% increment on the previous year. Copper has had a poorer performance in January though, sinking below $7,000 a tonne on 23rd January.

In the past two weeks, there has been a relatively large sell-off, particularly from China, with investors cashing in on profits assuming that the red-metal has peaked. The sell-off also hit mining stocks, which were among the worst performers in the FTSE 100. Anglo American dropped 3.9% to 1,723p, while Glencore slipped 2.9% to 390.75p.

However, this is unlikely to set the tone for the rest of the year. Copper is set for another bullish year, and that success may go on for a while. On the demand side, the price for metals is often said to be linked to global economic growth. This is particularly the case for metals that are widely dependent for physical use. Copper is used as a conductor as well as for building materials; compared to precious metals that are often used primarily as a financial hedge. For the first time since 2010, the world economy is outperforming predictions. Looking to the near future, Goldman Sachs’ outlook for 2018 expects this to continue with their global GDP forecast at 4.0%, up from 3.7% in 2017. The developed markets are finally continuing their pre-crisis trends with the US and the Eurozone predicted 2.5% and 2.2% growth respectively. This buoyant forecast carries over to emerging markets with a forecast of 5.6% growth; India is at the forefront of this trend, with a forecast of 8%. Thus, with global output expanding, the price of copper should follow, especially due to the common supply lag for base metals (copper, lead, nickel and zinc).

In addition, specific to copper, demand is expected to rise from an expansion in the deployment of renewable energies in 2018, which copper plays a pivotal role in. Since copper is a particularly efficient thermal and electrical conductor, it is the first choice for transporting the energy harvested by renewable generation. Growing wind and solar markets are finally reaching the scale and scope to expand exploration of new technologies that show potential to further reduce costs and spark growth. China alone plans to invest £292 billion in renewable power generation by 2020. Furthermore, a long run view suggests copper will become a more meaningful material to consumers across the globe with the explosion in electric vehicles (EVs). Copper once again plays a vital part in this ‘green’ technology, with plug-in EVs and battery EVs using 132 lbs and 183 lbs of copper respectively, compared to 18-49 lbs used by our current conventional cars. By 2035 there could be 140m EVs on the road (8% of the global fleet), versus 1m today. Manufacturing them could require at least 8.5m tonnes a year of additional copper, about a third extra on top of the current total copper demand.

On the supply side, for the short-term, copper is facing a potential labour bottleneck. Citibank estimates that around 30 sets of labour contract negotiations will take place over 2018, the bulk in South America. This could affect up to 25% of global supply due to South America’s dominance in world copper output. In the long run, as with any metal that needs to be mined from an ore, copper has lengthy lags and is often playing catch-up with demand. By one estimate, it takes at least 30 years from finding copper deposits to producing the metal from them at scale. Some of the big ores in operation today were discovered in the 1920s.

The position for copper looks very strong, both in the short and long-term, and the poor month of January should not dampen its forecasted position. It appears investors should start looking at copper more seriously as a commodity. At a price just under $7,000 a tonne, it would be a great time to buy into it, although it may take time to see extensive gains.

If the cryptocurrency bubble bursts, could gold once again be king?

Rajinder Dhesi

Bitcoin is undergoing a steep decline in value; last week, the leading cryptocurrency lost 50% of its value compared to its 2017 peak ($19,783 on December 17th). The wider cryptocurrency market has been bearish, with Ethereum, Ripple and Litecoin all experiencing double-digit losses compared to their peak values last year. Meanwhile, gold is experiencing a rally, trading at $1325.97 per ounce – its highest value in four years.

Analysts suggest that gold is being used as a form of hedging by investors to act against price swings in the crypto markets. After all, when political events have caused market uncertainty, hedging in the metal markets has been perceived to be a sensible investment option.

A significant factor contributing to Bitcoin’s recent demise is the South Korean government’s raids on coin exchanges in response to tax violations and even mentions of potential banning of all cryptocurrency trade. This second proposal has real bite, given that South Korea is the third largest Bitcoin market globally (after Japan and the USA). However, South Korea may only be the tip of the iceberg, with the USA, Japan and China all planning to tighten cryptocurrency regulation. This is in response to market manipulation in coin exchanges, where some investors mass purchase coins to cause price surges that tempt other potential investors. The initial investor then quickly sells to make a profit, resulting in sudden price drops.

Intrinsically, some analysts are questioning the value of bitcoin. It is a currency with only ten years of history and in those ten years, its value has fluctuated wildly. Moreover, from a British perspective, investors are finding Bitcoin to be an illiquid asset, as UK banks make it hard to exchange Bitcoins into Sterling. The easiest route to convert Bitcoin into Sterling requires the use of European Banks, who are more favourable to Bitcoin transactions. This adds complexity and expense to the process.

In comparison, gold has been mined out of the ground for thousands of years, was central to global exchange rates during the Gold Standard and Bretton Woods regimes, and is a real, tangible asset. Gold investments are covered by anti-money laundering and counter-terrorist financial regulations when using futures, commodity indices or Exchange Traded Funds.

The gold mining industry has been implementing a wave of austerity measures aimed at streamlining and curbing losses acquired from poor acquisition deals and price drops in the 2012-13 period. This could induce higher profits for gold mining companies through lower expenditure and cause the price of gold to increase, as companies are less willing to put up the large sums of capital required to construct new mines or pay for better technology. On a long-term basis, analysts are suggesting the need to act with caution; though the total amount of gold ore left in the ground is highly uncertain, miners are being increasingly forced to extract ore of a lower quality. Current projects average 2.1 grams of gold per metric tonne of ore, but in five years this could fall to as low as of 0.8 grams of gold on average per metric tonne of ore.

To conclude, there is little certainty in the cryptocurrency market, making it a risky investment strategy. Therefore, investors may look to invest more heavily in gold – a commodity which offers a well-documented history and less risk. Though for this scenario to act out, investors would need to see gold prices to rise further, to at least above the $1400 mark.

Is Gold losing its shine?

Alexander Le Grys

The price of gold rose 0.2% to settle at $1,280.25 per troy ounce (oz t)  this week in New York, and with little fluctuation occurring in 2017, some suggest this precious metal has stagnated. The price has remained within the $1250-1350 range since April 2016, except in December 2016 following a surge in the dollar in response to Trump’s shock presidential election.  The consistency of value has created a divide over gold between those who are bearish and those who are bullish.

Firstly, bearish proponents in the gold market believe fundamental changes in the foreseeable macroeconomics of the global economy may put the precious metal on a perilous path. As a world recovery gathers pace, the Federal Reserve is shrinking its balance sheet and raising interest rates. The Fed started its latest tightening cycle in December 2015, with four rate hikes so far and another expected next month. Other Central Banks are moving the same way. The European Central Bank (ECB) is about to begin receding bond purchases to €30 billion euros, half the current pace, while the Bank of England raised interest rates for the first time in more than a decade earlier this month, and the People’s Bank of China will probably intensify efforts to  reduce the build-up of debt. This scenario makes it very hard for a non-interest bearing asset like gold to do well.

Linked to the reasons above, the demand for gold has slumped to an eight-year low, resulting in reduced buying by institutional investors. Data released by the World Gold Council on Thursday 9th November showed demand for bullion fell to 915 tonnes in the third quarter, down 9% year-on-year. The latest figures were hit by “significantly” lower inflows into gold exchange traded funds (due to a stronger US dollar), which fell to 19 tonnes from 144.3 tonnes, and a softer jewellery market in India. After three consecutive quarters of growth, demand in India following a new tax regime (the world’s biggest consumer of gold after China) dropped 25% year-on-year in the quarter to 114.9 tonnes.

The bulls in the gold market, albeit in a minority, have also turned heads. Firstly, investors in gold believe that in addition to interest rate hikes, nominal inflation will pick up, putting faith in a rising oil price due to OPEC’s expected supply cuts. Historically, the price of gold has risen during times of inflation as investors look for an inflation hedge to provide protection against the decreased value of their respective currencies.

Furthermore, the bulls in gold have strongly argued that it is fallacious to think that cryptocurrencies could replace gold as a financial hedge. They argue hype and speculation are the drivers to cryptocurrencies’ value. Since the beginning of the year, the value of Bitcoin has more than quadrupled. Among others, Ray Dalio founder of Bridgewater Associates, one of the world’s largest hedge funds, and Jamie Dimon CEO of JP Morgan, have called Bitcoin and its counterparts a ‘bubble’. At the end of September this year, Dalio’s Bridgewater Associates boosted its holdings in SPDR Gold Shares almost seven-fold believing the value of the metal will soar once the cryptocurrency bubble crashes.

Whilst cryptocurrencies are unlikely to replace gold as a financial hedge, caution is advisable. Many are comparing the current state of blockchain cryptocurrencies to the early days of the internet – a digital wild west teeming with opportunity. On balance it seems likely that the price of gold will remain flat over the coming months.  Minor movements around the £1300  t oz. seem most likely, with any bullish movements by investors expected to be more painful than rewarding.

Won’t stop surging: Would I Li to you?

Nicholas Ogilvie

In a recent report, Citi bank stated that it expected to see 1.04 million electric cars in production by 2020, a sevenfold increase on current production rates. The golden commodity required for electric vehicles and, more importantly, the batteries running these vehicles is lithium. Although diverse, the dominating market for lithium is batteries, at 35%. With the future looking very much focused on a transition towards electric vehicles and all things battery-powered, it is no surprise that surge in the price of lithium has occurred. 99%-pure lithium carbonate, having been fluctuating around $6000 per tonne for the past seven years, is now trading at over $13,000 per tonne. Most shockingly, this price surge occurred in just two months, September to December 2015, whilst the rest of the commodities market was tanking.

nic week 4

Lithium products, including lithium hydroxide, lithium carbonate and pure lithium metal, are derived from two main sources: hard rock mines and continental brines. The big players in the lithium market are Talison and SQM who produce 51% of all lithium traded on the market. Talison’s operations are predominately in Australia where lithium ore, or spodumene, is mined out of the copious amounts of hard rock. SQM takes the alternative approach in extracting lithium due to its operations being located in Chile. As Chile’s largest lithium producer its operations hold 26% of the global market. Lithium is produced in the form of lithium chloride, derived from brine that is pumped into small reservoirs and allowed to evaporate, leaving the precious metal behind. The lithium chloride is processed and turned into tradable commodities such as lithium carbonate and hydroxide.

The world has seen a boom in power utilities and large scale battery projects. The goal of conquering the intermittency of wind and solar power may have found a solution through effective storage of power produced during the day to allow the lights to be kept on at night. Many researchers say that this demand cannot be met by the technologies of lithium-ion batteries, but some companies take a different view. Most notably, Tesla.

Tesla states that its goal is simply, “to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible.” The US Geological Survey, in a recent report, announced that there is approximately 40 million tons of lithium resource remaining. If you’ve ever read into Tesla’s vehicles, one thing that always astounds readers is the weight of the battery pack. The Tesla Model-S, 85KWh version, has a battery pack with a weight of 544kg. Now, using some basic mathematics [i] and knowing the number of cells in each vehicle [ii], it can be estimated that each battery pack contains around 8.5kg of lithium. There are currently an estimated 1.2 billion cars on the road globally. Swap these out for electric cars and one quarter of the world’s lithium resource is exhausted. This is also assuming that all grades of lithium can be used in electric cars, which is a bad assumption as only 10% of lithium sold at market is EV Plus grade, required for highest efficiency electric vehicles.

The future may look bright for lithium producers as demand soars, but in order for the lights to stay bright at night, we may have to look elsewhere.


Zinc- Time to buy? Have a think

Aiden Jackson

It certainly appears that zinc is the only bull in the commodities sector as prices surged to a 3 month high of $1715 per metric tonne as markets closed on Friday. The metal, commonly used for galvanizing of iron or to form brass, is showing some signs of a comeback after heavy falls in the previous nine months.

In a contrast to most other areas of the natural resources sector where supply continues to massively exceed demand, a significant production fall in the extraction of zinc is responsible for the recent price increases. Recent closures of major mines in both Ireland and Australia have helped significantly in the supply adjustment which is needed by so many other commodities. Lisheen mine in Ireland as well as Century mine in Australia have both reached the end of their utility. Lisheen, as the second largest European zinc mine will no longer extract 165,000 tonnes per year.

Meanwhile Glencore, the world’s largest trader and miner of zinc, announced in October that it would slash production by a third, accounting to around 500,000 tonnes. It was this news that sent concerns along the supply chain with China’s smelters cutting output in addition to increasing imports prior to further price surges.

Prices were even enhanced by the unexpected closure of Horsehead Holding’s zinc plant in North Carolina, US. As a secondary producer of zinc, the plant processed recycled material rather than extracted concentrates and so was seen as an unlikely victim.

But despite Goldman Sachs’ analysis that Zinc has ‘the strongest bulls case’ of all the metals market, many analysts still have their doubts that this isn’t just a short term recovery which follows many long-term falls.

It is not only decreases in production that will lead to supply adjustment and recovery in price. With large stockpiles continuing to flood the market, significant price rises will only be seen as the large stock overhang is cleared.

The problem is mainly seen in New Orleans where over 80% of the current global stockpile is held, an ideal location to offload metal due to its isolation from the main global trading hubs. The risk for traders here is that a large majority of the zinc stored here is unlisted on the London Metal Exchange (LME). When it seems that the stockpile is falling and a price increase will follow, companies can quickly reshuffle metal stored in off-shore exchanges into LME sheds. Suddenly there is a lot more metal in the market than was previously thought and all predictions of a price increase are incorrect.

And so it is impossible to estimate the true extent of the stockpile. Until zinc stops magically appearing in New Orleans, any price adjustments to a decrease in supply will be cautious and minimal.

One commodity to rule them all and why does gold go up in times of peril?

Erdenebilguun Gan-Och

There is a good number of finance literature attempting to explain the correlation between stock prices and gold prices but mostly with mixed results. But there exists a logical explanation as to why gold prices increase when stocks go down, because on many occasions gold is considered to be a safe investment.

First a little bit of history. During the dominance of mercantilism or bullionism in Europe during 16th – 18th century, an accumulation of precious metals was considered the measurement of a nation’s wealth. Even after mercantilism, gold was officially considered as a valuation measure for US Dollars – hence the gold standard. It was valid until 1971 when Richard Nixon abolished the standard that was holding on since 1792. Since then it became an independent but important investment asset. Currently gold price is considered as a barometer for the financial industry as an actively traded but universally accepted currency. In terms of gold price and US dollars, there is definitely a negative correlation between two. This negative correlation applies to almost any major currencies around the world.

Source: World Gold Council

US employment data released few days ago sent mixed messages among investors on their confidence in the green as the reducing of the country’s unemployment rate slowed in January. At the same time gold price reached its 3 month high at US$1,165 per ounce. It is the one currency that investors run back for safety in uncertainty. Although disputed for its true validity for risk diversifying asset, gold is currently the most sought after precious metal in the world. Nations maintain gold reserves to back their currencies and curb inflations. Gold reserve is also an important indicator for national security. In terms gold possession US holds the largest gold reserves at 8,133.5 tons followed by Germany at 3,381.0 tons, while China and Russia has 1,722.5 tons and 1,370.6 tons respectively according Word Gold Council’s December 2015 rankings. According to United States Geological Survey the total world holdings in gold is divided by 49.2% in jewelry, 19.26% in investment, 17.2% in central banks, 12.14% in industrial usage and the remaining 2.2% unaccounted. However, it is also noted that the true measure of gold mined is impossible to estimate as many countries do not report their gold reserves for security reasons plus the metal has been mined for thousands of years. There are mixed views on whether the gold price will go up in the long term. Given volatility in the current financial markets many believe gold prices will go up.

Despite speculations and observations, gold remains the one commodity that supersedes all other assets, one that rules them all.

Will the Oyu Tolgoi underground development save Mongolia’s economy?

Erdenebilguun Gan-Och

The 17th largest country by territory in the world with a mere 3 million in population was the hot topic in mining during its short lived “golden era” of early 2010s. Historically, the country largely relied on agriculture and light manufacturing; Mongolia became an international spotlight after the signing of the Investment Agreement between Rio Tinto and the Government of Mongolia for the development of Oyu Tolgoi copper gold deposit in 2007. Oyu Tolgo is considered one of the largest and highest quality copper-gold deposits in the world that is largely untapped. This led to large influx of foreign direct investment into the country’s tiny economy. Several Mongolia based mining companies managed to tap the international equity markets by listing on the major exchanges such as the Hong Kong Stock and London Stock Exchanges. In a relatively short time, a new social group of rich individuals emerged as direct result of the development in mining industry. The GDP rose by 17% in 2011 which was the highest in the world. Mongolia was considered as a true emerging economy with a bright future. The country’s elite swiftly dove into luxurious and lavish lifestyles as if there was no tomorrow.

However, starting from mid-2012, the mining industry showed its early signs of decline as Chinese economic development slowed down. Bulk commodities such as iron ore, coking coal were the first victims of the down trend. Trading at almost US$200 per ton at Tianjin port in late 2011, iron price has steadily declined to its decade low of US$50 per ton in just 2 years. Numerous other commodities followed suit including coking coal, Mongolia’s largest mineral exports product. Following the crisis mining companies around the world switched to a cost-effective stance by cutting capital expenditures and started laying off people, Mongolia was no exception. The difference was that mineral products comprise over 85% of Mongolia’s export income by 2011. Therefore, the monetary impact from the crisis was particularly hard for the country. Mongolian government raised billions in sovereign debt during its high times with the hopes that the mining industry will do well in the future. As of 2015, the short term outlook for the country looks bleak as payments of its sovereign debts come close.

Yet, a shining light during these harsh down times is the underground mine development of the Oyu Tolgoi project. The project already brought in over US$6.4 billion in investment to the country’s economy since the signing of the Investment Agreement as part of its Phase 1 development. However, the highest quality copper and gold ore of the deposit lies underground and this where the main operations will take place. The massive underground tunnels and related development will require at least US$7 billion in investment, and this could be a saving grace for Mongolia’s economy during the upcoming slowdowns. This is especially important given Mongolia’s current state of affairs, its sovereign debts, struggling local entities and its economy in general. It is now completely up to the country’s policymakers to properly handle the matter, as it has some notorious record populist agendas and unstable regulatory environments.