Mongolia’s Copper Value Chain Advances as Oyu Tolgoi Underground Production Scales
Khanbogd smelter project enters partner selection phase as Mongolia positions for downstream value capture
Saint Clair Market Intelligence | January 2026
Mongolia Series | Article 3 of 4
This article examines Mongolia’s deliberate ascent up the copper value chain—from raw concentrate exports toward domestic smelting and refining. The planned Khanbogd smelter represents the thesis of local value capture in action: capturing processing margins previously realised in China. This value chain maturation creates the economic foundation for the mining tech startup ecosystem explored in Article 4, demonstrating how infrastructure investment enables ecosystem development.
Executive Summary
Mongolia’s planned copper concentrate smelting plant in Khanbogd is progressing through partner selection, with the Mongolian government targeting completion of this process in early 2026. Designed to process 1 million tonnes of concentrate annually, the facility would represent Mongolia’s transition from raw material exporter to value-added processor, capturing refining margins previously realised in China. Combined with Oyu Tolgoi’s underground expansion—which began production in March 2023, positioning the mine as the world’s fourth-largest copper producer by 2030—Mongolia’s copper infrastructure demonstrates how resource-rich nations can incrementally capture downstream value whilst maintaining export competitiveness through proximity to end markets. The smelter’s operational timeline remains subject to partner selection outcomes and construction schedules.
The Khanbogd Smelter
The copper concentrate smelting facility planned for Khanbogd, southern Mongolia, represents the country’s most ambitious downstream processing project. Designed to process 1 million tonnes of copper concentrate annually, the plant would produce refined copper cathodes for export rather than shipping lower-value concentrates. The Mongolian Cabinet has been conducting a partner selection process for the project, with the final stage of selection targeted for completion in early 2026. Construction and commissioning timelines will depend on the outcome of this process, with industry observers noting that operational readiness is unlikely before the late 2020s.
Mongolia’s existing copper export model sends concentrates directly to Chinese smelters for processing. This structure captures mining margins but cedes refining value-add and creates price exposure during concentrate treatment charge negotiations. Chinese smelters extract processing fees, metallurgical by-products (gold, silver), and sulphuric acid co-products—revenue streams Mongolia currently surrenders. The Khanbogd smelter, once operational, would internalise these margins.
The facility’s planned location in Khanbogd—adjacent to Oyu Tolgoi and proximate to the Chinese border—minimises concentrate transport costs whilst maintaining export access to Chinese refineries and fabricators. Mongolia’s landlocked geography makes coastal smelter locations infeasible; border-adjacent processing optimises logistics within these constraints.
Oyu Tolgoi’s Underground Expansion
Rio Tinto’s Oyu Tolgoi mine began underground production in March 2023, following years of development delays and cost overruns. The underground ore bodies contain higher copper grades and larger reserves than the surface operation, with projections placing Oyu Tolgoi as the world’s fourth-largest copper mine by 2030, producing approximately 500,000 tonnes of copper annually from 2028 to 2036.
The mine’s ownership structure—66% Turquoise Hill Resources (majority-owned by Rio Tinto), 34% Mongolian government through Erdenes Oyu Tolgoi—resolved contentious negotiations dating from the initial 2009 Investment Agreement. A financing plan agreed in 2015 enabled underground development to proceed, though disputes over tax, cost overruns, and community impact continued thereafter.
Oyu Tolgoi’s production scale creates ancillary opportunities. The operation employs over 21,000 workers, of whom approximately 97% are Mongolian nationals, and supports supply chains for equipment, explosives, logistics, and technical services. A copper belt geology extends northeast toward the Kharmagtai and Zun Mod deposits, attracting junior explorers. This emerging district could eventually support additional processing capacity if exploration success translates to production.
Value Chain Economics
Copper value chains typically involve mining, concentrating, smelting, refining, and fabrication stages. Mongolia historically participated only in mining and concentrating—producing 20–30% copper content concentrates for export. Smelting converts concentrates to blister copper (98–99% pure), whilst refining produces 99.99% pure cathodes for industrial use. Each processing stage adds value but requires capital investment, technical expertise, and environmental management capacity.
The economic rationale for domestic smelting depends on several variables: concentrate treatment charges, energy costs, environmental compliance expenses, and logistics. Mongolia benefits from proximity to Oyu Tolgoi’s high-grade concentrates and Chinese cathode demand, whilst facing higher energy costs than coastal locations. The Khanbogd smelter’s viability assumes captive feedstock from Oyu Tolgoi eliminates concentrate procurement uncertainty.
Chinese dominance in global copper smelting—more than 50% of global capacity—creates buyer power over concentrate suppliers. Treatment charges fluctuate based on concentrate availability relative to smelter capacity. Mongolian ownership of smelting capacity would reduce exposure to these negotiating dynamics, capturing margin regardless of global treatment charge cycles.
Infrastructure and Technology Requirements
Mining at Oyu Tolgoi’s scale requires substantial infrastructure investment beyond the mine itself. A 96-kilometre 220kV double-circuit transmission line, operational since 2012, connects Oyu Tolgoi to China’s Inner Mongolian Western Grid. Road upgrades to border crossings and water extraction facilities were additional prerequisites for operation.
Power supply remains in transition. Oyu Tolgoi currently relies on imported Chinese electricity, but a state-owned coal-fired power plant at Tavan Tolgoi is planned to provide domestic generation capacity. The facility is designed with three 150MW units (450MW total) and remains in pre-construction status. A smelter would require additional generation capacity beyond current plans.
Environmental regulations mandate sulphur dioxide capture and slag disposal management, requiring investment in pollution control equipment. These infrastructure requirements create opportunities for technology and service providers. Mining operations increasingly adopt digital solutions for ore tracking, safety monitoring, logistics optimisation, and environmental compliance. The technology demands of world-class mining operations at scale establish conditions for the mining tech ecosystem examined in the following article.
Strategic Implications
Mongolia’s smelter development reflects a calculated industrial policy—incrementally ascending the value chain where geological and logistical advantages exist. Full vertical integration to copper fabrication remains improbable given Mongolia’s distance from end-user manufacturing hubs. However, smelting and refining leverage proximity to ore deposits whilst producing a higher-value, lower-volume export commodity.
This strategy parallels Indonesia’s nickel processing requirements. Indonesia banned nickel ore exports effective January 2020, forcing development of domestic smelting capacity. Foreign investors built processing facilities to access ore, creating value-added exports and industrial employment. Mongolia’s approach differs in timing—building smelting capacity alongside mine expansion rather than compelling existing exporters—but shares the objective of capturing downstream margins.
For investors, Mongolian copper infrastructure investments span multiple categories: mine expansion capital, processing facilities, enabling infrastructure (power generation, railways, water systems), and mining services. The ecosystem’s maturation creates opportunities beyond direct mining equity, particularly for technology and service providers supporting production scaling.
The Foundation for Mining Tech
The value chain maturation described above—from raw concentrate exports toward domestic smelting—creates demand for technology solutions that form the basis for Mongolia’s emerging mining tech startup ecosystem. World-class mining operations require enterprise software for ore tracking, safety systems, logistics coordination, and environmental compliance. The scale of Oyu Tolgoi (21,000+ employees, billion-dollar processing ambitions) justifies technology investments that smaller operations cannot support.
This dynamic—heavy industry scale creating technology demand—mirrors patterns seen in other resource-dependent economies transitioning toward local capability development. The mining tech startups profiled in the final article of this series emerge from this context: founders with mining industry experience identifying digitisation opportunities, supported by international partnerships providing capital and market access.
Sources:
Cabinet of Mongolia, “Partner Selection for Copper Concentrate Smelting and Processing Plant Project”: https://cabinet.gov.mn/en/10890.html
Rio Tinto, Oyu Tolgoi operations: https://www.riotinto.com/en/operations/mongolia/oyu-tolgoi
Mining.com, “Rio Tinto commences underground production at Oyu Tolgoi” (March 2023): https://www.mining.com/rio-tinto-commences-underground-production-at-oyu-tolgoi/
Mining Technology, “Oyu Tolgoi Gold and Copper Project”: https://www.mining-technology.com/projects/oyu-tolgio/
Oyu Tolgoi official website: https://www.ot.mn/en
Global Energy Monitor, “Tavan Tolgoi Power Station (Rio Tinto)”: https://www.gem.wiki/Tavan_Tolgoi_power_station_(Rio_Tinto)
National Bureau of Asian Research, “Mongolia’s Development of Critical Minerals: Opportunities and Challenges”: https://www.nbr.org/publication/mongolias-development-of-critical-minerals-opportunities-and-challenges/
USGS, Minerals Yearbook — Mongolia: https://pubs.usgs.gov/myb/vol3/2023/myb3-2023-mongolia.pdf
Editorial Note (February 2026): Following reader feedback and deeper verification, this article has been revised to correct several factual claims in the original January 2026 publication. Key corrections include: the Khanbogd smelter’s development status (partner selection phase, not commissioning), updated investment estimates, revised Oyu Tolgoi workforce figures, corrected mine life projections, and updated power infrastructure details. All corrections are based on primary source verification against government announcements, Rio Tinto disclosures, and industry databases. Saint Clair is committed to accuracy and transparency in its market intelligence.
Disclaimer: This article is for informational purposes only and does not constitute investment advice or an offer to invest in any fund or vehicle. Saint Clair does not provide investment recommendations. All decisions should be made based on independent research and consultation with qualified advisors.
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