RESOURCES, MINING AND MINERAL WEALTH IN MONGOLIA

RESOURCES IN MONGOLIA

Mining for copper and other resources is a major part of the economy. Minerals and livestock and have traditionally been the backbone of the Mongolian economy. Despite a wealth of recently discovered mineral resources, many residents remain desperately poor.

Mongolia's extensive mineral deposits and attendant growth in mining-sector activities have transformed Mongolia's economy, which traditionally has been dependent on herding and agriculture. Mongolia's copper, gold, coal, zinc, molybdenum, fluorspar, uranium, tin, and tungsten deposits, among others, have attracted foreign direct investment (FDI).[Source: CIA World Factbook =]

In October 2009, Mongolia passed long-awaited legislation on an investment agreement to develop the Oyu Tolgoi (OT) mine, considered to be among the world's largest untapped copper-gold deposits. However, Mongolia's ongoing dispute with foreign investors developing Oyu Tolgoi has called into question the attractiveness of Mongolia as a destination for foreign investment. This caused a loss of investor confidence, a severe drop in FDI, and a slowing economy, leading to the dismissal of Prime Minister Altankhuyag in November. In December 2014 the government awarded a deal to develop the massive Tavan Tolgoi (TT) coal field to a consortium comprising Energy Resources/MCS (Mongolia), Shenhua (China), and Sumitomo (Japan); talks continue to hammer out the financing and the operating details. =

Minerals and various industries associated with mining make up about a large portion of Mongolia’s GDP and exports and earn a big chunk of foreign reserves. The fortune of the economy is often dependent of the world prices of copper and other minerals.

Mining in Mongolia

Mongolia’s extensive mineral wealth went largely untouched in the Soviet era. Now its exploitation fuels the country’s extraordinary economic growth. There are currently hundreds of mines of varying sizes in Mongolia. There is a strong demand for minerals in Asia, especially from neighboring China. The main problem with mining in Mongolia is that a lack of roads and basic infrastructure makes its resources expensive to extract. Minerals are often in remote wilderness areas. Many of the mines that are currently in operation are close to the Trans-Mongolian Railway.

Mongolia is attempting to get the most out of its mining sector. Michael Kohn and William Mellor wrote in the Washington Post: “Rather than simply letting investors mine ore and ship it across the nearest border, the government plans facilities such as a copper smelter, a coal coking plant, an oil refinery and an iron pellet plant that will add value. [Source: Michael Kohn and William Mellor, Washington Post, May 4, 2013]

Environmentalist worry about the cost on the environment of aggressive mining. In Sukhbaatar Province there is a Chinese-financed zinc mine and a uranium mine that once supplied material for Soviet nuclear weapons. The mine was kept a secret until 1989 and then abandoned.

Minegolia and Mongolia’s Mining Boom

In 2011 — when capital expenditures on the Oyu Tolgoi mine peaked — Mongolia’s gross domestic product increased by 17.5 percent, according to the International Monetary Fund, making it the fastest-growing economy in the world. [Source: William MacNamara, New York Times, December 10, 2012 <|>]

The mining industry has become so big and pervasive, some Mongolians now refer to their homeland as "Minegolia." Sam Knight wrote in the Times of London in 2007, “Thirty-five per cent of the country’s surface, an area larger than Spain, has been licensed for mining exploration and more than 80 minerals have been discovered. With two of the world’s largest mines – one for coal, the other for gold and copper “– the country’s” gross domestic product is forecast to start rising by 25 per cent in 2010 and then keep growing, year on year, at the same rate.” [Source: Sam Knight, Times of London, July 21, 2007]

Frank Langfitt of NPR reported: “For the poor, landlocked nation of fewer than 3 million people, mining represents a remarkable opportunity, but one that's also loaded with risks. Tuvshintugs Batdelger, who runs an economic think tank at the National University of Mongolia, says mining is helping to drive the economy of this Central Asian nation at an incredible pace. "In the coming 10 years, average GDP growth will be 12 percent," he says. Even when you factor in inflation, "GDP in real terms more than doubles in 10 years' time." Mining's impacts are visible throughout much of Mongolia...Hummers roll past the Louis Vuitton store and columned Soviet facades in Ulaanbaatar, the capital. Thousands of young Mongolians have moved to the middle of the Gobi to work at Oyu Tolgoi. [Source: Frank Langfitt, NPR, May 21, 2012 <=>]

At the height of the mining boom in 2011, Ron Gluckman wrote in Foreign Policy: “Mongolia is in the middle of an epic gold rush — think San Francisco in 1849 — but it’s copper and coal that have enticed businessmen, investment bankers, and miners from London, Dallas, and Toronto by the planeload. Today, Ulaanbaatar is abuzz with talk of options and percentages, yields and initial public offerings. Not since the 13th century, when Genghis Khan consolidated the nomadic tribes of these remote steppes and established an empire that eventually spanned from Eastern Europe to Vietnam, has Mongolia seen so much action. The country’s stock exchange (though still the world’s smallest) rose 125 percent last year, and the IMF forecasts double-digit GDP growth rates for years to come. Others aren’t nearly so pessimistic: Renaissance Capital — an investment bank that specializes in emerging markets, one of many that have recently set up shop in Mongolia — notes that overall economic output could quadruple by 2013. “Mongolia is about to boom. Of that, there is no longer any doubt,” says John P. Finigan, the Irish CEO of one of Mongolia’s largest banks. A veteran of developing markets in scores of countries, he says the only comparable growth potential he has seen has been in the Persian Gulf oil states. [Source: Ron Gluckman, Foreign Policy, January 3, 2011 ||||]

“The reason for the boom can be summed up in a word: China. Mongolia has some of the world’s largest undeveloped fields of coal, vital for its southern neighbor’s hungry steel mills and power plants. Mongolia is also rich in copper, needed for the power-transmission lines being strung at record rates in fast-growing Chinese cities and for the production of batteries, especially those for the booming market in electric cars. China currently consumes nearly 7 million tons of copper each year (about 40 percent of global demand), but it’s on track to triple its copper needs within 25 years, according to CRU Strategies, a London-based mining and metals consultancy.” ||||

Mongolia's Resources in the Soviet Era

Mongolia's natural resources include forests, fish, and a variety of minerals. In the late 1980s, Mongolia had 15 million hectares of forests covering 9.6 percent of the nation. Major forested areas were approximately 73 percent Siberian larch, 11 percent cedar, and 6.5 percent pine. Timber stocks were estimated to be 1.3 billion cubic meters. Mongolia's northern rivers and lakes contained more than 50 native species of fish; however, this resource barely was exploited because fish is not popular among Mongolians. [Source: Library of Congress, June 1989 *]

The country's richest resources are minerals--coal, copper, fluorite, gold, iron ore, lead, molybdenum, oil, phosphates, tin, uranium, and wolfram.Coal deposits in the mid-1980s were located at Aduun Chuluu (reserves of 37 million tons), Baga Nuur (reserves of 1 billion tons), Nalayh (reserves of 73 million tons), Sharin Gol (reserves of 69 billion tons), and Tavan Tolgoy (reserves of 9.5 billion tons). Copper and molybdenum were found at Erdenetiyn-ovoo and at Tsagaan Subarga in Dornogovi Aymag. Fluorite deposits were located at Burentsogt in Suhbaatar Aymag, at Berh and Bor Ondor in Hentiy Aymag, and at Har-Ayrag in Dornogovi Aymag. Northern Mongolia, particularly Tov and Selenge aymags, had widespread gold deposits. These sites included Tavan Tolgoy, Erhet, and Bugant; the Yoroo Gol and the Bayan Gol; and Narantolgoy. Other gold deposits were found at Noyon Uul in Hentiy Aymag and at Altan Uul in Omnogovi Aymag. *

Iron ore occurred at Bayan Gol, at Bayan Uul in Hovsgol Aymag, at Bayasgalant in Dundgovi Aymag, and at Yoroo in Selenge Aymag. Lead deposits were found at Jargalthaan in Hentiy Aymag and at Bordzongiyn Govi in Omnogovi Aymag. A major limestone deposit was discovered at Hotol in Bulgan Aymag. Mongolia exploited oil deposits at Dzuunbayan and Tsagaan Els in Dornogovi Aymag, and at Tamsagbulag in Dornod Aymag in the 1950s and the 1960s. Reports on the exploitation of oil deposits ceased after 1968. Phosphates were found at Urandosh in Hovsgol Aymag. Prospecting teams have discovered extensive veins of potash mica running through 350 kilometers of the Altai Mountains. Tin was located at Nomgon in Omnogovi Aymag and at Yeguudzer in Suhbaatar Aymag. Wolfram deposits were exploited at Burentsogt, Chonogol, Ihhayrhan, Salaa, and Hanhohiy in Tov and Suhbaatar aymags. Uranium has been discovered in Mongolia, but there were no reports of deposits that were being tapped in the 1980s.*

Mongolia cooperated extensively with Comecon countries in surveying the country's natural resources. Joint geological prospecting teams located more than 500 mineral deposits in Mongolia. The Erdenetiyn-ovoo copper-molybdenum deposit, for example, was discovered with Soviet and Czechoslovak assistance. The Soviet Union was the most active of the Comecon nations in joint exploration of Mongolia's mineral resources. The Joint Mongolian-Soviet Geological Expedition discovered previously unknown minerals, published monographs and metallogenic maps; and focused its surveying efforts on searching for nonferrous, rare, and precious metals, fluorite, phosphates, building materials, and coal. Geological prospecting was thus conducted to assist Mongolian economic development by extending mining industries and by exploiting new mineral deposits.*

Mining in Mongolia in the Soviet Era

Until the late 1960s, mining in Mongolia consisted primarily of coal extraction. In the 1970s, however, joint exploitation of mineral resources by the Soviet Union and other Comecon nations commenced on a large scale. Comecon and joint Mongolian-Soviet geological teams surveyed the country's natural resources and discovered valuable mineral deposits, such as copper, molybdenum, wolfram, fluorite, gold, and tin. Several joint stock companies, such as Mongolsovtsvetmet, Mongolchekhoslovakmetall, and Mongolbolgarmetall, were formed to develop and to exploit these deposits. By the late 1980s, mining was an important sector of the economy, and accounted for 42.6 percent of exports in 1985. Little information was available on mining output. [Source: Library of Congress, June 1989 *]

In 1985 Mongolia mined 6.5 million tons of relatively lowgrade varieties of coal, of which only 225,200 tons, or 3 percent, was exported. Exploited lignite deposits were located at Aduun Chuluu, near Choybalsan; Baga Nuur; Nalayh, near Ulaanbaatar; and Sharin Gol, near Darhan. The Aduun Chuluu coal mine's annual output was 300,000 tons. The Baga Nuur strip mine, developed in the 1980s, produced 2 million tons annually by 1985. The Nalayh coal mine, the country's oldest, produced 800,000 tons annually in the 1980s. The Sharin Gol strip mine, developed in the 1960s, had an annual output of 1.1 million tons in the 1980s. The large Tavan Tolgoy deposit of coking coal remained unexploited because of its remoteness from transportation and industrial centers. The Eighth Plan called for raising coal production to 9 million tons, labor productivity 22 to 24 percent, and the capacity of the Baga Nuur mine.*

The copper and molybdenum deposit at Erdenetiyn-ovoo was discovered by Mongolian and Czechoslovak geologists in the mid1960s and was developed with massive Soviet assistance in the 1970s. Erdenet's development required the construction of a branch railroad line from Salhit, near Darhan to Erdenet; a highway from Darhan to Erdenet; a water pipeline from the Selenge Moron; an electric line from the Soviet Union; and factories, housing, and other facilities. A Mongolian-Soviet construction force numbering 14,000 built the Joint Mongolian-Soviet Erdenet Mining and Concentrating Combine, which included a mine, a concentrating plant, a material and technical supply base, a mechanical repair plant, and a high-capacity thermal and electric power plant. The first stage of the Erdenet combine went into operation in 1978, with a planned output of 50,000 tons for 1979. With the completion of the fourth stage in 1981, planned annual production capacity was 16 million tons of concentrate. From 1979 to 1982, Erdenet's output of concentrates amounted to 250,000 tons of copper and 3,400 tons of molybdenum, with concentrates containing 33 percent copper and 50 percent molybdenum. In 1983 the Erdenet combine was completed. During the Eighth Plan, annual capacity was to reach 20 million tons. No information was available on actual output or exports.*

Other nonferrous metals exploited by Mongolsovtsvetmet and other joint ventures were fluorite, wolfram, tin, and gold. The Berh, Bor Ondor, Burentsogt, and Har-ayrag fluorite deposits had an annual output of 786,700 tons; fluorite was exported to the Soviet Union, but no figures were available. The Eighth Plan called for expanding fluorite production capacity by an unspecified amount. No figures were available on output or on exports of wolfram, tin, and gold. In the late 1980s, plans to open the Urandosh phosphate strip mine near Hatgal were delayed by concerns for environmental pollution in Hovsgol Nuur. Exploitation of the Burenhaan phosphate deposit still was planned. Further development of Mongolia's other mineral resources was also planned, and the Eighth Plan called for continued cooperation with Comecon countries in geological prospecting and mining. *

Developing Mongolia’s Mining Industry

In October 2009, Mongolia passed long-awaited legislation on an investment agreement to develop the Oyu Tolgoi (OT) mine, considered to be among the world's largest untapped copper-gold deposits. However, Mongolia's ongoing dispute with foreign investors developing Oyu Tolgoi has called into question the attractiveness of Mongolia as a destination for foreign investment. This caused a loss of investor confidence, a severe drop in FDI, and a slowing economy, leading to the dismissal of Prime Minister Altankhuyag in November. [Source: CIA World Factbook =]

The new government has made restoring investor trust and reviving the economy its top priority, but it will be challenged to unwind the monetary and fiscal stimulus programs in use since 2013 to counteract the fall in foreign investment. In December 2014 the government awarded a deal to develop the massive Tavan Tolgoi (TT) coal field to a consortium comprising Energy Resources/MCS (Mongolia), Shenhua (China), and Sumitomo (Japan); talks continue to hammer out the financing and the operating details. =

Michael Kohn wrote in Bloomberg, “Since breaking free of Soviet influence and embracing democracy in 1990 Mongolia, the struggled to balance the development of its natural resources, which have been estimated to be worth $1.3 trillion. Laws have seesawed between favoring the interests of foreign investors and appealing to an increasingly nationalist electorate. Double-digit economic growth for three straight years has yet to translate into personal wealth, with one in four Mongolians living below the poverty line, according to The World Bank. [Source: Michael Kohn, Bloomberg, January 13, 2014 <<<]

Political disagreements in the last parliament have prevented the exploitation of mineral deposits - including copper, gold and coal - in the Gobi desert. Billion-dollar foreign investment deals, including the Oyu Tolgoi copper and gold project have been held up by political squabbles. A total of 106 mining licenses were cancelled in 2013 as politicians debated how to distribute the mining wealth. Election campaigns have focused on rival plans for mining projects. [Source: Tania Branigan, The Guardian, July 2, 2008]

“In terms of the 106 licenses issue, Mongolia is preparing to overturn” the “cancellation of the permits, according to one company stripped of its permit. The mining ministry has proposed returning the licenses to “compliant” holders, including a “mechanism to compensate for the time lost due to original judicial process,” Vancouver-based Kincora Copper Ltd. said. <<<

Mining Wealth and Conspicuous Consumption in Mongolia

Michael Kohn and William Mellor wrote in the Washington Post: “Few things matter more in the political and economic life of” Mongolia “than foreign investment to develop its mineral wealth. Mining money has spawned gleaming office towers, pricey gated communities and luxury-car dealerships in the capital. And yet, half of all Mongolians still live like their nomadic ancestors in circular felt yurts.” Mongolia “remains a poor country. About 30 percent of the population lived in poverty in 2011, according to the government, although that was an improvement from 40 percent in 2010, before the start of payouts funded by mine proceeds.” [Source: Michael Kohn and William Mellor, Washington Post, May 4, 2013 /+/]

Mongolia’s gross domestic product expanded 12.3 percent in 2012 to $10 billion. The Oyu Tolgoi copper and gold mine “will be the largest contributor to the economy once it’s fully operational. With fees, royalties and the government stake, as much as 71 percent of profits will go to Mongolians, the International Monetary Fund estimates. “There is scope for Mongolia to vastly develop if it gets everything right,” says Vidur Jain, a strategist at Monet Capital, an investment bank based in Ulaanbaatar. /+/

In 2011, Ron Gluckman wrote in Foreign Policy: “Ulaanbaatar looks increasingly like a Chinese boomtown, with all the same trappings — exploding property prices, huge capital inflows, rising concerns about corruption, widening gaps in income disparity, and a flood of flashy automobiles on the roads. A year ago, a Louis Vuitton boutique opened for business in the posh Central Tower building near Sukhbaatar Square. A glass cabinet holds a horse saddle encrusted in gems. “It’s one of a kind, custom-made for Mongolia,” the manager notes. Downstairs, the offerings are more conventional. A crocodile purse fetches $20,000; watches run $17,000. [Source: Ron Gluckman, Foreign Policy, January 3, 2011 ||||]

“The sums are astounding in a country that is still among the world’s poorest. Per capita GDP in 2008 was about $3,100, making Mongolia the world’s 166th-poorest country — just ahead of the West Bank. Yet that hasn’t stopped Ermenegildo Zegna, Hugo Boss, and Burberry from opening up. “There’s lots of new money here,” says Zoljargal, marketing manager for Shangri-La Ulaanbaatar, which is rushing to finish a new shopping plaza, along with Mongolia’s first luxury hotel. The luxury disappears as soon as you leave the capital. On the town’s outskirts lie ger camps, nomadic tent communities where tens of thousands of people live in poverty; beyond, there is little sign of civilization, just the vastness of the Gobi Desert. The harsh conditions and lack of infrastructure have hampered habitation and development for centuries.” ||||

Mongolia’s Mining Wealth and its Expanding Income Gap

Mongolia's economy exploded in the 2010s as foreign investors and mining giant Rio Tinto began exploiting the country’s huge and largely untapped reserves of coal, copper and gold. At the same time corruption has also rose, soared. The Mongolia economy grew by 17.3 percent in 2011 thanks to a booming mining sector, but on Transparency International’s corruption perception index the country regressed from 116th place to 120th in 2011. Sumati Luvsandendev, the director of a polling organization in Ulaanbaatar, told the Guardian: "Our society worries that things are not going that well in terms of social justice, that there is a growing gap between rich and poor, and that there is an oligarchic class."

AFP reported: “Although foreign investment has quadrupled to nearly $5 billion, the least well-off among Mongolia's 2.8 million people often complain that they are reaping few benefits of the boom. "I don't think any of the ruling political parties have shown the ability to handle the the big miners," said Amitan Ulam-Undrakh, a herdsman from the south of the country. "I want to choose a party who has a clear idea on the coexistence of mining and the wider economy. Not a party that will just focus on the mining industry." [Source: AFP, June 29, 2012 ^^^]

“The enormous sums pouring into Mongolia have also led to accusations of large-scale graft levelled against political figures including former president Nambar Enkhbayar, who was charged with corruption in 2012. But the ruling Mongolian People's Party (MPP) and the main opposition Democratic Party, which have shared power in recent years, both insist they can ensure a fairer distribution of wealth across the vast nation. ^^^

Li Narangoa of Australian National University wrote: “While the mining boom is bringing great wealth to the country, it is also creating social inequalities. The wealth is not distributed evenly across the country, but remaining with the small number of people who hold power. The sudden shift from a closed and planned socialist economy to a free market economy occurred without a transparent system of government, and the potential wealth from resources has accelerated corruption in the country. Thus, those with money have become powerful and those with power have accumulated more wealth. The poor have become even poorer because there was no adequate welfare system to look after them after the collapse of the communist system. The presence of foreign mining companies creates another layer of inequality, because local employees are paid less than their foreign (Western) peers for the same job. Mongolian people also consider it unfair that foreign companies own so much of the strategically important copper and gold mine, Oyu Tolgoi, and feel threatened by the possibility that Mongolia might lose its resources to foreign companies, especially to China. [Source: Li Narangoa, eastasiaforum.org, July 10, 2012 <=>]

“The new government will face many social and economic challenges, including distributing wealth equitably across the nation, and using the revenue gained from the mining sector to build a sustainable welfare system, infrastructure and education. Developing the mining industry while promoting the Mongolian traditional pastoral economy and tourism will also be an important issue in years to come. Stamping out corruption and creating a transparent government are crucial to building the sustainable democracy that will maintain Mongolia’s reputation in the world amid growing resource nationalism and the growing economic and political influence of its two neighbours.” <=>

'Dutch Disease' and Other Problems Created by Mining in Mongolia

Sam Knight wrote in the Times of London, “The promise of general prosperity – a chance to transform the lives of three million people, more than a third of whom live under the poverty line – is treated warily. “So many revenues, such a chance for Mongolia,” said Chuluunbataar Enkhzaya, a 33-year-old economist. “But on the other side, it might also be a big, big curse.” [Source: Sam Knight, Times of London, July 21, 2007]

Commodity markets and prices can have a big impact. When prices for coal and copper are low, the whole country suffers. In some cases government policies have only worsened the situation, Frank Langfitt of NPR reported: “The economy becomes dependent on commodity prices that fluctuate.When the price of copper crashed in late 2008 during the global financial crisis, Mongolia's government had to call in the International Monetary Fund for help. When prices for natural resources are high, they can cause other problems and strangle important domestic industries. Heavy demand drives up the value of a country's currency, which makes its exports more expensive and harder to sell. [Source: Frank Langfitt, NPR, May 21, 2012 <=>]

“Rogier van den Brink of the World Bank says that's what happened after the Netherlands discovered huge natural gas reserves in late 1959. The syndrome became known as "Dutch Disease." Van den Brink, who is Dutch himself, remembers the damage. "As a boy growing up in Holland, the impact of this was very stark to me," he says. "Sectors of the economy that we long had pride in, like the shipbuilding industry, we had to close them down." Today, van den Brink is the World Bank's lead economist in the East Asia and Pacific region. He has worked closely with the Mongolian government to enact a law to enforce government savings and control spending and borrowing so it might avoid what happened in the Netherlands. <=>

“Landlocked Mongolia doesn't build ships, but it has other businesses that the mining boom could hurt. The Gobi cashmere company in Ulaanbaatar is already feeling the side effects. The firm turns raw cashmere from Mongolian goats into sweaters, jackets and shawls, and exports them to more than 40 countries. Mongolia's new mineral wealth drove inflation to more than 12 percent last year, forcing Gobi to raise workers' wages by one-third. Naranbaatar Davva, the company's 30-year-old chief operating officer, says raw material prices are up, too. "Three years ago, we used to buy 3 kilograms of raw cashmere for $20," he says. "Today, this figure is $60." <=>

“Higher prices are good for Mongolian herders, but they cut into Gobi's profits. Naranbaatar says a special government policy is also undermining herders' incentive to work. Naranbaatar says mining brings many benefits to Mongolia. He just hopes people don't lose sight of an old, reliable industry like his. "Mining resources are not renewable. Depending on the reserves, it may last 20, 50 or 100 years," he says. "If we use the right policies and preserve our nomadic herding traditions, many people will be employed in the Mongolian cashmere industry for hundreds and thousands of years." <=>

“Many Mongolians worry that mineral companies and politicians will be the greatest beneficiaries of the mining boom. Solongo” a clerk, “hopes some of her nation's new riches are used to improve the hard lives many Mongolians face. "There is lots of poverty in Mongolia, almost 40 percent, which is unbelievable with this natural resource," she says. "We should find the right way to distribute the benefit of this resource to everyone. They deserve it." <=>

Ron Gluckman wrote in Foreign Policy: “President Tsakhia Elbegdorj brushes away concerns that Mongolia could end up the next poster child of the resource curse. “We are very much aware of the Nigeria case, the Dutch disease phenomenon, and so on,” Elbegdorj tells me. “Mongolia is a democratic country of educated people. Our people and democracy are the guarantees that our country will not become another Nigeria.” [Source: Ron Gluckman, Foreign Policy, January 3, 2011 ||||]

China and Mongolia Mining

China's demand for the coal, uranium and other minerals that Mongolia has in abundance — but has so far barely touched — is huge and growing. Because Mongolia relies on minerals exports for a large chunk of its income, its proximity to China is a big asset. The massive Oyu Tolgoi copper and gold mine is only 100 kilometers from the Chinese border. But to fully take advantage of it geographic advantage, Mongolia has to upgrade its infrastructure, roads, minimal rail network and overloaded power grid. [Source: Michael Kohn and William Mellor, Washington Post, May 4, 2013]

There has been is a lot of talk about Mongolia being the same kind of supplier or raw materials to China that Canada is to the United States. Robert M. Fiedland, the chairman of Ivanhoe and one of Canada’s wealthiest men, told the New York Times, “the holy grail of our business is to be the low-cost supplier to China”. He said mining in Mongolia will help him realize that goal. Several international companies are inventing in Mongolian mines with the aim of supplying China.BHP Billton, the world’s largest mining company, and Vale SA, the world’s No. 1 iron producer, have talked about developing a coal deposit with $500 billion worth of fuel.

Olga Khazan wrote in the Washington Post: “Like many other Central Asian countries, Mongolia is growing rich from selling minerals to China. According to a report by the Associated Press, Mongolia sends 90 percent of its exports to Chinese markets, and the two-way trade with Beijing makes up 75 percent of Mongolia’s economy. [Source: Olga Khazan, Washington Post, February 4, 2013]

Wariness of Chinese Mining Interests in Mongolia

Olga Khazan wrote in the Washington Post: “Because China has fueled so much of Mongolia's growth, there could be scary repercussions as China's economy slows. China's demand for Mongolian minerals has already slumped somewhat, and most analysts say Mongolia needs to diversify its economy away from just one main trading partner. [Source: Olga Khazan, Washington Post, February 4, 2013 /*\]

“Granted, Mongolia has pushed back against Chinese influence, even going so far as to lay railroad tracks at a gauge that makes it impossible for them to connect to Chinese rails. China and Russia are now each limited to a third of Mongolia's total foreign investment, and Mongolia has been attempting to foster partnerships with the United States, the European Union and Japan in order to hedge against Beijing and Moscow. "We will not be another Africa," Ganhuyag Ch. Hutagt, a Mongolian banker and former vice finance minister told the AP. "We cannot afford to have one particular nation control our businesses."” /*\

On the issue of building a railroad to the Chinese border to facilitate the exporting of coal, Sanjaasuren Oyun told the Washington Post, “In the 21st century, whoever controls energy controls everything,". She is a member of the Mongolian parliament, a Cambridge University-educated geologist and former foreign minister. She told the Washington Post that Mongolia needs a railway to the Chinese border but that it has to make sure the country doesn't just become a grab bag for China-bound minerals. [Source: Andrew Higgins, Washington Post, July 16, 2011 <<<]

“Battulga Khaltmaa, a former wrestling champion who is in charge of Mongolia's railway-building program, said that a track to China will come one day but that first Mongolia needs to start laying rails away from China. That, he said, will curb dependence on the Chinese market by opening up alternative export routes to Japan and South Korea and also anchor a planned industrial zone at home. Mongolia, he said, doesn't want to just shovel raw materials into China and end up “lazy” like oil-fattened Saudi Arabia, with a “few families controlling the country and making all the money." “We have to think about national security, our traditions, our lifestyle---not just profit," said Battulga, Mongolia's minister of roads, transportation, construction and urban development. <<<

There is also the issue of traditional Mongolian dislike of the Chinese. On one joint Chinese-Mongolian coal project, a Mongolian businessman told the Washington Post, “Mongolians will be working for the Chinese...It’s like we’re Algeria, like we’re a colony. And it doesn’t have to be this way. Mongolia is an educated country.”

Impact of Mining on Mongolian Herders

Sam Knight wrote in the Times of London, “The spread of mining – its thirst for Mongolia’s slender water resources and hunger for land – has environmental consequences for nomadic herding, the mainstay of the country’s traditional life and economy....Lhagvasuren, a 76-year-old with a herd of more than 1,500 animals, has had to move more than 30 times this year, rather than an average two or three, to find grazing. “There is no more grass. There are too many holes,” he said. With the Gobi Desert creeping further north into Mongolia, Lhagvasuren said he planned to reduce his herd to focus on high quality goats. Other herders are giving up nomadism altogether and setting up settled farms and cooperatives. The result, according to Peter Morrow, a banker from Arizona, who is the CEO of Khan Bank, the former state agricultural bank, could be the end of traditional herding in Mongolia. “This is the last horse-based nomadic culture in the world,” he said. “But given development, given globalisation, given cellphones and MTV, maybe it just doesn’t survive.” [Source: Sam Knight, Times of London, July 21, 2007]

Michael Kohn and William Mellor wrote in the Washington Post: “Out in the Gobi Desert, near where Rio Tinto’s miners are digging for copper in shafts 4,300 feet underground, Aimtan Ulam-Badrakh, 54, stands stoically beside his isolated yurt watching his 300 sheep and 10 camels graze on tufts of brown grass.At first glance, it’s a way of life unchanged since the days of Genghis Khan. Step inside the yurt, however, and a different story unfolds. The stocky herdsman can afford a leather couch, a television and a computer. An iPhone 4 lies on a bed — one of three mobile devices his family shares. His wife works part time at the airport built for the miners. His daughter teaches English at a local school, having learned the language while on a scholarship in Malaysia sponsored by Rio Tinto’s local unit. Along with other desert dwellers, the family has been further enriched by as much as $11,000 in compensation paid by the mining company for the disruption its project has caused. Ulam-Badrakh says that he is glad Oyu Tolgoi is being developed but that he also has reservations. “Foreigners cannot just dig up the land, take away our wealth and leave us with a big hole in the ground.” [Source: Michael Kohn and William Mellor, Washington Post, May 4, 2013]

Frank Langfitt of NPR reported: “ The Gobi cashmere company in Ulaanbaatar is already feeling the side effects” of the mining boom. “The firm turns raw cashmere from Mongolian goats into sweaters, jackets and shawls, and exports them to more than 40 countries. Mongolia's new mineral wealth drove inflation to more than 12 percent last year, forcing Gobi to raise workers' wages by one-third. Naranbaatar Davva, the company's 30-year-old chief operating officer, says raw material prices are up, too. "Three years ago, we used to buy 3 kilograms of raw cashmere for $20," he says. "Today, this figure is $60." [Source: Frank Langfitt, NPR, May 21, 2012 <=>]

“Higher prices are good for Mongolian herders, but they cut into Gobi's profits. Naranbaatar says a special government policy is also undermining herders' incentive to work. This year — an election year — the government is giving citizens up to $770 each in one-time cash payments. It's essentially a mining dividend and, for many Mongolians, a lot of money. "Livestock herding is almost a 16-hour-a-day job. It's a hard job, so you don't see many young herders anymore," he says. "Plus, the government gives out free cash." <=>

“Naranbaatar says mining brings many benefits to Mongolia. He just hopes people don't lose sight of an old, reliable industry like his."Mining resources are not renewable. Depending on the reserves, it may last 20, 50 or 100 years," he says. "If we use the right policies and preserve our nomadic herding traditions, many people will be employed in the Mongolian cashmere industry for hundreds and thousands of years." <=>

See Separate Articles on Nomads

Ninja Miners in Mongolia

Olga Khazan wrote in the Washington Post: Khorloo is “a 65-year-old Mongolian who spends her days digging through the Mongolian steppe with metal detectors and shovels, plucking out the occasional gold nugget after days of scratching in the dirt. "It took us a week to dig this out," Khorloo told Reuters, holding a nugget that could earn her family as much as $6,000. "But we dug for three years to reach the vein." [Source: Olga Khazan, Washington Post, February 4, 2013]

Khorloo is one of Mongolia's 60,000 or so "ninja miners" -- former herders who took up amateur mining, using whatever rudimentary tools they have at their disposal, amid soaring mineral demand from China. (They're called ninjas because the large green pans they carry on their backs look like turtle shells.).” Though they seem harmless enough the freelance miners “are actually a bit of a drag on the mining economy. Not only do they not pay taxes, notes Morris Rossabi in Foreign Affairs, they also contribute to prostitution, gambling, and other illegal activities. And the herders who have resisted mining complain that mining companies have undermined their way of life, forcing them to migrate.:

Sam Knight wrote in the Times of London, “The hillside of dust in Bayanhongor, 550 kilometres (340 miles) west of Ulaanbaatar, is called Altan Us, or “Golden Waters”. It is eaten through with so many holes that it may subside at any moment. Here and there, labouring under the sun, go hundreds of ninja miners, one symbol of Mongolia’s possible future. Named after the Teenage Mutant Ninja Turtles because of the green plastic pans they carry on their backs, about 100,000 Mongolians have taken to mining the land by hand in the past five years. [Source: Sam Knight, Times of London, July 21, 2007 |:|]

“Many lost their jobs during the country’s transition from Communism and initially became traditional herders. But two devastating winters, known as dzuds, wiped out a third of Mongolia’s livestock in 2001 and 2002, and thousands of families joined the gold rush, scouring sites rejected by large mining companies for quartz or crumbs of gold. Ninjas earn between $5 (£2.50) and $10 a day, often more than teachers, doctors and government officials. Unlike many herders, they deal in cash. This has made them unlikely heroes of the rural economy in Mongolia and a source of much-needed growth. |:|

“Robin Grayson, a British geologist who carried out the first meaningful study of the ninja phenomenon in 2003, calls them “homesteaders, little Americans, Wild West pioneers”, adding: “They emerged at a time when this country was in shock. They gave up on the Government and got on with it. They’re self-made men and women.” But there was little satisfaction in Altan Us. “Mining is not the future,” said Olonbayar, a 48-year-old woman who wore a mask as she hauled equipment up a 13-metre shaft. “I never want my children to be like me. My children will be educated.”Further up the hill, a former vet called Batnasan, who is missing his front teeth, said: “Every night when I am in bed, I think this should stop. Every morning I go down 15 metres into a hole and think today or tomorrow I could die.” Neither thought a mining boom would benefit Mongolia as a whole.” |:|

Mining and Water Pollution in Mongolia

According to the Goldman Environmental Prize: On the sprawling, sparsely populated steppes of Mongolia, outdated and unregulated mining practices have put waterways across the country in jeopardy. With most of its population living in poverty in rural areas and many working as semi-nomadic herdsman, Mongolia faces a serious challenge: to utilize their resources in international trade and to regulate industry in order to protect the natural environment that supports citizens living in very tough conditions. With an unwavering commitment to address this challenge, Munkhbayar is leading the effort to protect Mongolia’s precious water resources from the dangers of unregulated mining.[Source: Goldman Environmental Prize]

Mongolians living in rural areas rely on the many rivers and tributaries to provide drinking water for themselves and their herds. Today, more than 30 tributaries of the Onggi River (one of the largest rivers in the country) have dried up due to unregulated mining that uses high-pressure water systems to extract minerals. In a country where water is sparse to begin with, the corruption of established water sources has dire consequences.

After the fall of the USSR, when former Soviet allies ushered in a new era of free market development, environmental activitsts became increasingly concerned about the shrinking river, both for the people who rely on the resource and for the protection of lands his family has lived on for centuries. As gold mining greatly expanded, more than 30 companies were allowed to mine along Onggi River tributaries. Indiscriminate, illicit mining and weak law enforcement resulted in the rapid destruction of the environment and natural resources across Mongolia.

New Power Plants to Run Mongolia’s Mines

Michael Kohn wrote in the New York Times: “Mongolia is emerging as an important economic and energy power player in the Asia-Pacific region. As it grows, the country will need energy to propel its expanding capital city and its burgeoning copper and coal mines...Oyu Tolgoi, a $6.5 billion mine in the Gobi Desert, will need to import power from China to run its copper concentrator. But after four years, the investment agreement states that Oyu Tolgoi will have to switch to domestic power. [Source: Michael Kohn, New York Times, February 3, 2012 /=/]

“Tavan Tolgoi, one of the biggest coal fields in the world, with 6.4 billion tons of coal reserves, will also need power to operate a coal-washing plant at its site in the Gobi Desert. Then there is the $10 billion industrial park planned for the city of Sainshand. All these projects will require new sources of energy, and the government is considering its options. One likely source is a proposed 450-megawatt power plant, code-named CHP5, planned for Ulaanbaatar. GDF Suez, based in France, is the lead bidder in a consortium to develop the project, which is expected to be in operation by 2015. It would be coal-fired but would use newer, cleaner technology; Newcom, Sojitz of Japan and Posco Energy of Korea are also involved./=/

“According to a statement from GDF Suez, the Mongolian government will buy power from the plant under a 25-year deal. Steam from the plant will be used for city heating in Ulaanbaatar, where winter temperatures plummet to minus 30 degrees Celsius (minus 22 Fahrenheit). About 340 kilometers east of the capital, Prophecy Coal of Canada is proposing construction of a 600-megawatt plant. Prophecy says the plant would help Mongolia end its energy reliance on Russia and eventually allow the country to export power to China. “First we want to build a plant that will satiate domestic demand for power,” said Oscar Mendoza, general manager for Prophecy Coal in Mongolia. “But our concept is to build a plant that can go from 600 megawatts all the way up to 3,600 megawatts or even 4,800 megawatts.” /=/

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, U.S. government, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Foreign Policy, Wikipedia, BBC, CNN, and various books, websites and other publications.

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© 2008 Jeffrey Hays

Last updated April 2016

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