Mining the Gobi The Battle for Mongolia's Resources

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Part 3: The Downside of Dependence


As the protests grew louder, the country's cabinet froze all licenses that had already been issued. Last year, when a foreign company wanted to sell a coal mine to a Chinese corporation, Mongolia's new government temporarily halted all foreign strategic investment in the country.

Environment Minister Oyun describes herself as a staunch economic liberal, but believes that in the case of poor but resource-rich countries such as Mongolia, liberalism needs some limits. "It isn't good to make yourself dependent, whether on a large neighboring country, on a company or on natural resource price cycles."

In late July of this year, the price of copper was around $7,000. Under the shimmering sun of the Gobi Desert, Rio Tinto's drilling machines had surrounded half of Oyu Tolgoi's banana-shaped deposit with a dense network of tunnels and shafts. Another seven years and a further $5 billion would make this the world's most modern copper mine, extracting ore from every shaft and making its owners rich.

The Tug-of-War Continues

At least, that's what the company's stockholders thought until last week, when the British-Australian corporation suddenly halted work, saying the Mongolian government had announced that not only the cabinet, but the parliament as well, needed to approve funding for the mine. "In view of the current uncertainty … all funding and work on the underground development will be delayed until these matters are concluded and a new timetable has been agreed," the company stated.

That didn't just sound like a threat, it was a threat. Shortly after the company's announcement, raw materials analyst Tony Robson warned that, "Mongolia's reputation for mining investment has been destroyed."

Later last week, the government tried to calm mining investors' worries: "Parliament has already made the decision and signed their agreement," Prime Minister Altankhuyag Norov said at a press briefing. Not even the cabinet would have to be involved. "All issues can be discussed and decided at the board of directors level," he explained.

The tug-of-war between the poor, rich country and the corporation will go on.

Editor's note: For the sake of clarity, the editor's have amended this story to note that, as a junior partner in Mongolia's coalition government, the Democratic Party was responsible for nominating Mongolia's finance minister. We have also specified that Robert Friedland held a 50-percent stake in a copper mine in Burma. In addition, the term "cash flow engine" has been changed to "cash machine," and "mining license" has been changed to "exploration licenses" to provide the most accurate translation possible.

Translated from the German by Ella Ornstein

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peskyvera 08/07/2013
1. optional
And in Mongolia too...same old, same old. The wrong people benefiting from the country's riches and the poor being exploited even more.
japanreader 08/08/2013
2. Very Conscious of Mongolia in Japan
What this article did not dwell on is the fact that Mongolia is struggling very hard to maintain its independence in the face of China's seemingly inexhaustible demand for material resources. With this demand comes a tincture of Chinese control that seems to extend into every aspect of the Mongolian economy. Being landlocked, Mongolia basically has no choice but to sell to the Chinese or Russians. For a long time during Communism, Mongolia relied on counter balancing China with Russia. This counter weight is now gone. Japan is always a favorite of the Mongolians when it comes to a potential outlet for their resources. Ron Son, the closest port in North Korea on the Japan Sea is about as far as Amsterdam is from Helsinki. The problem is that the railroad passes entirely over China's Ge Lin province and is entirely chinese owned, and Ron Son itself is now pretty much in the hands of the Chinese on a 99 year lease as a free port. For all that Mongolia is the Australia of North East Asia, it seems doomed to Chinese political and economic dominance and to long term under development and poverty.
spon-facebook-1041952182 08/08/2013
3. optional
This is a once in a lifetime opportunity. I hope our Mongolian friends will take care of their nation's interests.
access 08/09/2013
4. Block caving
The problem the government is having is the mining technique. What rio is doing is setting up block caving. This involves a massive up front investment. The money they are making now will be from the open cut and this is small compared to the block caving. So they will make a lot of money once it is setup. When I was working at the mine, most of the workers were Mongolians. They were a very happy bunch. When the mine is full steam 40,000 Mongolians will work at the mine. This will be fantastic for the country. The Mongolian government just has to stick it out, the money will flow in due course and block caving will maximise the profits. I do not work for rio and never have.
plutocrat 08/11/2013
5. optional
Unfortunately this is a ugly face of the capitalism which is driven by greed and selfishness of those who are already rich and are prepared to do anything to steal anything possible from the poor just for their own profit. That is why Western world needed to destroy socialism and prevent from spreading it as in real and developed socialism there would be impossible to steal from poor just to gain extra penny of profit. If there would be some international financial institution which would be free from capitalist influence and would lend necessary amount of money to the country which would use this money to buy necessary expertise thus allowing the country to exploit their own natural riches people of the world would benefit from that quite substantially. Country would extract and manufacture the minerals and by doing so the product would bring them about 5 - 6 times more net profit and the product would be still much cheaper than it is nowadays. Mongolia gets very little money by granting mining rights, and just a handful of unqualified workers would get the worst miserable jobs as the ore will be exported elsewhere to be processed further. It is just disgusting to think how these multinational companies are exploiting poor nations and in return they create a cast of corrupt and privileged indigenous who will for a few extra ten grants make sure that exploitation will be safe and grand theft will go on unabated.
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