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Mongolian mega-mine set to transform country

Huge project will boost GDP, but some are worried about its environmental impact.

Last Modified: 05 Jun 2013 14:45
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The Oyu Tolgoi mine is expected to contribute as much as one-third of Mongolia's GDP [Getty Images]

Khanbogd, Mongolia - The vast Oyu Tolgoi copper and gold mine, in the wilderness of the Gobi Desert, is set to put this former communist nation on the international mining map.

Anglo-Australian miner Rio Tinto expects to begin commercial production this month and begin exporting copper-gold concentrate by the end of June - pending approval from the Mongolian government, which has a 34 percent stake in the project.

Oyu Tolgoi is the largest factor in delivering the country's predicted double-digit growth over the coming years. 

Jack Sato, Rio Tinto chief operating officer of Oyu Tolgoi

Oyu Tolgoi - which is Mongolian for "Turquoise Hill", and known simply as "OT" - is forecast to produce about 450,000 tonnes of copper and 330,000 ounces of gold a year once it reaches full production in 2020.

Rocks in the Gobi Desert were smelted for copper in the 13th century during the reign of conqueror Genghis Khan, founder of the Mongol Empire, which at one point stretched from the Sea of Japan to eastern Europe. Today, many in the sparsely populated country - which became a democracy after the country's Democratic Revolution ended communist rule in 1990 - hope OT and other new mines will help the developing nation rise again.

Economic output in the country, landlocked between Russia and China, has already been boosted by the initial phases of the mega-project. Bayanjargal Byambasaikhan, the chairman of Mongolia's Business Council, cited OT as a reason for Mongolia's double-digit GDP growth rates in 2011 and 2012 - among the highest in the world.

Rio Tinto's Jack Sato, the chief operating officer of Oyu Tolgoi, said the mine was predicted to operate for at least 50 years. "Oyu Tolgoi is the largest factor in delivering the country's predicted double-digit growth over the coming years," Sato said. "And by 2020, OT is expected to account for a third of Mongolian GDP."

Mark Crosby, an associate professor at the University of Melbourne's business school, said the OT mine would likely account for three percent of global copper production. While the mine will likely not have major effects on global prices, Crosby described Oyu Tolgoi as "a very important mine for Mongolia".

Economic dynamo

 Mongolian miners claim injustice

 

The mine's operators have heralded Oyu Tolgoi as having the potential to transform Mongolia's economy.

Sato said OT had created 12,000 jobs for Mongolians during construction and was committed to a 90 percent Mongolian workforce during operations, which it expected to reach when commercial production began.

He added Oyu Tolgoi had paid the government more than $870m in taxes and other fees, spent more than $1.1bn on Mongolian suppliers, and had invested $126m in education and employment training programmes in Mongolia.

The mining project could spur infrastructure development, which remains a challenge for this developing country.

Byambasaikhan, the Business Council chairman, has advised Mongolia's president on transport and power supply issues and insists that revenues from the mine must be channelled into developing Mongolia's infrastructure. "OT will drive these things, but revenues coming from OT will help finance future infrastructure development," he said.

But transparency, Byambasaikhan said, will be the key to success for these projects, and he advised Mongolia to study what he described as Australia's transparent, highly successful public-private development partnerships.

'Litmus test'

How the mega-project is managed will also affect investors' willingness to pour money into Mongolia in the future.

"International investors are watching closely how the Mongolian government manages this particular project as a litmus test for considering investment in Mongolia," said Gary Gray, Australia's Minister for Resources and Energy.

Karr McCurdy, president and chief executive of mining industry advisor Behr Dolbear, said uncertainty over OT was a reason why Mongolia had slipped to 11th place in the minerals industry advisor's 2013 Ranking of Countries for Mining Investment. "Uncertainty impacts companies' ability to access international funds," McCurdy told Al Jazeera.

The country's volatile political climate, he said, has drastically affected the level of direct foreign investment. However, McCurdy added that investors have been reassured by recent government moves, such as passing an amendment in April to the Strategic Entities Foreign Investment Law that lifted many limits on the stakes foreign investors can own in sectors such as mining.

"The government of Mongolia is becoming more concerned about the slowdown in DFI [direct foreign investment] and assuring people that once the investment agreements are entered into, they will be managed in a manner that's appropriate," McCurdy said.

Travis Hamilton, managing director of investment advisor Khan Investment Management, said after meetings with Prime Minister Norovyn Altankhuyag and other officials, he had been reassured over government support for OT and amendments to foreign investment law.

Concerns

Not all are optimistic that the mine will be a boon for Mongolia, though. Two official complaints have been lodged with the World Bank's Compliance Advisor Ombudsman (CAO), the independent recourse and accountability mechanism for the organisation's private-sector arms.

The time has come for the Mongolian government to take Oyu Tolgoi matters into its own hands.

- Mongolian President Tsakhiagiin Elbegdorj

The first complaint, supported by Mongolian non-government organisations OT Watch and Gobi Soil, raised concerns about the mine's impact on the livelihoods of nomadic herders, and is now in the dispute resolution process. The second complaint, which the CAO told Al Jazeera it was assessing, was raised by community members concerned about the mine's potential effects on the nearby Undai River.

Rio Tinto's Sato stressed the mine was committed to minimising the impact on surrounding communities, the environment, and heritage of the South Gobi area, noting its work was monitored by the government and international investors.

"We monitor local water levels in partnership with herders, and are committed to taking mitigating action should they change beyond the usual seasonal variations," Sato said.

He estimated that OT would use 20 percent of an underground saline aquifer, unconnected to local water supplies, adding that Rio Tinto recovered and reused about 80 percent of water used in its operations.

Presidential elections

On June 26 Mongolians will go to the polls to choose a new president, and analysts expect OT to be a key issue.

Tsakhiagiin Elbegdorj, the incumbent, is expected to win. The former Colorado School of Mines student won the previous election after campaigning to distribute a greater share of Mongolia's mineral wealth to individual Mongolians. 

The Democratic Party leader, who rose from humble nomadic beginnings to become prime minister twice, is an influential figure respected in Mongolia for his fight against corruption and campaigning for the environment and women's rights.

He has accused Rio Tinto in April of allowing costs to run over by $10bn, a charge the mining giant has denied. Elbegdorj was cheered by parliamentarians when he said: "The time has come for the Mongolian government to take Oyu Tolgoi matters into its own hands."

Elbegdorj's election rivals include wrestling champion Badmaanyambuu Bat-Erdene of the Mongolian People's Party, a critic of the mine deal; and Natsag Udval of the Mongolian People's Revolutionary Party representative, the first woman to run for the country's top office.

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Source:
Al Jazeera
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