Major Drilling is putting Mongolia on the map

The world's least populated country and one of the youngest democracies is experiencing a mining boom and is looking to Canada for leadership.

And a New Brunswick company is at the centre of the development. Moncton-based Major Drilling Group International Inc. (TSX:MDI) has been at the forefront as Mongolia heads toward becoming a big league player in the international mining industry.

The Central Asian country has thrown open the doors to Canadian investment in the hopes partnerships will help create a thriving economy and a stable government.

Francis McGuire, president of Major Drilling, said the country sits on a huge supply of untapped natural resources.

The company was one of the first North American companies to set up shop in the country and he said good geological surveys, done by the Soviets when they ruled the region, made it attractive for development.

Sandwiched between China and Russia, Mongolia only recently gained independence from Soviet rule and is still in the early stages of setting up a democratic government.

One of the country's newest mines is the Canadian-run Oyu Tolgoi, or Turquoise Hill as the name translates. Located in the South Gobi region, it has been called the largest undeveloped copper-gold mine in the world.

Major Drilling did the initial work for the project and Vancouver-based Ivanhoe Mines Ltd. (TSE:IVN) has partnered with Rio Tinto Group (ASX:RIO) on the copper-gold development.

Based on independent analysis, Rio Tinto estimates there are 37 billion kilograms of copper and 1.3 million kilograms of gold at the site.

Canadian companies, such as Major Drilling, are streaming in to form the backbone of the industry's operational support and supply chain.

McGuire said junior mining companies have been on the ground for the last few years but now senior companies such as Australia's BHP Billiton Ltd. (NYSE: BHP), are fast moving in.

But being one of the first Western companies, the drilling company has faced some unique challenges doing business in the heavily rural country, McGuire said.

The Mongolian language does not include words for many of the tools used in drilling and few locals speak English. Words had to be created so the Major Drilling workers could communicate with each other.

McGuire said infrastructure on the ground is almost nonexistent and that includes roads, which means few Mongolians have experience driving. Motor accidents are rampant and truck loads of supplies sometimes just disappear.

Fences surround the work sites because sand storms can be dangerous in the heart of the Gobi desert, where temperatures fluctuate between a frigid -40 C and a sweltering 40 C, said McGuire.

The fences are not meant to keep the wildlife out, but to make sure employees don't wander out of the camp in the blinding sand storms.

McGuire said many Mongolians have lived nomadic lives as herders and the outdoor, high-paying mining jobs are highly valued.

Major Drilling has made a concerted effort to hire locals and has used local knowledge to run operations.

Gers - traditional Mongolian tents - house workers at the drill sites, said McGuire, because they provide warmth in the freezing desert and can be disassembled and moved quickly.
During his visits, McGuire said he has developed a great respect for the hard-working people who take great pride in their heritage as descendents of the conqueror, Genghis Khan.

Major Drilling received an award from the Mongolian government for being one of the country's best employers.

The company started an English language and mechanical skills program to train the more than 300 local workers.

McGuire said in the few short years since Major Drilling has involved in the country, there has been a massive boom in economic development catering to mining.

When Major Drilling first started work, he said, there wasn't even a tax system in place but since then Mongolia has partnered with Canada to establish its corporate tax plan.

He said just a few years ago there were only a couple of bars in the capital city but now there are more than 300.

Christopher de Gruben runs a consulting company in the Mongolian capital that helps companies acclimatize and do business in the country. He said part of the country's economic growth is due to its proximity to China, which has an insatiable appetite for raw materials.

The scale of the resources is unbelievable, he said.

"The mining industry is starting to explode."

The country decided to open its doors to foreign investment but has been hesitant to deal with neighbours China and Russia. Instead Mongolia has welcomed Canada.

The country is concerned about so-called Dutch disease - the phenomenon seen in the Netherlands in the 1960s when the discovery of new natural gas fields caused the currency to appreciate rapidly making exports less valuable, he said.

"The country wants to protect its independence and interests," De Gruben said.

For this reason Canada is seen as a very favourable choice for investment.

Canada and Mongolia share more than wide open spaces; both countries are resource-rich northern climates and have politically powerful neighbours.

But Mongolia is the world's most sparsely populated country, with only 2.6 million people spread across an area the size of Quebec. According to the United Nations, more than 20 per cent of the population lives on less than US$1.25 per day.

De Gruben said with the collapse of communism, the Russian government pulled out of Mongolia almost overnight in 1990, leaving a gap in institutional knowledge and a complete lack of government.

Pushed largely by foreign investment, the country started to grow in the early 2000s.

The Oyu Tolgoi mine, where Major Drilling did the initial exploration, is 34 per cent owned by the government. It took several years for both Ivanhoe Mines and Rio Tinto to come to an agreement that satisfied government officials.

As the industry expands the government has scrambled to keep up with the growth.

David Lutz, a former New Brunswick representative to the Honorary Consul of Mongolia, has experience dealing with Mongolian government officials.

Lutz said that during his tenure, he met with many of the country's ministers. From Education to Agriculture, they are looking to Canada to help strengthen their economy, he said. But the rapid expansion of the mining sector has left governments scrambling to train enough welders and heavy machine operators.

"Mongolia has the resources the world needs to build with," Lutz said.

Government officials asked Lutz to send Canadian instructors to teach English and other skills that could be put to use in the high-paying mines.

The country is having a hard time keeping up with economic growth, Lutz said. Ulaanbaatar is fast expanding and can't cope with the growth of tent cities on the outskirts of the city. With no sewage treatment or power, diseases such as tuberculosis are rampant.

Many Mongolians have high hopes for the new investment.

"Twenty miles out of the capital, it's 1867," Lutz said, explaining that people rely on horses for transportation and live in yurts.

Lutz said he worked to convince Foreign Affairs Canada to strengthen ties with the country. And in 2008, Canada established an embassy in the capital.

Lutz said Mongolia needs more than just investment in the mines.

"If countries like Canada don't help, the young democracy might not survive," he said.

The country is the only member of the World Trade Organization not participating in a regional trade agreement.

Lutz said Canada is seen as a strong democracy, a peace-keeping nation. "Mongolians know it doesn't do any good to allow a country to come in and just take the resources out," he said.

By Nicole Visschedyk
Telegraph-Journal

Source:nbbusinessjournal.canadaeast.com/
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