Mongolia’s Mining Troubles: Opportunity or Calamity?

Several years ago, Mongolia was touted as a hot investment locale for mining companies, given its rich mineral resources – particularly gold, copper, uranium, and coal – and the previously low level of exploration and development.
In 2015, that outlook looks slightly more gloomy.
Throughout 2014, the Mongolian government has been battling with Rio Tinto over the massive Oyu Tolgoi gold and copper mine, with Mongolian officials demanding Rio Tinto pay $30 million in taxes. Rio suspended construction work at the mine in July 2014.
As a result, foreign direct investment in the country declined in 2014 by 81% compared to 2013, according to the Central Bank of Mongolia.
The very public dispute between Ulaan Bataar and a major mining corporation is not the only entanglement Mongolia has had with foreign mining firms.
Khan Resources, a Canadian firm looking to mine uranium in the country, took the Mongolian government to international arbitration in 2011 after the government canceled its licenses to mine the Durnod uranium project in 2009.
Earlier this week, the international arbitration body decided in favour of the Canadian firm, and ordered the Mongolian government to pay $100 million for compensation. The company had initially submitted a claim to recover $354 million in compensation.
The indemnity will be an additional stress for the Mongolian economy, already reeling from the precipitous drop in FDI and crashing commodity prices. Mining accounts for nearly 20% of the country’s gross domestic product.
Silver lining?
But the CEO of Mongolia-based market intelligence firm Cover Mongolia sees reason for optimism on the mining front.
“I think that the verdict that came out is good for Mongolia’s reputation,” Badral Munkhdul told Silk Road Reporters on March 5.
“This shows that investors can have a dispute with the government and it can be settled, and that the government of Mongolia can be held accountable.”
Munkhdul said that the new government of Prime Minister Chimed Saikhanbileg is eager to reverse the missteps made by his predecessor in regards to unpopular changes to the overall mining regime and the cancellation of mining licenses.
Repairing the relationship with Rio Tinto appears to be a top priority of the new government, in power since November 2014. PM Saikhan told a question-and-answer session at the American Chamber of Commerce in Mongolia on March 4 that he would like to have the Rio Tinto/Oyu Tolgoi issue resolved by the end of this month.
The downtick in mining-related investment might also push the diversification of the Mongolian economy ahead at a quicker pace, Munkhdul said.
“What this crisis has taught us is that we need to diversify, or else we’ll be in the same economic cycle that we are in right now,” he said. More focus should be placed on small and medium enterprises, domestic manufacturing, and import-substituting manufacturers.
There is also real potential in Mongolia’s meat exporting industry, he said.
“In Soviet times, Mongolia was a big exporter of meat to Russia, but in the 1990s, Russia stopped buying and we never recovered as a meat exporter,” he said. “No one doubts that there’s a huge potential here. Mongolia has a huge advantage for the whole organic movement to produce non-farmed meat, which I’m sure there will be a huge market for. We could even export to Korea and Japan, but of course I think the biggest customers will be Russia and China.”
Jax Jacobsen is a Montreal-based freelance journalist who reports on Central Asia, mining, and foreign affairs. She has been published in the Montreal Gazette, The Guardian, The New Statesman, and elsewhere. She can be found on Twitter @jaxjacobsen.


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