CNSV >>Mongolian mega-mine set to transform country
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
<http://www.riotinto.com/ourbusiness/oyu-tolgoi-4025.aspx> 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
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 <http://www.dolbear.com/news-resources/documents> 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
<http://www.cao-ombudsman.org/cases/case_detail.aspx?id=191%20%20%20>
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
<http://www.cao-ombudsman.org/cases/case_detail.aspx?id=196%20> 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.
