CNSV Mongolian mega-mine set to transform country

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.