On the verge of a mineral miracle
Between the vast expanses of Siberia and the vast Gobi Desert lies Mongolia, the least populated country in the world. Over the past 50 years, this nation of just over 3 million people, spanning a landmass more than twice the size of Texas, has gone through a transition from a predominantly nomadic lifestyle to an economy Steps. It may not seem like it at first, but Mongolia could become a much wealthier nation in the next 20 years, on the level of the “Asian Tigers” of the 1990s: Hong Kong, Singapore, Korea South and Taiwan. It’s been called the “wolf” economy, and for good reason: there are over US$1 trillion—with a “t”—in mineral resources in the territory. On the other hand, Mongolia could remain in its current state, with its immense mineral resources bearing little fruit due to political inefficiency, economic downturn and environmental destruction. What seems like a blessing could quickly turn into a curse, and Mongolia now finds itself at a crossroads in that road.
In 2001, the Canadian company Ivanhoe Mines literally found gold, as well as copper and molybdenum, at the Oyu Tolgoi site in southern Mongolia. Just 50 miles north of the Chinese border, Oyu Tolgoi, which translates to “Turquoise Hill,” was named for the color of oxidized copper. 10 years later, the Mongolian government signed an agreement with Ivanhoe and Rio Tinto, one of the largest mining companies in the world, to develop the mine. With this deal, a public company acquired about a third of the project, while Ivanhoe owned the rest. Then, in 2012, Rio Tinto took over Ivanhoe, intending to increase control over Oyu Tolgoi, the world’s largest mineral exploration project. Mongolia’s GDP was growing at double-digit rates. The goal was to extract 500,000 tonnes of copper per year for the next 50 years.
The boom that never happened
Since Rio Tinto took over, Oyu Tolgoi has been an archetype of the Mongolian mining industry: full of promise and scope for more expansive development, but plagued by economic concerns and environmental side effects. In 2013, a US$5 billion expansion was put on hold after the Mongolian government demanded larger ownership and higher mining royalties, and the project was accused of threatening the region’s freshwater supply. Then-Mongolian Prime Minister Norov Altankhuyag was sacked by his own party after expressing a desire to investigate Oyu Tolgoi’s costs, while one of his advisers was arrested and investigated for embezzlement. coal subsidies.
Although the dispute was eventually resolved, the economic growth spurt came to a screeching halt in 2016, when mining commodity prices fell and the economy of China, by far China’s largest export partner Mongolia, began to stagnate. The national debt exploded and the country entered a period of economic crisis, to the point that the International Monetary Fund approved a US$5.5 billion bailout in 2017. In 2019, Rio Tinto forecast that the Sustainable copper production at Oyu Tolgoi would begin in 2021, but that date was recently pushed back to 2023. While Rio Tinto blamed COVID-19 and local geology for the delays, an independent report found mismanagement was at the origin of a budget deficit of almost 1.5 billion dollars, to which the Mongolian government responded by calling for more transparency. The goalposts are perpetually moving, it seems, for Mongolia to realize its mining dreams.
In a broader sense, Mongolia’s repeated failure to launch a mining boom could potentially be the first signs of a “resource curse” – a combination of corruption, economic inconsistency and environmental damage that many countries resource-rich were victimized. While some resource-rich countries, such as Saudi Arabia and the United Arab Emirates, have capitalized on their natural fortunes and experienced incredible economic development, many others, such as the Democratic Republic of Congo, which may have up to 24 trillion dollars of raw mineral reserves resources, remain among the poorest in the world. Without proper management and a stable government, the promise of billions, if not trillions of dollars, may ultimately yield very little – a future Mongolia cannot afford.
In addition to the economic risks of current mining projects, Rio Tinto has a history of environmental offenders. From the destruction of an Australian indigenous site to the contamination of waterways in southern Madagascar, the company has understandably worried environmentally-conscious observers in Mongolia. Local cattle herders need water to sustain themselves, but in a country increasingly hungry for this precious resource, Oyu Tolgoi is draining the national supply with immense water needs, estimated at 920 liters per second. A group of herders forced to relocate to areas with little access to resources due to mine expansion have filed a complaint claiming they were manipulated into signing unfair compensation contracts. Yet for the Mongolian people, mining appears to be the only viable option: thousands of traditional herders are moving to the mines as the desire to escape poverty grows stronger than ever.
Additionally, although much of the world is committed to overtaking coal and other fossil fuels, Mongolia is seeking to increase coal production. The country’s coal industry is based on sites such as Tavan Tolgoi and Khushuut, some of the largest coking coal deposits in the world, which are mainly destined for Chinese steel plants. Coal trucks regularly cross the China-Mongolia border, to the point that officials in the mining town of Tsagaan Khad feared that a rise in COVID-19 cases could spell economic collapse for the region. In April, Gankhuyag Battulga, managing director of state-owned mining subsidiary Erdenes Tavan Tolgoi JSC, recommended that Mongolia take advantage of tensions between China and Australia, another major coal supplier, by investing in railways to transport the coal. As a Mongolian official of an environmental non-profit organization put it, “When your stomach is empty, you don’t think about the environment.”
Yet the effects of coal on the Mongolian environment and its people cannot be ignored. To find out how much coal has polluted the national environment, just look at the capital, Ulaanbaatar, which has one of the poorest air quality in the world. Levels of PM 2.5, used to measure pollution, reach more than 40 times the WHO recommendation in winter, and pneumonia, potentially induced by pollution, is a leading cause of death among young people children. With the promise of jobs in the capital, thousands of people are leaving the countryside to settle in the city, so much so that more than 45% of the Mongolian population now lives in Ulaanbaatar. Due to extreme winter conditions, with temperatures as low as -40°F, families burn a million tons of coal a year to heat their homes, usually in nomadic settlements called “Gers.”
In 2019, worsening air pollution in Ulaanbaatar left the government with no choice but to ban the use of raw coal. However, after households switched to refined charcoal briquettes, the city’s air quality once again became the worst in the world. Even with the devastating effects of air pollution in the region, as one Ulaanbaatar resident put it, “life is more difficult in the countryside because there are no paid jobs” , from where the migration continues to the city. In mining areas such as Oyu Tolgoi and Tavan Tolgoi, concentrations of arsenic in the ground are 40% higher than the maximum allowable limit, polluting the water supply of one of the driest countries in the world.
Clearly, mining has serious consequences for the people of Mongolia, but the country cannot afford to walk away from it. Mineral products already represent 23% of GDP and climate change, which has caused a temperature increase of 4°F since 1940, is harming agriculture and livestock, the traditional bedrock of the Mongolian economy. In fact, in 2017 the country was forced to stop exporting grain after a severe drought increased the likelihood of crop failures. While mining is now widely seen as an unsustainable industry, in Mongolia it is the only consistent option for thousands of people, who are faced with the choice of maintaining their traditional way of life, moving to Ulan- Bator more and more overcrowded or working in the Gobi mines. .
The wolf wakes up
Naturally, this raises the question of what awaits the Mongolian people and their economy. If Rio Tinto can meet its sustainable copper production forecast for 2023, and the Mongolian government can improve its transparency and spending practices, there is a definite opportunity for widespread prosperity, at least in terms of material wealth. Inevitably, there will be environmental costs, whether it’s the limited water supply, the air that a million people in Ulaanbaatar breathe every day, or the land that herders have inhabited for generations. Even still, however, the trend of stalemate could continue and Mongolia could be left to find a way to deal with the twin economic and environmental crises.
As a result, many Mongols worry about economic dependence on mining and Chinese demand, leading them to look for ways to diversify the economy. One possibility lies in the cashmere industry; Mongolia produces around a fifth of the world’s raw cashmere, a fiber made from goat hair that is increasingly popular in the fashion industry. While overgrazing has contributed to desertification, more sustainable practices could actually reverse land degradation and provide a steady stream of income for herders. Whatever path Mongolia takes in the near future, the environment will have to be taken into account. Just like 10 years ago, Mongolia – then often called “Minegolia” – is on the verge of securing great mineral wealth. But many obstacles stand in the way of the wolf economy, if Mongolia is serious about avoiding the resource curse that has plagued so many nations before.