Intro – From Wandering Herders to Excavators
What a difference a decade can make. When The Economist ran a feature on Mongolia back in December 2002, the focus was almost exclusively on the prospects of the vast but sparsely populated east Asian country maintaining its traditional nomadic herding lifestyle in the face of growing demands for some form of private ownership of communal grazing lands.
In that lengthy piece, there was just one mention of another possible impact on Mongolia’s ancient way of life – mining. The governor of an eastern province was reported as saying that herders “get in the way” of his ambitious plans for resource extraction.
Fast-forward to January this year. The Economist ran another Mongolian feature under the banner ‘Booming Mongolia’ and entitled ‘Mine, all mine: The country that is likely to grow faster than any other in the next decade, and how it is changing, for better or worse’. One such change is the decline in nomadism – rent asunder as a way of life as tens of thousands of herdsmen have drifted into the capital Ulaanbaatar seeking work or have become ‘ninjas’ – roving, unlicensed gold prospectors (and so named because of the typically green sluice trays carried on their backs).
Now, in The Economist and indeed in all international business media relating to Mongolia, the talk is invariably of Oyu Tolgoi. It’s Mongolian for ‘Turquoise Hill’ but out there in the desolate Gobi Desert, 500 kilometres south of Ulaanbaatar, the hill has disappeared, eaten away in the creation of what will possibly become the world’s largest copper and gold mines. And then there is Tavan Tolgoi (Five Hills), to the north of the copper mine in the ‘endless sea’ of the Gobi and thought to contain the world’s largest untapped reserves of coal. The Mongolian government is currently going through what’s proving to be a protracted process for tendering the mining rights.
We take a look at the history behind the mining boom, at the issues now facing the Mongolian people, and at the investment prospects which the boom throws up.
Mongolia – Asia’s Velvet Revolution
Modern-era Mongolia came into existence in the early 20th Century after centuries of inclusion in a succession of Chinese dynasties. It celebrates its Independence Day as 11 July, the date in 1921 when, after a decade of failed attempts and with the support of Bolshevik Russian forces, the so-called ‘Outer Mongolia’ finally proclaimed its separation from China. Three years later came the People’s Republic of Mongolia, a state of affairs – and allegiance to the USSR - which persisted for nearly seven decades, until the collapse of Soviet-style communism from late 1989. The other – ‘Inner’ - Mongolia remained part of China and does so to this day, with many more ethnic Mongolians living in the PRC than in Mongolia proper.
Minerals Data a Magnet for Western Miners
Throughout the communist era, the extent of Mongolia’s mineral deposits was either unknown or, to the extent that studies were undertaken, a closely-guarded secret. But data from a major geological survey conducted in the dying stages of Soviet communism – between 1987 and 1989 – was made public in 1990, attracting interest from a number of international mining companies. In 1995, US-based Magma became the first prospector to secure copper exploration rights, which passed to Australian mining giant Broken Hill Proprietary, now BHP-Billiton (BHP), on its takeover of Magma the following year. BHP then offered portions of the Mongolian interests to third parties and by this means the Oyu Tolgoi prospect in 2000 came into the hands of Vancouver-based Ivanhoe Mines (IVN).
The following year Ivanhoe, by now part-owned by global miner Rio Tinto plc (RIO), made initial discoveries of copper and gold deposits at Oyu Tolgoi. As the extent of the deposits became apparent through ongoing exploration, a joint venture was formed between Ivanhoe and Rio Tinto to bring Oyu Tolgoi to commercial production with, in 2009, a deal being struck with the Mongolian government, giving it a 34 percent holding in the venture. In an indication of the venture’s importance to the company, Ivanhoe announced early August a name-change to ‘Turquoise Hills’ (TRQ).