Mongolia the New Frontier

by on

What has changed for Mongolia is not the overnight discovery of mineral deposits, nor that the country has struck oil, but simply that there has been a change of government. For decades, this ex Soviet satellite has languished in communist inefficiency and corruption but last year the pro business Democratic Party swept to power and within months a punitive 68% windfall tax on gold and copper profits had been scrapped and the government appears to be cautiously inviting foreign investment to open up one of the world’s last great untapped areas of mineralization. Mongolia has world class reserves of gold, copper, iron ore, coal, fluorspar, silver, uranium and tungsten among other rare earth metals, but lacks the finance, infrastructure and expertise to realize the wealth locked underground.

The country is courting not just mining companies but private equity and sovereign wealth funds to attract some US$25bn needed for roads, railways and new towns to exploit the reserves and raise the living standards of its 2.9 million people. In 2008, the GDP of this former Soviet satellite state was $5.3bn. In the next decade, that could triple according to a BBC report.

Nevertheless, savvy as the new ruling elite may be, they are still hide bound by many of their ingrained cultural prejudices. For example, Mongolia fears China it’s former colonial power as much as it wants and needs cooperation with its largest trading partner. In addition, Mongolia’s closeness to Russia means they are reluctant to upset their old friends even when it goes against their interest. A railway linking the massive gold and copper mine at Oyu Tolgoi and the world’s largest undeveloped coal field at Tavan Tolgoi to the closest customers in China is said by industry experts to be a “no-brainer” but the government cannot get over the animosity between Russia and China and their fear of dominance by China, so the railway still isn’t built.

According to an article in the Telegraph, the size of Mongolia’s reserves are mind boggling. Oyu Tolgoi gold and copper reserve is the size of Manhattan and will take 60 years to exhaust. Even though the country was extensively surveyed and partially developed by the Soviets, Eurasia Capital Management estimates the country has 15 more Oyu Tolgoi sized deposits waiting to be exploited.

Concern over Chinese proximity isn’t limited to just Mongolians. China already controls much of the world’s rare earth reserves in its own Inner Mongolian republic. With extensive refining capability across the border China is the natural market for extensive RE mineral deposits identified in Mongolia but the rest of the world would prefer to see those resources going west. One deposit alone is estimated to contain reserves of rare earth metals to a depth of 200 m including 600,000 metric ton of niobium oxides, 35,000 metric tons of tantalum oxides, 4,000,000 metric tons of zirconium oxides, 1,000,000 metric tons of rare earth oxides, and more than 100,000 metric tons of yttrium oxides.

The most important development though will be the establishment of a permanent pro business democratic government. If the current government can show some early success and solidify its position, the country has the potential to develop into a reliable location to invest. Without foreign investment, Mongolia will not develop its vast natural wealth and will continue to languish as one of the world’s poorest countries.

–Stuart Burns

Comments (7)

  1. Anonymous says:

    the last sentences is pretty banal – how about those countries who do not have any mineral wealth – are they going to stay poor because of this?

  2. Annonymous says:

    Get your facts straight Mr. Burns! The current government is a coalition government.

  3. biminer says:

    The premise of the article is completely inaccurate. The government is not a “Democratic Party” government, but instead is primarily controlled by the same party that led the country during more than 75 years under socialism: The MPRP. In order to “keep the peace” they invite other parties to join them in a Parliamentary “coalition”. At the end of the day this equals MPRP control of parliament, the post of Prime Minister, all province governments, and other bodies – except the symbolic presidency (Democrat).
    The journalist merely looked at other people’s articles and then got it wrong.

  4. Gan says:

    The government is indeed a coalition headed by the former communist party – Mongolian People’s Revolutionary Party. Mr. Batbold Suhbaatar is the Prime Minister who is the Chair of MPRP.

  5. Gan says:

    One other thing – these developments were not brought in overnight – we have struggled to set the stage for the past 20 years too.

  6. stuart says:

    Dear Gan and Biminer, Thank you for your comments, I stand corrected on the make up of the government but I refute the statement that the article is completely inaccurate. The party is reported as being called the Democratic Party, I didn’t actually say they were democratic, as with so many political parties in communist or socialist countries the word “Democratic” often means anything but however it doesn’t change the fact that they use that name. Thank you for the detail on the structure of the coalition it does indeed sound as if many of the old guard are still in control however something pretty fundamental has changed and that is their attitude to inward investment. In the last 12 months more progress has been made than in the last 12 years so whether you like the members of the current ruling elite or not the fact remains for the first time in decades Mongolia stands a chance of development that will raise the living standards of it’s people and provide the rest of the world with access to genuinely new sources of metal supply.
    As to the other comments, we don’t reply to anonymous comments, if a commentator hasn’t got the courage to put their name they don’t deserve a reply.

  7. Anonymous says:

    I’m going to post anonymously, so you are free to ignore. The problem is, you’ve still got it wrong. The government is a coalition between the Revolutionary party and the Democratic party. The MPRP has basically co-opted the opposition (the Democrats) into a grand coalition.

    The driving force between pushing ahead with mining development after all the years of stalemate was the MPRP prime minister, S. Bayar, now retired for health reasons. It was a political change, but nothing even remotely like the one you portray.

Leave a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.