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.