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Gamma agency
President Bush and Mrs. Bush in Mongolia, 2005 with President Enkhbayar, lower right |
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With plans unfolding to open the world’s largest untapped deposits of mineral reserves to investment by leading foreign mining companies, Mongolia, a democratic nation, is rising rapidly in global attention and prominence on the international stage. Washington, Beijing, Moscow and many other capitals are actively strengthening ties with Mongolia.
Top international mineral companies and investment banks are pouring into Ulaanbaatar, the capital, to make long-term agreements that will supply the world with needed minerals (80 different minerals and base and precious metals for energy, construction, mobile phones, computers, space exploration) and much more over this century and the next.
The largest land-locked nation and one of the lowest in population density, Mongolia is a thriving democracy of three million people. The country is surrounded by two neighbors, giants China and Russia, both hungry for Mongolian resources to run and build their economies.
Mongolia has 680 mineral deposit sites including coal, copper, gold, uranium, iron ore, molybdenum, fluorspar, tungsten, silver, phosphor, and zinc. Tavan Tolgoi deposit, near the border with China, has an estimated 100 – 150 billion tons of high-grade coal reserves, and is the world’s greatest undeveloped coal source. Mongolian coal supplies can fuel the most efficient and cleanest coal-burning power plants.
In uranium deposits, Mongolia is second only to Russia, and it is also second in the world in unexplored silver deposits. The Oyu Tolgoi copper and gold field, discovered in 2001, is considered to have the largest undeveloped deposits of these metals in the world. Annual yields are projected at 450,000 tons of copper and 330,000 ounces of gold.
With mineral and precious metals at their highest prices in a decade, billions of dollars of investment is knocking at Mongolia’s door. The investment offers and expected revenues from sales of its resources have led to speculation that Mongolia will become a “21st Century El Dorado.” More often, Mongolia is predicted to become comparable to Chile, a true democracy that is rich in mining resources and has a diverse, market-based economy driven by a strong private sector. Even without major new investments in mining, Mongolia has enjoyed averages of 7 – 11 percent annual growth during the past decade, and the country is on-track for 8 percent or higher growth in 2007.
Minerals currently account for 30 percent of GDP; however, projections show the three main mineral deposits to be extracted will produce an annual value ten times greater than Mongolia’s current GDP. The government’s National Development Strategy 2021 anticipates per capita income increasing from $1,100 today to $7,000 in five years and $15,000 by 2021.
President Nambariin Enkhbayar, concerned about a one-dimensional economy of mineral wealth, has called for continued development of a diversified economy, declaring that “The country should have an economic structure based not on mineral resources and price fluctuation of raw materials.”
S. Otgonbat, Vice-Chairman of the Foreign Investment & Trade Agency of Mongolia says that “The dynamic changes coming from mining investment will kick-off development of power stations, water, rail and road projects; new light industry, construction, housing and a real estate boom, and greater investments in education. Learning from mistakes around the globe, we will benefit from the beauty of our smallness and flexibility… to transit to a knowledge-based economy that values our human capital most.”
Launching strategic agreements
On July 9, the government submitted to the unicameral parliament the first strategic mineral agreement for approval, for investment and mining Oyu Tolgoi copper and gold deposits by Ivanhoe Mines of Canada and Rio Tinto, an Anglo-Australian mining company. A second agreement to follow this year is for Tavan Tolgoi coal deposits. Peabody Energy of the U.S. is proposing to invest and operate Tavan Tolgoi and has the backing of the United States.
Oyu Tolgoi and Tavan Tolgoi are two of four strategic projects planned soon for investment and development (the others are a copper deposit and an iron ore deposit). In addition to committing to invest hundreds of millions of dollars, Ivanhoe and Rio Tinto have teamed together to engineer, construct and operate the project. Under the proposed agreement, the government will own 34 percent of the project and a future copper smelting facility.
The agreements are not without controversy, and in Mongolia’s robust democracy, everyone on the street and in government has strong opinions about the shape and terms for developing their huge strategic resources. Some of the most debated aspects have been over what should be the appropriate share for the government to have in each “strategic” project, as well as what investment commitments and taxes should be paid by the enterprises. The debate has been philosophical, practical and political all rolled together.
Though the agreement will be debated and contested inside parliament, all indications are that after years of exploration and careful study, Mongolia has embarked on a new era of developing its resources for the benefit of its people. Mongolia has an ambitious plan to transform the nation while avoiding the “curse” and mistakes of other countries that are rich in natural resources but have failed economies and social systems, and ravaged environments.
“If we do the investment opportunites right, we will solidify Mongolia as an ideal democratic country. We must do these projects to the benefit of investors and the nation, and we can. Mongolia is not like any other Central Asian nation. We have rule of law, real democracy, strong investment incentives, environmental awareness, and a culture of fairness,” said Luvsanvandan Bold, Chairman of Mineral Resources & Petroleum Authority.
As it looks to conclude new investments, Mongolia understands what is at stake and the impact new mining development with foreign partners can have on its future. Erdenet Copper, a 51 – 49 percent Mongolia – Russia joint venture created in 1978, and one of the top ten copper producers in the world, has been the largest provider of revenue for the government and the backbone of the economy. In fact, it is doubtful that the country could have developed economically or democratically so successfully without the resources of Erdenet.
Now and then
Centuries after the great Mongol empire—created in the early 1200s by Chinggis Khan (Genghis Khan) that stretched across Asia and into Europe and the Mid-East— and following decades as a Soviet satellite, the world had forgotten Mongolia or remembered it only as a nomadic land of harsh sub-zero winters. In breaking away to create its own destiny in 1990, few noticed as Mongolia transformed itself towards a modern state with a successful democracy, civil society, and a fast-growing economy that derives 80 percent of its GDP from the private sector. The country offers good incentives for investment and low tax rates.
Today, key industries are mining, cashmere and textiles, tourism and agriculture, plus ever-expanding service industries. Mongolia is famous for its adventure tourism and cashmere. Each year hundreds of thousands of tourists come to Mongolia in the summer for lengthy trips to explore the beautiful mountains, lakes, forests and the Gobi Desert. Love of its natural beauty, and pride in its reputation for offering tourists unsurpassed scenery and cultural experiences, has guided Mongolia in managing mineral agreements with environmental sensitivity.
New hotels such as Sunjin Grand Hotel, a $25 million investment, have opened recently and more are underway. The most impressive resort project is probably Morin Nuur (Horse Lake), situated in the foothills near the Chinggis Khaan International Airport. Vassil Metchkarov, director of the company says plans are for a 5-star resort that will aim to attract the high-spending tourist, of which there are millions just across the border in China.
Mongolia has the best quality cashmere and is the number two exporter of raw material with 35 percent of the world market share (China has larger production), and Mongolia does not mix its product with other fibers and synthetics. Increasing, Mongolia is moving into value-added cashmere clothing with its own original designs. Cashmere is the main source of income for the nomadic population.
Mongolia is a nation proud of its long history and nomadic culture—last year was the year-long 800th anniversary celebration of the creation of the Mongolian State. And Mongolia is much more. The capital, Ulaanbaatar, is a vibrant and busy city of one million residents. Most significantly, despite its isolation when shut-off from the world during the Soviet era, Mongolians are outward-looking and internationally savvy, friendly and open to the West. And they have an entrepreneurial spirit.
In outdoor cafes the current chat is about politics, the beautiful weather, the Nadam holiday festival this week that attracts tens of thousands of foreign tourists, and the release of the iPhone. There are four mobile phone companies but at the release price, there probably won’t be many iPhones in Mongolia very soon. However, that does not seem to matter in an Internet world, as young Mongolians closely follow the news in the United States and elsewhere with great interest. Seventy percent of Mongolians are under the age of 30 and literacy is 98 percent - the highest in Asia. Since 1991, English has been the official second language and mandatory in public education.
Despite the impressive statistics, the country has many developmental needs. Government priorities include health care, higher education and vocational training, transportation and housing. The financial sector is weak and there is not sufficient capital in the market for all needs, and certainly not for the much-anticipated economic boom.
Major investment banks are ready to finance the opportunities and future they see in Mongolia. Henry Ayliffe, Director of Asia Investment Banking at Merrill Lynch explains that “Mongolia stands at an exciting juncture and has developed rapidly over a very short period of time. Merrill Lynch has been at the forefront of this increased focus on the country and has actively promoted the Mongolia story by leading government and corporate delegations to New York and Singapore and by bringing international investors to Ulaanbaatar.”
The European Bank for Reconstruction and Development (EBRD) has been active in Mongolia and is enthusiastic about the “liberal market regime, civil society, and free press” according to EBRD Director for Mongolia, John Chomel-Doe. “Mongolia has chosen a different path and is way ahead of China and Russia in free-market development. It is poised to catapult itself to a middle-income country quickly,” he said. EBRD sees tourism, agribusiness, construction and renewable energy as very attractive sectors.
“The buzz and expectations are well deserved. Mongolia is far more advantageous than many other countries where we do business,” Chomel-Doe said.
As major mining decisions loom, it is clear that Mongolia is on the verge of an economic explosion that can put it onto a path of great nation-building. Moreover, there is no doubt that the affects of its mineral decisions will be heard around the world, affecting the development of nations and strategic geo-political relationships.
Many observers agree with former Governor of the Mongolia Central Bank, O. Chuluunbat when he states that “If we accomplish the objective of having a strong business environment with major foreign investment, then this will be remembered as our Golden Moment.”
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