Published on Gold Anti-Trust Action Committee (http://www.gata.org)

Mongolia's gold rush: blessing or curse?

By cpowell
Created 2007-05-13 04:33

By Evan Osnos
Chicago Tribune
Sunday, May 13, 2007

http://www.chicagotribune.com/business/chi-070513mongolia-story,0,171329... [1]

UYANGA, Mongolia -- The air underground was dank and smelled of labor.

Hunched in his one-man mine, 27-year-old Zorigoo clawed at the dirt with a homemade pick. He scooped earth into a bucket and hoisted it through the sunny hole above, where his wife, Saraa, began sifting the soil for a telltale glint of gold.

A 21st Century gold rush has begun to transform the economics, politics and environment of this ancient land of Huns and Khans.

A nation of largely nomadic herders, where 1 in 3 people still lives on less than a dollar a day, has proved to hold some of the world's most valuable gold and copper deposits. But like diamonds in Africa or oil in the Middle East, precious metals offer Mongolia a volatile gift that can deliver either prosperity or new troubles.

"We are now struggling with two different things," said former Prime Minister Tsakhia Elbegdorj. "The first is poverty, but the second is how to manage this richness."

The bonanza provides an intriguing test case for what economists call the resource curse: How can Mongolia avoid the fate of nations from Iran to Venezuela to Congo, where natural bounty has fueled corruption, sapped entrepreneurship and failed to bring lasting wealth?

"The question becomes: What are you going to do with all that money?" said Arshad Sayed, the chief World Bank representative in Mongolia. "Where is it going to go? How is it going to be used?"

Gold's easy rewards are no harder to spot than the new Hummers lumbering through the streets of Ulaanbaatar, Mongolia's threadbare capital. Construction cranes swing above a downtown flush with cash.

But new dangers are also clear: Mining is ravaging rivers that sustain herding lands. Public protests have targeted global mining companies that stand to profit from Mongolia's riches. And watchdog groups are pushing for laws to prevent corruption and ensure that today's windfalls become a springboard for education and broad-based growth.

For most of its history, Mongolia knew no such problems. Wedged between China and Russia, the Mongolian steppe seems little changed from the 13th Century empire of Genghis Khan, whose armies' use of horses and the compound bow helped them conquer lands from Asia's Yellow Sea to Europe's Danube River. The only echo of that empire today is the Naadam festival celebrating the "three manly games"—archery, wrestling and horse riding.

... Struggle to revive economy

Seventeen years after the end of communism, Communist Party cultural centers, where workers once sang about the glories of the revolution, have been reborn as discos and Internet cafes. But Mongolia, about the size of Alaska, has struggled to revive its economy. Only 1 of every 10 roads is paved. Most of its 2.9 million people live, as ever, in round felt huts known as gers, scattered at less than two people per square mile, vastly outnumbered by the sheep, goats and horses that provide their livelihood.

In the cities, government salaries have failed to keep pace with those in the private sector. And as the gap grows, more Mongolians are eyeing the fortune beneath their feet.

Mongolia was long suspected of bearing unexplored gold deposits. But in the last five years, mineral exploration has soared, thanks to changes in tax and mining laws, as well as the attention sparked by the 2001 discovery of one of the world's largest deposits of copper and gold in Mongolia's Gobi desert. That site, known as Oyu Tolgoi, is estimated to be worth $38 billion.

Today, more than 40 percent of the country has been licensed for exploration, and gold is being churned out by mines large and small. At the tail of the food chain are subsistence miners like Zorigoo and his wife, Saraa, who like many Mongolians go by one name. They have given up herding animals.

"We do this to survive," the husband said, his crewcut, sweater and jeans flecked with mud from carving holes into the hills of Oltiin Am valley, 300 miles west of the capital.

These unofficial miners are known in Mongolia as "ninjas," because the plastic tubs they sling over their backs are reminiscent of television's "Teenage Mutant Ninja Turtles." They work on the edges of official mines, weaving in and out of the company's tractors in search of what the companies leave behind. The ninjas are a shadow economy estimated at 100,000-strong nationwide, more than eight times the number of people employed by official mines.

... A cross-section of the nation

At this site, the ninjas' tents dot the valley floor and sprawl into the hills. There are restaurant tents and gold-buying tents. At night, ninjas work by headlamp. There are men, women and children among them. They are a cross-section of the nation: a family of six who came from across the country last summer when school ended and never left; a former Russian language teacher now out of work who wonders what mix of gifts to the mountain gods will land him a large enough nugget to retire.

"If the spirits are very angry, we offer good stuff like vodka. The spirits like vodka," said the teacher, Baagii.

Others are simply getting by.

"This is our livelihood. It is our only income. We depend on this," said Medekh, a 35-year-old mother of three who arrives each morning looking to find at least enough for the 44-cent ride home. On a good day, she and two partners split about $18 worth of gold flakes—no pittance in a nation where government jobs earn about $100 a month.

But the land pays a steep price. Some miners burn tires to melt the permafrost; others use mercury to help release gold from the rock. Many mines, official and unofficial, leave the rivers a polluted maze of gray-brown lagoons.

Tsetsegee Munkhbayar used to herd his animals downstream from Uyanga, until fast-growing mines sapped the rivers that fed his land. In 2001, he banded with other herders to form the Onggi River Movement, which has successfully pressured the government for stricter regulation. More interesting, he is not a knee-jerk opponent of mining, but rather, like Mongolia itself, he is seeking a responsible path forward.

"This is the question of our country's future," said Munkhbayar, whose work earned this year's Goldman Prize, the world's leading environmental award. "Mining development and Mongolia's development have become inseparable. The question is how we develop it."

Not everyone is so moderate. A year ago, protesters staged a hunger strike and burned effigies of Mongolia's president and Robert Friedland, chairman of Vancouver-based Ivanhoe Mines, which has the rights to mine the massive Oyu Tolgoi deposit.

Within weeks, parliament imposed a 68 percent windfall tax on high mining profits, sending a chill through the offices of Mongolia's mining powers.

"There is nothing good I can say about it," said Namgar Algaa, executive director of the Mongolian National Mining Association, who warned that companies might skimp on environmental rehabilitation in order to pay taxes.

... The specter of corruption

Either way, steep taxes do not insulate Mongolians from corruption—one of the prime ways that resource-rich nations watch their riches disappear. To that end, lawmakers are considering moves toward greater transparency, including a freedom of information act that would expose government spending to greater oversight—an unusually progressive move in a region dogged by secretive former Soviet governments.

Others argue that Mongolia's best defense of the future would be to establish a permanent trust fund of the kind that invests Alaska's oil revenue and shields it from corruption.

Ultimately, Mongolia's future prospects hinge on how the nation prepares for life after gold. Growth rates, for instance, in Malaysia, Indonesia and Mauritius over the quarter-century have far outpaced rival producing countries, thanks to investments in education and manufacturing.

That strategy just might help Mongolia defy its own folk wisdom. A saying coined long ago warns, "Gold never brings good."

* * *

at the
World Gold, PGM, and Diamond Investment Conference
in Vancouver, British Columbia, Canada
Sunday and Monday, June 17 and 18, 2007

http://www.cambridgeconferences.com/ch_june2007.html [2]

* * *

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