Australian miners test Mongolian frontier

3 February 2012, Australian Associated Press

Mongolia is not being short-changed as foreign miners rush to take a slice of its enormous mineral wealth, Australian explorers operating in the vast Asian nation say.

A report released this week by non-government organisations (NGOs) claimed that a surge in mine developments have pushed herders in the South Gobi region out of traditional camps, fragmented pasture land and put pressure on water resources.

The report, produced by NGOs including the Czech Republic’s CEE Bankwatch Network and Oyu Tolgoi Watch in Mongolia, also said that increased dust caused by mining and trucks was exacerbating desertification.

But Brian Thornton, chairman of the NSW-based Xanadu Mines, said a lot of NGOs are exaggerating the side effects of Mongolia’s mining boom.

There is some truth to the claim that mining trucks are stirring up dust, Mr Thornton said, with some coal mining operations currently trucking across the South Gobi to the Chinese border 400-500 times a day.

But this was not extending Mongolia’s deserts and was being alleviated as new roads were being built from major mines to China, the nation’s main market for coal, he said.

David Paull, managing director of Perth-based Aspire Mining, said dust problems will further improve when the Mongolian government in 2015 completes a new rail line linking the world’s largest undeveloped coal deposit, Tavan Tolgoi, to the existing Trans-Mongolian Railway, which runs from Russia through to China.

“That will tidy a lot of things up,” Mr Paull told AAP.

“It takes time for infrastructure to catch up.”

While development is racing ahead in a “wild west” way, Mr Thornton says it is important to remember just how impoverished the average Mongolian is.

With the jobs and wealth brought by foreign-run mining operations, Mongolians would enjoy a better standard of living.

“As development takes place anywhere in any country, you’ll get some sort of environmental stress,” Mr Thornton told AAP.

“But fundamentally in terms of the enhancement of people’s lives – and people are very poor in Mongolia – it’s a way to some sort of better lifestyle, whether it’s running hot water, electricity or some of the mod cons that we take for granted.

“You try living in minus 45 degrees in a gur (Mongolian traditional tents) with no heating except camel dung and no visible means of support.

“It’s pretty tough.”

Without foreign capital, Mongolians could not develop massive projects like the Rio Tinto-managed Oyu Tolgoi copper and gold operation, or the Tavan Tolgoi coal deposit, which was being auctioned off by the government amid fierce interest from Asian entities, Mr Thornton said.

There was also a security imperative to Mongolia’s rapid development, Mr Thornton said, given it is sandwiched between Russia and China.

“Unless it develops, the superpowers will take control of it,” he said.

“That’s my personal view after being there for seven years.”

Both Mr Thornton and Mr Paull agree that Mongolia’s government is no pushover, which it has demonstrated in recent years by legislating that 75 per cent of foreign mineral explorers’ workforce must be local, increasing to more than 90 per cent once a project reached production.

Even more notably, it has been driving hard deals with foreign miners.

That approach has come after a wave of nationalism swept the nation in 2006 as Robert Friedland’s Ivanhoe Mines stepped up work on the Oyu Tolgoi project after years of an increasing Canadian mining presence in Mongolia.

Protesters called on the government to demand strong returns from foreign miners in exchange for allowing them to extract the nation’s mineral wealth and amend a 1997 minerals law that they believed favoured the companies.

The Mongolian government attempted to bring in a 68 per cent “windfall tax”, stymieing development plans for Oyu Tolgoi, but the tax was scrapped in 2009 after its negative affect on the mining sector became apparent.

The Mongolian government eventually negotiated a 34 per cent stake in Oyu Tolgoi, but found the major miners were also good at playing hardball, last year unsuccessfully attempting to convince Ivanhoe and Rio Tinto to sell it a further 16 per cent interest after the companies’ initial investment was recouped.

The magnitude of wealth contained within the Oyu Tolgoi project, which was expected to be the size of Manhattan, was further illustrated last month when Rio Tinto increased its interest in Ivanhoe Mines to 51 per cent, from 49 per cent, to gain greater exposure to the monster deposit.

With first production from Oyu Tolgoi slated for the middle of 2012, miners in Mongolia are just starting to scratch the surface, Mr Paull said.

Mr Thornton said the nation offers some of the world’s best copper, coal, gold and uranium targets.

“It’s a real explorer’s delight for opportunity,” he said.