POLITICAL ECONOMY

Mongolia's new mining minister is long-time resource nationalism advocate

A lawmaker--who pushed to renegotiate the 2009 Oyu Tolgoi agreement to increase the government's ownership stake to 50% in the copper-gold mega-project --is Mongolia's new mining minister.

RENO (MINEWEB) - 

As Mongolia's new coalition government was completed with the appointment of 16 ministries and 19 members comprising the Cabinet of the Parliament Monday, foreign mining interests face an uncertain future as a growing resource nationalism movement is increasingly in the political driver's seat.

As the New York Times noted in a recent article, "...a debate is raging over mining impact, pitting those who praise the industry for sweeping away decades of decay against other who see materialism and corruption polluting Mongolia's traditional way of life."

"Discontent over corruption and the government concessions to foreign mining firms were the major campaign issues in June's parliamentary elections. Those now in power face high expectations to spend the mining windfall on health care, infrastructure and economic development," said the NYT.

More than 25% of Mongolia's 76 seats in parliament are now held by politicians who made foreign mine ownership a major campaign issue.  While the Democratic Party won 31 seats, becoming the largest party in parliament, the DP had to form a coalition with the Civil Will-Green Party and the Justice Coalition, which is formed by the Mongolian People's Revolutionary Party and the Mongolian National Democratic Party.

The Democratic Party favors free markets but has nine members who support resource nationalism. Nevertheless, it is believed the DP's rise to power will calm investors, who had worried about the actions of Mongolia's former president. But, the coalition government has named a resource nationalist as Mongolia's new minister for mining.

Democratic Party Chairman Norov Altanhuyag is Mongolia's new prime minister. However, the newly appointed Minister for Mining is resource nationalist Davaajav Gankhuyag, who as a member of Parliament, previously demanded that the state have a larger ownership stake in Mongolia's largest mining operations.

Recently sentenced to four years in prison for corruption, former President Nambar Enkhbayar, head of the Mongolian People's Revolutionary Party, "had been a key figure in the environment of increasing hostility, at least outwardly, toward foreign mining corporations," said Reuters. However, his conviction for corruption is considered a landmark event for stronger anti-corruption enforcement.

Resource nationalist politicians want to keep 100% of Tavan Tolgoi, the world's largest undeveloped coal deposit, under Mongolian control.

Many Mongolians are still unhappy that, thanks to a 2009 deal, Ivanhoe Mines received a 66% share of the $6.2 million Oyu Tolgoi mine, home to the world's largest untapped development of copper and gold, which is expected to go into production in the first half of next year. The government owns 34% of the project, which some nationalist lawmakers hope to increase to more than 50%.

Mongolians also fear the encroachment of the Chinese companies which are hungrily eying the coal riches of Tavan Tolgoi, located near Mongolia's border with China. It is anticipated the China's state-owned Chalco will fail in its takeover bid for Mongolian coal miner South Gobi Resources due to strong resistance from the Mongolian government.

When Chalco offered $926 million earlier this year for a 60% stake in SouthGobi, the Mongolian government in May adopted a new investment law that limits foreign companies from owning more than 49% of companies involved in mining, finance, media and telecommunications.

The Mongolian government has even delayed renewing some of SouthGobi's mining permits although the majority shareholder Turquoise Hill Resources supports the deal. Chief Executive Alex Molyneux told Reuters that the Mongolian government has done everything in its power to block the deal.

However, it should be noted that Mongolia depends on China and Russia for fuel, power and transportation. Mongolia depends on Russian railways to deliver coal to Japan and South Korea.

Meanwhile, another mining-related issue facing the new Mongolian government is fears of camel and goat herders that the mega-mines are gobbling up water, particularly in the South Gobi Province, where drought can wipe out herds.

Herders have claimed mining trucks kill their animals and kick up dust that ruins pastureland. Oyu Tolgoi has offered compensation to the herders, which includes helping a family put a child through college.

Oyu Tolgoi has monitored more than 100 herder wells and maintains there is no connection between the wells and the aquifer the mine will draw from.

iPad Version: Picture - Storm clouds are seen above the Oyu Tolgoi mine in Mongolia's South Gobi region: REUTERS/Reuters Staff