Nov 21, 2012

Southern Mongolia: Large GDP Growth After New Mining Investment

The new deal with the Australian mining company Rio Tinto could leave the local government side-tracked.

Below is an article published by Radio Australia:


Australian mining giant Rio Tinto is preparing to open one of the world's biggest copper mines in southern Mongolia, and before it has even started operating the mine has already pushed the country's GDP growth through the roof.

While there are obvious benefits from the mining there are also those who think Mongolia has sold itself short.

Some politicians want to force the company into renegotiating the deal.

Oyu Tolgoi is a long way from everywhere - in the South Gobi Desert, Australia's Rio Tinto has had to bring in or build everything at this massive copper mine at a cost of around $12 billion.

Even for a large international enterprise, it is a huge investment.

Yet Rio knows that when it opens in the coming months, this operation will become one of the biggest copper mines in the world - so big that it alone is going to make up around 30 per cent of Mongolia's entire gross domestic product.

Cameron McRae, the company's country director in Mongolia and also the CEO of Oyu Tolgoi, says the mine is expected to be in production for decades.

"Some of the more optimistic geologists that we have say that this business could run for up to 100 years," he said.

"Those more conservatively say, you know, 50 years plus."

On the back of this investment, Mongolia's GDP has been running at between 12 and 17 per cent growth in recent years, and the mine has not even started operating.

Not surprisingly there are many supporters, hailing the jobs and spin-off industries that have come from Oyu Tolgoi. But there are also plenty of critics.

To land this enormous investment in its country, the Mongolian government agreed to give Rio Tinto a large controlling stake in the mine and it has retained only 34 per cent.

Most Mongolians go by only one name, including Dorjdari from the Responsible Mining Initiative.

"My feeling is Mongolia made a political decision," he said.

Dorjdari is campaigning to make the details of mining deals like the Oyo Tolgoi agreement fully public.

"Whether it's really beneficial for Mongolia, I have many doubts about that," he said.

"You have on one side of the table Rio Tinto, which has annual revenue far larger than our whole economy, and you have best paid lawyers in the world who do those sorts of deals every year on a regular basis.

"On the other side of the table you have Mongolian government people and none of them did such negotiations in the past."

Another contentious move has been to make the Rio Tinto mine exempt from a windfall profits tax, but Rio told Foreign Correspondent that it could not have proceeded with such a tax imposed.

"I think if you're a business and a law that was in place was going to stop you from investing, and if the government was prepared to change that law, I would see that as a win-win situation," said Mr McRae from Rio Tinto.

A large group of Mongolian MPs is now pushing for the Oyu Tolgoi agreement to be renegotiated, but they still do not have the numbers in parliament.

Rio Tinto says it is too late to renegotiate this deal when it has already outlaid billions of dollars.

The company is hoping that the Mongolians who support their operation will grow in number as the copper starts heading off to market.