Mining in Mongolia

Wealth Rises in Mongolia, as Does Worry

By Dan Levin, NY Times, July 15, 2012

ULAN BATOR, Mongolia—Three kinds of foreigners, they say, prowl the world’s energy frontiers: missionaries, misfits and mercenaries.

Howard Hodgson, a weather-beaten Australian drilling executive with the mouth of a sailor, is proud to say he is in it for the money.

When he landed here more than a decade ago, Mr. Hodgson found an economic wasteland still reeling from the fall of Mongolia’s Communist overlords in 1990. The few other expatriates on the scene were mostly busy proselytizing, and there was little to do during the brutal winters but develop a taste for fermented mare’s milk.

Yet to Mr. Hodgson, a veteran of the wilds of Papua New Guinea, Myanmar and Pakistan, the young democracy was a welcome change of scenery. “I’d had enough running around in the jungle,” he said recently.

What made him stay, he said, aside from a nascent mining sector, was an advantage particularly irresistible to a man who had spent a career dodging cannibals, rebels and terrorists: “Here you won’t get shot.”

These days, the perks are far plusher. Mongolia, it turns out, sits atop a treasure trove of copper, coal and gold that is changing the fate—and the face—of this mostly empty country, thanks to China’s insatiable demand for natural resources. The surging mining trade has made Mongolia the world’s fastest-growing economy, transforming Ulan Bator into a city where Soviet bust meets Chinese boom.

And now the mercenaries in finance, attracted by a frenzy of deal-making, have joined in, too. “It’s a bit of a gold rush,” Mr. Hodgson said as he worked a booth at a coal industry conference packed with tailored suits and foreign accents.

For locals, their gentrifying capital, home to half of Mongolia’s 2.7 million people, has become a petri dish for their hopes and fears. Amid the crumbling Stalinist apartment blocks and rising skyscrapers, a debate is raging over mining’s impact, pitting those who praise the industry for sweeping away decades of decay against others who see materialism and corruption polluting Mongolia’s traditional way of life.

Like it or not, mining is changing Ulan Bator. Until a few years ago, the skyline was dominated by a pair of cooling towers. These days, the city’s tallest building is a gleaming 25-story hotel with $300-a-night rooms and unreliable heating.

Its glass sheath overlooks Mongolia’s economic and political nucleus, Sukhbaatar Square, which is surrounded by a telling collection of buildings: the Mongolian Parliament, the stock exchange, the headquarters of the Mongolian Mining Corporation and a billboard for the country’s first British private school, which is to open in September. Across the street, a new mall beckons the nouveau riche with name-brand stores like Burberry and Emporio Armani.

First-world profits are colliding with third-world problems. A series of flock-devastating winters and the lure of mining riches have attracted thousands of herders from the grasslands. They live on the city’s outskirts in crowded yurt slums some locals refer to as Mongolia’s favelas. Unemployment is rampant there; electricity and drinkable water are not. The less fortunate take shelter in the sewers, where they huddle beside hot-water pipes when the temperature plunges to 40 below.

“At the moment people are waiting for the mining wealth to somehow spill over to them,” said Sumati Luvsandendev, director of the Sant Maral Foundation, a nonprofit organization. According to the foundation’s recent polls, 96 percent of Mongolians think corruption is widespread and 80 percent say they believe their country’s oligarchs have too much power.

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

Still, some wonder whether Mongolia can avoid the familiar demons of political instability, corruption and widening poverty that plague other mineral-rich developing nations. Government officials say they are working hard to avoid the “resource curse” that bloats the bank accounts of a corrupt elite at the expense of the wider public. They say they are also mindful of the potential for the so-called Dutch disease, the strengthening of a nation’s currency that often accompanies a surge in natural resource exports, making its other industries less competitive.

“Mongolia is at a crossroad,” said Saurabh Sinha, an economist with the United Nations Development Program in Ulan Bator. “Will the government use the mining wealth sustainably and equitably for improving the lives of all its people? Or will it become a Nigeria?”