Mongolia’s Treasure

Via Energy Daily, an interesting look at Mongolia’s resource riches.  As the article notes:

“…In a world increasingly concerned with reliable sources of energy, however, Mongolia is rapidly becoming a major player, and an international race is on to secure access to one of its most valuable mineralogical deposits, uranium.A vast landlocked nation in the heart of Central Asia of 603,908 square miles, slightly smaller than Alaska, with one of the lowest population densities in the world, Mongolia’s 3 million inhabitants sit atop one of Eurasia’s greatest untapped caches of minerals. Besides uranium, Mongolia’s still largely untapped mineralogical deposits include significant copper, coal, gold, molybdenum, fluorspar, uranium, tin and tungsten deposits. How to develop these riches has consumed the State Great Hural, Mongolia’s parliament, for the last several years as it has wrestled with drafting a definitive mineral law in a bid to clarify the country’s investment structure for interested foreign concerns.

Like so many other Central Asian nations, the race to develop the country’s mineral wealth is a three-way race among Western companies, Russia and China. Each contestant has some advantages, but each is seeking primacy, and the final result is far from certain. Resolution of the issue is critical for the Mongolian government because it lacks the indigenous fiscal and technical reserves to develop the deposits on its own. Sandwiched as it is between neighboring superpowers Russia and China, Mongolia is nevertheless making a concerted effort to reach out both to Western companies and the prosperous Japanese and South Korean economies.

Among nations interested in the ores are Russia, which is able to apply significant economic pressure since it already supplies 90 percent of Mongolia’s fuel needs, and China, which absorbs 70 percent of Mongolia’s exports.

Besides Russia’s atomic-energy agency Rosatom, U.S., Japanese, Canadian, Kazakh and French companies have all expressed interest in developing Mongolia’s uranium reserves, which consist of six major deposits and more than 100 smaller sites. The Mongolian government estimates the reserves contain 62,000 tons of uranium. Russian geologists have much higher estimates of Mongolia’s uranium deposits, estimating that they consist of 120,000 to 150,000 tons. Worldwide, only 35 countries possess reported uranium reserves, and the Russian estimates, if accurate, would give Mongolia the world’s eighth-largest uranium reserves, after Kazakhstan, Australia, South Africa, the United States, Canada, Brazil and Namibia.

Russian interest in Mongolia’s uranium ore deposits dates back to the early 1980s, when joint Mongolian-Soviet geological teams prospected for uranium in Mongolia’s eastern provinces. For the moment, Russia is ahead in the race to exploit the deposits; on Jan. 27 Rosatom head Sergei Kiriyenko and Mongolian Prime Minister Sanjaa Bayar signed an agreement in the eastern Siberian town of Irkutsk on creation of a joint venture for uranium mining of Mongolia’s Dornod uranium deposits, where half of Mongolia’s uranium reserves are concentrated.

Interestingly, Russian private investors, who were previously very interested in uranium resources in Mongolia, gave the Dornod project a miss because its high start-up costs would make it unprofitable. Moscow nevertheless regards Mongolia’s uranium reserves as the country’s biggest mineralogical prize since their development dovetails nicely with the Kremlin’s own plans for economic expansion. The 1991 collapse of the Soviet Union isolated Russia from the Central Asian deposits discovered by Soviet geologists, leaving Russia’s sole significant uranium deposit its Streltsovsky mining and chemical plant in Chita. State-owned Rosatom accordingly is pressing forward despite the economic situation because it needs Dornod’s output to solve its own uranium-shortage problems.

For Mongolia, its interests in the joint venture extend beyond mere ore processing; following the signing, Bayar told journalists, “We are also interested in the construction of small- and medium-scale nuclear power plants.”

Despite such a commanding lead, Russia has competition in the race to develop Mongolia’s uranium reserves. Three years ago France’s Areva nuclear concern signed a memorandum of understanding for Mongolia’s Mardai and Sainchand uranium deposits, but there has been little progress, despite a visit by Mongolian President Nambariin Enkhbayar to Paris in February 2007. Giving Russia a further inside advantage, Moscow will not have to compete with Mongolia’s largest trading partner because last year China National Nuclear Corp. reported that Inner Mongolia’s Ordos Basin, under Beijing’s control, has enough indigenous uranium deposits to meet China’s current demands.

Developing the country’s mineralogical resources has also acquired distinct political overtones; during last June’s parliamentary campaigns, the opposition Ardchilsan Nam, or Democratic Party, promised each Mongolian a 1 million tugrik ($696) “share of treasure.” The successor to the former Communist Party, the ruling Mongol Ardyn Khuv’sgalt Nam, or Mongolian People’s Revolutionary Party, of which President Enkhbayar is a member, subsequently topped the DP’s largesse, promising that each Mongolian would receive from the “country’s profit” a 1.5 million tugrik ($1,043) grant.

Following charges of election fraud, on July 1 the streets of the capital, Ulan Bator, filled with a crowd estimated at 8,000 to 10,000 that set fire to buildings and cars, and engaged in violent skirmishes with the police. By the time the violence began to abate, five people were dead, 300 were injured and more than 700 arrests were made as the government declared four days of martial law.

Accordingly, while the future seems bright for Mongolia’s energy riches finally to be extracted, politicians in Ulan Bator must take care to honor their electoral promises to both share the wealth and secure the best possible deal for their ores in an open and transparent manner understandable to the electorate, lest Genghis Khan’s frustrated descendants again take to the capital’s streets in search of their “share of treasure” of the “country’s profit.”

This entry was posted on Saturday, April 4th, 2009 at 10:33 pm and is filed under Mongolia, Russia.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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