Mining and the Future of the Mongolian Economy

When you look at Mongolia on a map, its location may not seem ideal for economic success. It is entirely landlocked and flanked to the north and south by two of the biggest economies in the world, Russia and China. However, the country has a recently discovered an abundance of natural resources that have the potential to sky-rocket its economy in the not-too-distant future. There are two mines that hold the key to economic success in Mongolia, namely Tavan Tolgoi, which has one of the largest coal deposits in the world, and the copper and gold mine, Oyu Tolgoi.

The New York Times reported that Tavan Tolgoi has enough coal to fuel China’s incredible demand for the next 50 years. In July 2011, Mongolia’s government decided to put the mine up for sale to a private corporation to boost productivity. A proposal to split ownership between a Chinese company, an American company and a Russian company was turned down. Government officials are being very careful about who will ultimately obtain ownership of the mine, as the new owner or owners will without a doubt have major political and economic influence.

The Oyu Tolgoi site was discovered in 2001 and is currently being developed by Canadian mineral exportation company Ivanhoe Mines, British-Australian mining corporation Rio Tinto and the Mongolian government. Though not expected to be fully operational until 2013, the benefits of developing the site have already started to emerge.

Ulaanbaatar, the country’s capital, located approximately an hour-and-a-half’s flight north of Oyu Tolgoi, has experienced rapid growth since the development began. Hotels are popping up all around, investment bankers fill the streets, and dozens of cranes fill up the city’s skyline. An article in The Economist projected that by 2020, the mine will account for one-third of the country’s entire GDP.

When a country begins to tap into its natural resources, the next step in the process is to figure out how to take advantage of the new wealth that comes in from the mines. Right now, Mongolia is trying to step away from its current nickname ‘Minegolia’. The government is looking for foreign investors to help expand other emerging markets in the country, specifically food, agriculture and tourism.

President Tsakhia Eldegdorj said: “The Mongolian economy mostly has one colour, and we would like to make this a rainbow economy. I have a message to our investors – don’t see our country as only mines. There are great opportunities in investing in other sectors as well.”

The opportunity for wealth in the country’s coal deposits is far and away the most attractive part of the area’s economy, but with the success of mines like Oyu Tolgoi, investors are beginning to look towards the nation’s other exports, such as gold and copper. Whoever can get a stake in Tavan Tolgoi will play an important role in shaping the emerging economy of Mongolia, a role that could lead to a lot of future wealth.

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