Rags to riches in Mongolia

Vast projects are taking place as the mining discoveries keep on coming. The country is on the brink of turning from one of the poorest to one of the richest countries.

Upscale communities are being built in Mongolia as wealth is generated from mining exports.
Powered by automated translation

About half of Mongolia's population still live in tents known as yurts, and make their living from herding animals.

But this landlocked nation's fabulous reserves of gold and copper mean it is on the brink of transformation, from one of the world's poorest countries to among the richest.

There are not too many capital cities where you can still see a nomadic herdsman pull up on horseback, in full traditional costume, at the traffic lights not far from the country's parliament and within sight of a Louis Vuitton boutique.

Mongol horsemen conquered large regions wearing this traditional garb, but even in Ulan Bator the beloved steed is giving way to the 4x4.

"Mongolia is awakening. The industry is about to take off. We are just starting out to help the Mongolians find what they've got," says Robert Wrixon, the managing director of Haranga Resources, one of the scores of companies rushing to the capital that people tend to refer to as UB. Prada and Ermenegildo Zegna stores are located nearby.

What vast projects are taking place here.

The Oyu Tolgoi (which translates as Turquoise Hill) copper mine is the world's largest mining exploration development. It is bigger than Florida. When this mine is finished in a year or two, it will account for more than 30 per cent of the country's GDP.

Its neighbour in the Gobi Desert, Tavan Tolgoi, is the world's second-largest coal deposit. Coal production doubled to 25 million tonnes to become Mongolia's top export last year, putting pressure on the government to speed up Tavan Tolgoi's development.

The western and central part of Tavan Tolgoi hold more than 1 billion tonnes of coal.

The problem is finding enough qualified locals to staff the mines.

The new finds keep on coming. Robert Friedland's Ivanhoe Mines announced last month it had discovered a new shallow copper, molybdenum and gold zone about 10km north of Oyu Tolgoi.

The new discovery known as Ulaan Khud North is within an exploration area that is a part of Ivanhoe's joint venture with the giant Anglo-Australian mining company BHP Billiton.

Ivanhoe believes this near-surface discovery may be part of a much larger deposit.

Mongolia's resources remain largely untapped, according to data from the investment bank ResCap, and in industries such as oil it is particularly under-explored.

"The population is small so it relies on resources and there is a lot of exploration still to be done," says Mr Wrixon. "We have acquired some good-looking iron-ore projects.

"Now it is the summer, so the next six months will be drilling and exploring. Then we delineate a mine plan and then we try to get it to the market."

Haranga raised US$25 million (Dh91.8m) when it listed on the Australian Securities Exchange in December, which gives it a war chest for funding acquisitions.

"The price for iron ore has gone up six or sevenfold in the last few years. Chinese steel mills are predominantly built on domestic iron ore. Mongolian iron ore needs to be exported. Coal is more or less the same story," says Mr Wrixon.

The resource boom spills over into all areas of life. The Ulan Bator bourse is in a pretty pink building on the city's main square, founded by a descendant of Genghis Khan.

Formerly a children's theatre, it is the world's smallest stock exchange, but also the fastest growing, and the London Stock Exchange has just signed a partnership to take advantage of enormous international interest.

Mongolia is the size of western Europe but has a small population of about 3 million, giving it the world's lowest population density — 1.7 people per square km.

While Ulan Bator has the dubious distinction of being the world's coldest capital, mining accounts for 81 per cent of exports, 32 per cent of government revenue and 30 per cent of GDP, a share that is likely to increase dramatically.

All over the city there are references to Temujin, the warrior who united the fractious tribes in 1206 and became known as Genghis Khan. He and his successors conquered most of Asia and Russia.

But the tribes' power ebbed and by 1691 the Manchus, founders of China's Qing Dynasty, conquered Mongolia, and the Chinese still refer to Mongolia as Outer Mongolia.

Mongolia was a province of China until 1911, and again from 1919 to 1921, and a strong dislike of the Chinese linyurts in the country.

However, the Mongolians have been forced to bury this resentment because China is set to be the country's prime customer for selling resources and is Mongolia's largest trading partner.

"The resources have to go to China, despite historical antipathies. Mongolia is happy to sell China commodities but is less comfortable about China having majority stakes in resource projects," says Mr Wrixon.

The Russians came next, and after the collapse of the Soviet Union, Mongolia had a political revolution in early 1990 and has remained one of the region's more solid democracies since.

Edward Rochette was for many years the Mongolia representative for Ivanhoe, and says he negotiated with BHP Billiton to sell its rights in Oyu Tolgoi to Ivanhoe for $5m.

Now Oyu Tolgoi is valued as the world's third-biggest copper mine.

"This is a frontier town. The positives are that the government is good — the prime minister, Sukhbaataryn Batbold, is a professional businessman — and commodity prices don't look like they will crater," says Mr Rochette, a larger than life American who has worked in 56 countries.

"This frontier town is very positive and it's the place to be. The other day I even read a headline asking if Africa was the New Mongolia.

"The Mongolian government is trying very hard to make things work. The overseas Mongolians are coming back. They make one tenth of what they were making in Chicago or wherever they were before, but they come back anyway."

The country also has one of the highest literacy rates in Asia.

"These are educable, trainable people. And as for the next stage, the outlook is very positive, and there will be more focus on mining services and infrastructure," says Mr Rochette.

He points out how the number of cars has risen dramatically. Today there are 150,000 cars on the streets; 10 years ago there were 10,000.