Yuriy HumberFeb 05, 2013 1:55 am ET (Updates with Rio mine investment in fifth paragraph.)
Feb. 5 (Bloomberg) -- Sapaar is 23 and he’s a “ninja” miner,
hauling low-quality coal from a pit in the Mongolian steppes for 12
hours a day.
Sapaar’s coal is not the steel-making variety the bigger mines
export to China, a trade that helped the economy expand a world-beating
17.3 percent in 2011. The boom brought luxury retailers such as LVMH
Moet Hennessy Louis Vuitton SA to Ulan Bator, Mongolia’s capital, to
sell $4,500 handbags. Sapaar doesn’t shop there.
As companies such as Rio Tinto Group, Mongolia’s biggest investor;
Peabody Energy Corp.; and Mitsui & Co. plan to keep the momentum
going by exporting more of the country’s $1.3 trillion trove of
resources, about a fifth of the population of 3 million are getting by
on $1.25 a day.
The explosive growth of Mongolia in just 10 years makes for a sharp
disconnect between French handbag boutiques and hand- digging coal out
of frozen rock. That’s raising warnings of public unrest and driving
controversial renegotiation of mining deals by the government to keep a
larger share of profit at home.
Rio Tinto’s $6.2 billion investment in the first phase of the Oyu
Tolgoi copper and gold mine in Mongolia is the biggest test case and
tensions are rising.
Most of Mongolia’s population are unhappy with the big mining
projects, said Dale Choi, an Ulan Bator-based associate with Origo
Partners MGL, a private equity investment firm.
“Locals don’t benefit from them directly,” Choi said. “The country
as a whole benefits, the tax revenue benefits, but the people don’t feel
it” and are getting more irate, he said.
The gold, copper and coal rush earned the nickname “Minegolia,”
made the landlocked nation China’s top supplier of coking coal, and
spawned sushi bars, $3,500-a-night hotel suites and Bayerische Motoren
Werke AG car dealerships.
Meantime, Mongolians have flocked to Ulan Bator in search of work.
About half the residents in the capital, which is home to almost 50
percent of the population, live in traditional huts known as gers
without running water, and some without power. They burn coal in stoves
for heat and cooking.
Mongolia’s President Tsakhia Elbegdorj said his country should have
more control of Rio’s Oyu Tolgoi copper and gold mine in southern
Mongolia, according to a statement on his website, referring to a
discussion in parliament on Feb. 1.
“It’s important that the government takes the Oyu Tolgoi matter into its own hands,” Elbegdorj said.
Rio Considers Halt
Rio -- which owns 66 percent of Oyu Tolgoi, the world’s biggest
copper mine under construction, and Mongolia the rest -- is considering a
temporary halt to work on the mine to protest government demands, two
people familiar with the plans said last week.
On at least two previous occasions in the last 18 months, the
government has requested Rio renegotiate the terms of Oyu Tolgoi. The
“We continue to work together with all stakeholders, including the
government of Mongolia, to bring the benefits of Oyu Tolgoi to all
parties,” Rio Tinto said yesterday in an e- mailed response to
questions. “We are now focused on first commercial production. We are on
schedule to deliver that in the first half of this year.”
Although it’s not an industrial hub, Ulan Bator “is among the
cities with the worst air quality in the world,” according to a 2011
report by the World Bank that cites pollution from the ger stoves.
The circumstances have the elements for a public revolt along the
lines of the “Arab Spring” in the Middle East, said Jack Weatherford, an
author and anthropologist who has split his life between the U.S. and
Mongolia for the last 17 years.
Property Ownership Alien
Mongolia’s broader public isn’t feeling the benefits of mining
investment, said Weatherford, a professor at Macalester College,
Minnesota, before he retired.
“People are not convinced it’s going to help the country to
develop,” as concepts such as property ownership and land exploitation
rights are literally foreign, said Weatherford, best-selling author of
“Genghis Khan and the Making of the Modern World.”
“If they themselves have no tradition of owning the land, how do
foreigners get to come in and own it?” Weatherford said. “Mongolians go
so far and then they stand up and fight.”
Protests over the results of the 2008 parliamentary elections
killed at least five people and the government invoked a four-day state
Mindful of growing public disquiet, the government has delayed a
decision on which overseas companies will develop Mongolia’s biggest
coal field. It has also proposed mining laws to give the public a
A draft of the laws released in December would give even villagers
power to block exploration by miners in their areas, according to Choi
of Origo Partners. That will make it tough for all but the largest to
operate in the country, he said.
Rio Tinto’s Oyu Tolgoi mine, due to start up this year, will
account for 30 percent of the nation’s gross domestic product once in
full production. The deal took six years to complete with Mongolia’s
The Oyu Tolgoi accord is good for Mongolia and good for Rio, Chief
Executive Officer Tom Albanese said Nov. 28, almost two months before he
quit following $14 billion of writedowns in failed deals in aluminum
Investment has been good for some Mongolians. Odjargal Jambaljamts
is chairman of Mongolian Mining Corp. and was the country’s richest man
with a net worth of $2.3 billion in 2011, according to rankings by local
publication Hero magazine.
Hero is “not accurate and not based on grounded information,” said
Mongolia Mining spokeswoman Ariunaa Baldandorj. Rich lists compiled by
U.S. media rely on facts and surveys, while local rankings are “mostly
speculative,” she said.
Former Prime Minister Batbold Sukhbaatar is fifth on Hero’s list
with $1 billion from stakes in Altai Holdings LLC, which runs hotels,
supermarkets and cashmere outlets. Number eight is current Foreign
Minister Bold Luvsanvandan with $800 million from Bodi Group, which
spans banking, real estate, media and property development.
A Ministry of Foreign Affairs and Trade spokeswoman said she
couldn’t comment on the rich-list rankings. Two phone calls made to the
mobile phone of Batbold weren’t answered. Questions e-mailed to Altai
Holdings, Bodi Group and Batbold’s personal website didn’t receive a
While Hero ranked politicians among the wealthiest, the fortunes of
some have unraveled in the last year under the administration of
Elbegdorj. Former President Nambaryn Enkhbayar was jailed for corruption
along with D. Batkhuyag, the former chairman of Mongolia’s mineral
Back at Sapaar’s pit, which is about 40-meters (131 feet) deep and
has a one-meter-diameter entrance, his partner is at the bottom
shoveling coal into 25-liter plastic containers. There’s a tug on the
rope and Sapaar winches in the haul.
The pit is one of dozens on the steppe outside of Nailakh, a town
on the outskirts of Ulan Bator where coal mining started less than a
Sapaar and his partner pick a spot, mine it every day, not stopping
for holidays or the minus 30-degree Celsius (minus 22 degrees
Fahrenheit) winter freeze, and when it’s exhausted, move on.
“Well, this is what we do,” Sapaar said, his smile revealing a
slash of white teeth against his coal-blackened shirt. “At least in
winter being down there is warm. I know it’s dangerous. There are no
Mongolia may have between 60,000 and 100,000 subsistence miners,
according to Patience Singo, manager of the Swiss state- funded SAM
project that aids the workers. The figures are from the World Bank and
government surveys, he said.
Sapaar’s coal travels 40 kilometers to Ulan Bator, where one
customer, 50-year-old librarian Ganbaatar, uses it in a stove to heat
his ger. Like many Mongolians, Ganbaatar goes by one name.
“Mongolia’s economy has grown a lot in the last few years, but it
hasn’t touched the roots of the lives of ordinary people,” Ganbaatar
said. “It benefits top business owners and politicians.”
Mongolia’s resource boom has made little difference to unemployment
figures over the last decade, according to a November report by the
International Monetary Fund. Unemployment was at 9 percent at the end of
2011, according to a World Bank report in June, based on informal labor
surveys. Government figures put it at 4.4 percent in March 2012.
In 2011 the number of people living in poverty shrunk to 30 percent
from 40 percent the prior year, but that was mainly due to state cash
handouts, the IMF said.
Life & Death
After a string of mine accidents a few years ago, the pits where
Sapaar digs were closed by the authorities, which drove up coal prices
in the capital, said Singo at the SAM project. The authorities soon
allowed mining to resume.
Sapaar’s coal output doesn’t register in Mongolia’s gross domestic
product, yet to ger dwellers like Ganbaatar in Ulan Bator, it’s the
difference between life and a freezing death as annual temperatures
average below zero degrees Celsius, the world’s coldest for a capital
cluster of five-star hotels and the all-glass Blue Sky Tower on the edge
of Ulan Bator’s central square suggest the city is setting its sights
on becoming the next Asian business hub in the mold of Hong Kong or
An office block and mall with boutiques selling Montblanc, Ermenegildo
Zegna, and Hugo Boss has opened opposite the Mongolian Stock Exchange
and close to the government palace.
The transformation is all in central Ulan Bator, said Weatherford.
“Today, it’s the island of Ulan Bator down here and then there’s
Mongolia,” Weatherford said. The growing wealth gap adds to potential
for public unrest, he said.
“Mongolians have completely overthrown the past and wiped out the
elite,” Weatherford said. “These things have happened before.”
In the 1930s, when under Soviet rule and acting on Kremlin
instructions, Mongolia’s Communists sought out descendants of Genghis
Khan and executed them, with the final purges cutting the population by
about 10 percent, Weatherford said.
“This country idolizes Khan,” he said. “Yet they killed every one of his descendants.”
Mongolia’s transformation into a democracy starting in 1990 from a
Soviet satellite state began a period when those who understood mining
and business could build fortunes.
In 1990 there were about 450 cars in Mongolia, Weatherford said.
Now, Ulan Bator alone adds 35,000 vehicles each year, the local
government said in a February 2012 report. The city may have more than
210,000 cars, according to official estimates.
On weekends, Ganbaatar the librarian says he watches black SUVs
zoom by on the road through his district, No. 16. The road leads to an
area known as the valley of the villas where the new rich go for rest
The road’s two crumbling, potholed lanes intersect newly painted
facades of roadside buildings, beyond which the district is made up of
gers and wooden huts.
“This is a main road and everyone uses it, but it doesn’t get
fixed,” Ganbaatar said. “I look at them and think: ‘If you can’t fix the
main road, you’re never going to fix the side streets and beyond.’”
When it rains in Ganbaatar’s district, roads between the nomad huts
turn to mud. There is no garbage collection, no sewage treatment, and
no hot water, he said.
The air pollution in Ulan Bator from coal-burning stoves causes
respiratory and cardiovascular diseases and annual associated health
costs have reached $727 million, according to the World Bank. Mongolia’s
economy is worth about $10 billion.
Mortality rates from pollution in ger districts are as much as 45
percent higher than if the air quality met national standards, according
to the bank. Ambient annual average particulate matter in the city is
six to seven times higher than World Health Organization standards and
is worse than in China, the bank said.
The World Bank started the Ulan Bator Clean Air Project to
distribute more efficient, clean burning stoves to ger families.
Ganbaatar said he threw his new stove away because it didn’t properly
burn the coal he buys.
In the town of Nailakh near the ninja mines, pensioner Puruvdorj,
73, sits on a bench in a tree-lined alley opposite the statue of
communist-era workers’ hero D. Davaajav.
Dressed in a navy blue track suit, slippers and playing with his
granddaughter, his sunglasses give him a look like Roy Orbison with a
Rivers of Alcohol
Puruvdorj says he’s lost faith in government because he’s seen no
improvement in Nailakh over the last 10 years no matter who was in
power. The town, where most make a living in subsistence mining, needs
new equipment as the coal reserves close to the surface are being
Instead, the government sends cash handouts, which has only encouraged more bars and karaoke parlors, he said.
“There are rivers of alcohol, but no real development.”
Subsistence mining in Mongolia is a job of last resort, said
Michael Priester, who’s been involved in the country for seven years as
head of mineral resources at Projekt-Consult GmbH, a German corporate
and government advisory business.
When extreme cold in the early 2000s killed off livestock, many
herders either moved to Ulan Bator to find work or took up shovels to
dig for coal, gold, and other minerals, he said.
“It’s for people who don’t have other economic opportunities,”
Priester said. Subsistence mining is practiced in Africa, South America,
and other places and may involve as many as 10 million to 13 million
people globally, far more than the professional mining industry, he
Mongolia’s subsistence miners got the nickname “ninja” in the early
2000s. The gold miners carried blue-green plastic washpans slung across
their backs and looked like the Teenage Mutant Ninja Turtles characters
in the movie, Priester said.
Ninja miners outnumber those working in large mines two-to- one and
operate in 18 of Mongolia’s 21 provinces, the United Nations said in a
June 2012 report. Given that they spend their earnings locally and
support their families, they are estimated to support 13 percent of the
national population, the UN said.
In rural Mongolia, subsistence miners account for a fifth of the
economy, earning an average of $176 a month, or 57 percent more than the
country’s minimum wage, according to the UN.
Still, ninja mining is a one-way street that doesn’t lead to better
jobs with bigger companies that rely on machinery for mining, Singo, a
mining engineer and a Zimbabwe native, said.
“Most of them don’t have the necessary skills to switch over,” he said.
Developing an industrial economy is problematic in other ways. The
ideas of land ownership and exploitation of what lies beneath it are new
concepts in Mongolian culture, according to anthropologist Weatherford.
So is selling those commodities to China, a neighbor many Mongolians
openly dislike, he said.
The issue came to a head in April last year when state-run Aluminum
Corp. of China Ltd. offered to buy Mongolia’s coal producer SouthGobi
Resources Ltd. from Ivanhoe Mines Ltd., a Canadian entity now under Rio
“They were just shocked how a foreign country can own something in
Mongolia and then without asking the Mongolian people can sell it to
another foreign country,” Weatherford said. “In this case, because it
was a Chinese corporation, it just heightened it.”
What the China bid succeeded in doing was uniting rival lawmakers
in Mongolia to draw up and pass in two months the Strategic Entities
Foreign Investment Law, which scuttled the takeover. Aluminum Corp. gave
up on the bid in September.
In June 2012 elections, the public voted in the Democratic Party on
policies that included a fairer distribution of wealth, ousting former
communists now known as the Mongolian People’s Party.
“Our party’s goal is to enable every citizen to take part in
economic development,” Foreign Minister Bold said in an interview in
Tokyo on Oct. 2.
The Democratic Party wants shares of state companies that own
Mongolia’s main mineral deposits to be distributed to all citizens, Bold
Mongolians become owners of their land and resources, there will be
motivation in supporting the country’s industrial and mining
development, and with it foreign investors, Bold said. “It’ll change
--With assistance from Elisabeth Behrmann in Sydney and Michael Kohn in Singapore. Editors: Peter Langan, Todd White