"Minegolia"

What country had the world's fastest-growing economy last year? it's Mongolia: Its economy grew at more than 17 percent in 2011. Twice as fast as China's. The reason - mining. Tuvshintugs Batdelger, who runs an economic think tank at the National University of Mongolia, says mining is helping to drive the economy of this Central Asian nation at an incredible pace. "In the coming 10 years, average GDP growth will be 12 percent," he says. Even when you factor in inflation, "GDP in real terms more than doubles in 10 years' time.

Mongolia is rich in copper, coal and gold, and it's in the midst of a mineral boom. This marks a profound change for a country where two out of every five people make their living herding livestock. Extractive industry has become so pervasive, some Mongolians now refer to their homeland as "Minegolia."

Oyu Tolgoi, a mega-mine in Mongolia's South Gobi province is owned by international mining giant Rio Tinto, Canada's Ivanhoe Mines and the Mongolian government — is scheduled to produce its first copper ore in June and grow dramatically over the next five years. Cameron McCrae, Oyu Tolgoi's Australian chief executive, estimates that the mine will be the world's third-largest copper and gold mine. The mine is playing a substantial economic role even before it's operational, McCrae notes. "At the moment, during construction, we probably make up 30 percent of the GDP of the country," he says.

Foreign investors have long coveted Mongolia's largely untapped mineral reserves, which have been valued at about $1.3 trillion, banker Macquarie says, even though just 27 percent of the country has been geologically mapped. Its coal and copper deposits are among the biggest in the world, and southern neighbour China is a guaranteed market.

Mongolia's bid to discredit one of its most popular opposition politicians, a staunch supporter of resource nationalism, could backfire and strengthen his party in approaching elections, putting at risk mining investments in the central Asian nation. Former president Nambar Enkhbayar wants to renegotiate a landmark 2009 deal that gave 66 percent of the huge Oyu Tolgoi copper project to Canada's Ivanhoe Mines, and also says the 7.5-billion tonne Tavan Tolgoi coal mine - expected to be listed on overseas stock exchanges next year - should remain in Mongolian hands. Enkhbayar leads the Mongolia People's Revolutionary Party (MPRP), a breakaway faction of the ruling Mongolia People's Party (MPP). He is the father figure for resource nationalism. Foreign investors were already alarmed by a bid by vote-hungry rebel lawmakers to pass a law to ensure majority state ownership in strategic sectors such as mining and banking.  "I genuinely see it as electioneering and jostling by the candidates," said Eric Zurrin, chief executive of Resource Investment Capital, a fund with interests in Mongolia but Zurrin said stability would return once votes are counted. "Naturally foreign investors are cautious but this is exactly what we saw in Peru last year prior to the election, which then calmed substantially after a new government was brought in."

The law to limit foreign investment, passed in diluted form on Thursday, was submitted by a group of rebel backbenchers who were also behind a much-criticised windfall tax imposed in 2006 and repealed in 2009. "This law was not submitted because it is important for Mongolia - it's because election time is coming and they need to be loved and need to be liked," said Sambuu Demberel, head of the Mongolian National Chamber of Commerce

There are, however,  more series worries about mining's broader impact, particularly in South Gobi province, and on the thousands of herders who live there. Many are struggling with water-supply issues, and the mines need huge amounts to operate.

"I'm really concerned about that,"  Solongo Namjil says, "that there won't be enough water for our children and children's children."

And then there is the resource curse.  When prices for natural resources are high, they can cause other problems and strangle important domestic industries. Heavy demand drives up the value of a country's currency, which makes its exports more expensive and harder to sell. The Gobi cashmere company in Ulan Bator is already feeling the side effects. The firm turns raw cashmere from Mongolian goats into sweaters, jackets and shawls, and exports them to more than 40 countries. Mongolia's new mineral wealth drove inflation to more than 12 percent last year, forcing Gobi to raise workers' wages by one-third. Naranbaatar Davva, the company's 30-year-old chief operating officer, says raw material prices are up, too. "Three years ago, we used to buy 3 kilograms of raw cashmere for $20," he says. "Today, this figure is $60. Mining resources are not renewable. Depending on the reserves, it may last 20, 50 or 100 years," he says. "If we use the right policies and preserve our nomadic herding traditions, many people will be employed in the Mongolian cashmere industry for hundreds and thousands of years."

"There is lots of poverty in Mongolia, almost 40 percent, which is unbelievable with this natural resource," Solongo Namjil explains "We should find the right way to distribute the benefit of this resource to everyone. They deserve it."

Source
Source 2