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Mongolia|opinion & analysis|September 21, 2015 / 03:27 PM
Oyu Tolgoi as symbol of Mongolia's rise

AKIPRESS.COM - Oyu Tolgoi copper and gold In the center of Ulaanbaatar, capital of Mongolia, sleek new skyscrapers share the skyline with the concrete shells of stalled, half-built office towers, reports The Sydney Morning Herald citing Philip Wen.

The city, home to half of the country's three million people, has been transformed by an old-fashioned mining boom. The economy of Mongolia, a landlocked country wedged between Russia and China, has doubled in the space of a decade, with the young democracy's transition from a socialist command economy to a free market sparking a global rush to exploit its rich copper, coal and gold deposits beneath the earth's surface.

The biggest of Mongolia's mega-projects is the Rio Tinto-controlled Oyu Tolgoi copper-gold mine, deep in the south of the Gobi desert, 80 kilometers north of the Chinese border.

Oyu Tolgoi is already producing copper concentrate from an open-cut mine, but the true riches – 80 percent of the mine's value – are nestled a kilometer underground.

A key breakthrough in May saw Rio Tinto and the Mongolian government settle disputes over terms of the project that had seen Oyu Tolgoi's crucial underground expansion delayed for more than two years. When complete, the fully operating mine will account for as much as one-third of Mongolia's economic output.

"Without a doubt it is a huge impact and I think it does cause nervousness in [Mongolian] people in a sense," Munkhsukh Sukbaatar, Rio Tinto's country director in Mongolia, says of the project's size. "But the other part of it is that what people recognize is that it's 30 percent [of Mongolian GDP] that didn't exist before."

There is a renewed sense of anticipation after the lengthy delays. Rio Tinto expects to finalise $US4.2 billion of project finance with its consortium of banks by November, and then obtain outstanding permits.

Rio Tinto has declared Oyu Tolgoi its single best project despite steep falls in the copper price.

The underground expansion will take between five and seven years to complete and require tremendous feats of engineering.

Reaching the underground ore body will require five mine shafts each approaching 1.3 kilometers in depth.

That will provide access for workers, service carriages and heavy machinery, as well as ventilation, to set up huge underground workshops and proceed to dig around 200 kilometres of tunnels – longer than the underground network of the London tube. Regulated air will be pumped through the tunnel to help insulate against the wild climate above ground – here, it reaches 40 degrees Celsius in the summer and minus 40 degrees in the winter.

Oyu Tolgoi, though, has been symbolic of the Mongolian government's struggle to get to grips with a slumping economy heavily reliant on commodity prices and foreign investment.

Mongolia's government had promised to use its vast untapped mineral reserves to develop its tiny, landlocked economy, but flagship projects have been delayed and foreign investment deterred by political disputes and regulatory uncertainties.

Opposition parties have seized on public concerns that Mongolia will lose its identity and become overly dependent on mining. The shutdown of initial underground operations at Oyu Tolgoi had a devastating effect on Mongolia's economy.

In the first half of this year, Mongolia's gross domestic output expanded by 3 percent, compared to 8 percent in the same period last year; and a far cry from the 17.3 percent growth in 2012.

"We had booming years of very high growth around 2010, 2011," says Batsaihan Jamichoi, director and co-founder of the Mongolia Opportunities Fund, a fund aimed at institutional investors. "But starting in the second half of 2012 the economic growth has been slowing down very significantly. We are having some issues partly caused by the global commodities cycle, and partially it is home-made mistakes."

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