Mongolia: Mountains of resources but no way to move them

Mongolia currently is working to pass legislation to loosen China’s grip on their natural resources. However critics are debating whether this geo-political decision will have a negative economic impact since China’s proximity and financial resources makes them an obvious purchaser of their commodities. Mongolia is exploring options to cultivate the resources themselves or be forced to cut deals with Russia, Japan, South Korea or inevitably China. The Asia Times reports:

“Despite democracy, despite free markets, what has kept Mongolia from recapitulating the experience of Kosovo as a failure for Western nation-building, indeed what is setting the nation on a pace to become the fastest-growing economy in the world, is the fortuitous existence of a trillion dollars’ worth of minerals beneath the under-populated surface of the country, and the insatiable appetite of a gigantic, capital-rich authoritarian neighbor, China, for these treasures.

In Mongolia today, hunger for coal, copper, gold and uranium wealth is at odds with democracy as the demands of international resource giants collide with a stubborn political culture of resource nationalism.

In time for the June 2012 parliamentary elections, Mongolia’s grand khural is expected to pass a law subjecting the purchase by “state-owned entities” of controlling interest in strategic Mongolian mining enterprises to government approval (as well as a host of other key industries).

The immediate provocation for the legislation was the sale by a Canadian company, Ivanhoe Resources, of its controlling interest in SouthGobi, an operator of coal mines in Mongolia, to a Chinese resource giant, the Aluminum Company of China, known as Chalco.

The legislation overtly targets China. Vice Finance Minister Ganhuyag Chuluun Hutagt told Bloomberg that the country needed new investment laws to diversity its exports to countries other than China, which consumes a lion’s share of Mongolia’s coal and copper:

‘We don’t want to be faced with one sovereign … Our struggle to get political freedom was a long one and we cherish that. We will not let foreign government-owned entities control strategic assets in Mongolia.’

This is not an unambiguous win for non-Chinese international resource companies.

After all, there are two ways to make money from ownership of a mining concession. One is to engage in the arduous, expensive, long-term and risky enterprise of operating the mine. Another is to sell it.”

Continue to the full article…