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The challenging birth of a Mongolian copper mine Add to ...

So how hard is it to construct a giant copper mine in the middle of the Gobi Desert?

Standing in a ger near the Oyu Tolgoi copper-gold mine, a former president of Mongolia had an answer. “Oyu Tolgoi has had a very difficult time getting started, like an elephant giving birth,” said former president N. Bagabandi. “It had to go through a lot of challenges to get to today’s success.”

Mr. Bagabandi made the remarks at a dinner party held in the traditional herder’s tent, which was attended by Jan du Plessis, chairman of Rio Tinto. Rio owns an indirect 32-per-cent holding in the mine through its stake in Ivanhoe Mines Ltd. , owner of 66 per cent of Oyu Tolgoi.

At first blush, the dinner, hosted in the Big Ger entertainment complex built by Ivanhoe chairman Robert Friedland, appeared to be just another chance for the two sides to toast each other.

But behind the scenes, the elephant giving birth has been more challenging than anyone had anticipated. The day before, Mongolia’s mining minister D. Zorigt had mailed a letter requesting discussions with Ivanhoe and Rio over the time frame under which the government could raise its stake in the mine from 34 per cent to 50 per cent.

The politics behind the mining minister’s request are worth scrutinizing because they will set the tone for other developments in Mongolia’s mining sector in the coming months.

Mongolia’s general elections are set for next June. Mr. Zorigt and Prime Minister S. Batbold – who both oversaw the signing of the Oyu Tolgoi agreement in 2009 – belong to the majority party, the Mongolian People’s Party, which is in a coalition government with a smaller but more powerful rival the Democratic Party.

Mr. Batbold and Mr. Zorigt have seen their political fortunes waning steadily this year, as support for them within their own party has eroded and other party members jockey for position. The MPP is particularly nervous ahead of next year because of the emergence of a powerful former prime minister, N. Enkhbayar, who has re-entered politics.

In a bizarre turn of events Mr. Enkhbayar has registered his new political party as the Mongolian People’s Revolutionary Party, the old name for the majority Mongolian People’s Party. The MPP is concerned the name confusion will cost them votes.

The erosion of support for Mr. Batbold and Mr. Zorigt is serious enough that sources in Ulan Bator believe Mr. Zorigt will not last until the end of the year in his current position. The attacks against him have been going all year – most recently in May when Parliament discussed a motion to dismiss him – and the Oyu Tolgoi agreement is always one of the arrows in the arsenal. The possibility that Mr. Batbold could get pushed out by his own party ahead of elections also can’t be ruled out, although that’s less likely.

So earlier this month, when 20 members of Parliament sent Mr. Batbold a letter asking him to reopen the investment agreement, the challenge was serious. Under Mongolian law, a minimum of 19 lawmakers out of the total 76 is required to bring a motion to the floor to dismiss the prime minister, so the signatures of 20 lawmakers was symbolically significant.

On the other side of the aisle, Democratic Party leader and Mongolian president Tsakhia Elbegdorj is increasingly powerful, and is regarded as an influential decision maker behind the development of the Tavan Tolgoi coking coal deposit, which is one of the largest in the world.

The irony of the Mongolian government’s move on Oyu Tolgoi is that in Ulan Bator people close to government usually have only nice things to say about how important the mine is for Mongolia. Quietly, people close to and within government say there is little chance the investment agreement will get changed in any significant way. If Rio and Ivanhoe can succeed in keeping the political heat off, then the birth of the elephant that is Oyu Tolgoi could still proceed on track.

 
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