Tuesday, September 2, 2008

Canadian miners see bright future in Mongolia

OYU TOLGOI, Mongolia (AFP) — At a remote outpost in the Gobi Desert, hundreds of kilometres from any paved road, Keith Marshall is poring over satellite images, geological surveys and sheets of statistics, literally mapping out Mongolia's economic future.

Working out of a wind-lashed military-style tent dubbed the "Weather Haven", the British engineer is laying the groundwork for what he says will be one of the biggest copper mines in the world.

Oyu Tolgoi, or Turquoise Hill, will have the capacity to churn out a million tonnes of copper each year, as well as gold, a potentially big boost to this impoverished country's economy, which still relies heavily on Soviet-era infrastructure and donor aid money.

Sandwiched between Russia and China, Mongolia has a population of just 2.7 million people spread over an area more than double the size of France. The average salary is just 200 dollars a month.

"Oyu Tolgoi is going to bring dividends to the Mongolian people for four or five generations to come," said Marshall, managing director of Ivanhoe Mines Mongolia, the Canadian company that owns the exploration license for the site.

Shafts will be sunk to 1,300 metres (4,200 feet) and a two-kilometre (1.2-mile) wide pit will be excavated.

The copper concentrate will be shipped to neighbouring China and eventually find its way into cell phones, laptop computers and cars around the world.

But Oyu Tolgoi has been the subject of much controversy and has yet to win final government approval, with the issue stirring vigorous debate from nomad camps in the Gobi to the streets of Ulan Bator and the halls of parliament.

A final contract between the government and Ivanhoe has been held up several times by angry street protests, as citizens have demanded a greater percentage of the profits.

Members of parliament have revisited the issue dozens of times but have yet to find a balance with Ivanhoe, although the protests have subsided.

In a compromise, Ivanhoe agreed to give the government a 34 percent stake in the project, which Marshall estimates will require between six and 10 billion dollars of investment to make fully operational.

The government has since indicated it wants a 51 percent share, while critics also point to other problems.

"No one in Mongolia has the experience to handle such a huge mine, not the people nor the government," said Sainkhuugiin Ganbaatar, president of the Mongolian Trade Union and onetime leader of the street protests.

"So we must not rush into a deal with a foreign mining company until we fully understand what is at stake."

Ganbaatar, regarded as a non-partisan voice in Mongolia's often intense brand of democracy, is demanding a full appraisal of the mine from an independent body that has no affiliation with Mongolia or its government.

As time passes, however, the mining company has grown increasingly restless.

"The project has reached a stage of development where we can't do much more work without an agreement. We have had to scale down operations, which means laying off workers and letting projects sit idle," said Marshall.

But investor confidence remains strong.

Rio Tinto recently bought a 9.9 percent stake in Ivanhoe Mines Ltd. and has an option to go up to 46 percent within five years after an investment agreement is signed with the Mongolian government.

Recent elections that gave the ruling Mongolia People's Revolutionary Party a clear majority in parliament following four years of an uneasy coalition have given Ivanhoe further hope that a deal can be done by the end of the year.

If work starts soon, Marshall expects to see profits start pouring in by 2013.

In the meantime, the 500 workers at Oyu Tolgoi keep the project going.

An exploratory shaft has been sunk to almost 1,400 metres and a mixed team of expatriate and Mongolian miners are now drifting laterally towards the main body of ore, nicknamed Hugo Dummett.

Hugo will keep the miners busy for 30 years or so, after which they can tap the nearby Heruga deposit, big enough to give the project another 20 years of life.

The mine is expected to employ 5,000 people, with thousands more coming to fill out of the supply chain expected to grow around the mine.

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