Anti-Mining and ESG
From hero to villain and back
Most mining executives agree that Robert Friedland was one of the best promoters of Mongolia. Huge crowds would gather to hear his talks at PDAC. “Friedland put a banner on Mongolia,” said Bayar Baatar, principal consultant at Baatar Consulting, based out of Toronto.
And yet, the talented speaker made a costly blunder when, addressing an investor audience, he failed to see he had another auditor, the Mongolian population: During a pitch in the US, Friedland made comments about the Mongolian mine being a "cash machine," with 95% margins. He continued: "People near your mining project are a real nightmare (…) The nice thing about this, there's no people around, there's no NGOs.”
These comments, though pleasing to investors, reached the ears and stung the hearts of Mongolians. The speech became famous; Friedland turned into “toxic Bob,” a nickname already circulating in the media after an incident outside of Mongolia, and many locals can still recite the most incendiary parts of the speech.
This article is not about Friedland, because is the industry itself that briefly turned into the villain. Friedland proclaimed at the Mongolian Mining Week 2023 that the country had wasted a decade: The OT could have been built 10 years earlier had it not been for all the time spent on discussions – an allusion made to the disagreements between the project developers and the government. But the root of the delay goes deeper than the altercation itself, to the anti-mining feeling that was brewing in the country and which eventually escalated from sentiment to policy, with radical implications.
Descendants of one of the largest empires that ever was, Mongolians are a proud people and it is easy to see why Friedland’s speech offended them; they are also well-educated, with one of the highest literacy rates in the world (99%), and many have worked or studied abroad. At the same time, Mongolians have a unique relationship with land and nature, as one of the last large nomadic populations remaining. Although the numbers are dropping, 27% of households still earn a living from livestock herding, according to the International Herders Organization. Mining contradicts the traditional way of life, where the freedom of roaming without any fence and the respect for nature is most valued. The population in the Gobi worried about the impact of mining on the scarce water supply. People were already uneasy about the price to be paid for “Minegolia,” and Friedland’s words added wood to the fire, making Mongolians feel as if they were robbed of their resources.
Anti-mining feeling became a fever, with protests and disputes between local communities and mining companies erupting around the country. Its people were calling for Mongolia to gain more control of the OT mine. This was picked up by politicians, taking a nationalistic turn. In the 2012 elections, 25% of seats were won by politicians rallying against foreign mine ownership, and a resource nationalist was put in power as the minister of mining. A new law prohibiting mining and exploration close to waters led to the revocation of many mining licenses, including a key portion at the OT. Eventually, the government was asking for a bigger share of the OT, which sparked a huge dispute. In 2013, RioTinto reached a stand off with the government over the payment of royalties, which delayed the project by two years.
Today, backlash from the locals has eased, partly due to the industry itself carving a better name for itself, but also due to shifts in the Mongolian population, which is very young, with a median age of 27 years old, and more urban. If previous generations moved to Ulaanbaatar (UB) out of necessity but held very close ties to their native aimags (provinces), the new generation is born in UB, learns English, and sees opportunity in mining. In rural areas, local disputes are not uncommon, and voters tend to be more susceptible to populist anti-mining rhetoric. “More than half of Mongolia’s voters come from rural areas where a lack of adequate information and misleading discourses have made mining vastly unpopular. To appease the electorate, some leaders take a negative stance towards mining. In simple words, if they say, ‘mining is bad,’ it is likely they will get more votes,” commented Tsolmon Gonchig, CEO and co-founder of Trigteq, a consultancy and technology distributor in Ulaanbaatar.
Politically, the establishment seems aligned in its ambition to develop the industry. A clear sign of that was the participation of all relevant leaders at the Mongolia Mining Week in 2023. Ironically, after many years of not coming to Mongolia, in 2023 Friedland was awarded the Order of the Polar Star, the highest honor for a foreign citizen. Friedland finally received his credit and his hero status is restituted.
How to do better
At the core of the negative perception of the industry is that many people, especially those living in the countryside, did not directly see the benefits of mining. In a new draft of the mineral law, the government is looking to ensure that royalties go directly to the community level, rather than into the national budget. Minister of Mining and Heavy Industry Ganbaatar Jambal said the new mineral law proposes 10 to 20% of royalty contributions going into local community development. “Our view is that local communities in the vicinity of mining, at the province and soum (county) level, should benefit more compared to the rest of the population,” he said.
A good level of communication to manage expectations is also necessary. When they think of mining, people’s expectations are often influenced by the Erdenet copper mine and the city it gave rise to. Built during the Soviet times, Erdenet, the city, became the third largest in the country. But not all mining assets will have the same impact, or at least, not such a bluntly visible impact. For instance, Badrakh Energy, the local JV between French uranium company Orano and the Mongolian state-owned company Mon-Atom LLC, uses a chemical extraction technology to pump out the uranium. “Since we don’t dig holes or handle any ore, our technology can hardly be categorized as mining, leaving the landscape untouched from beginning to end. The drawback, if I may call it such, is that it is not visible like a standard open-pit operation may be, so the work we do cannot be noted from the outside. This is why we need to explain and re-explain what we do, with the help of the Mongolian authorities,” said Marc Meleard, the executive director of Badrakh.
"Local disputes against mining have been politicized, spreading the notion that mining can be harmful, all with a goal of attracting voters in typical populist and toxic rhetoric. This sentiment prevails today, though it has comparatively weakened."
Ganbaatar Jambal, Minister, Ministry of Mining and Heavy Industry
By contrast, host communities tend to see the negative impacts of mining, especially on the environment. The occurrence of dzuds, a climate disaster characterized by summer droughts and freezing winters, leaves animals without enough pasture, killing millions of them every year. According to the UN, dzuds are happening more frequently in parts of Mongolia now. “Mongolia is more vulnerable compared to other countries to the impacts of climate change because of increased desertification, water scarcity, and extreme weather conditions, all of which can be worsened by climate change,” Edward Faber, senior country economist at the Asian Development Bank, told GBR.
70% of the Mongolian territory suffers from desertification, with multiple rivers and lakes drying up, according to the UN. Artisanal miners, known as “ninja” miners because of the green bowls they carry on their backs making them resemble the comic book characters Mutant Ninja Turtles, use cyanide and mercury, poisoning rivers. Communities also worry that the use of large amounts of water by formal mining companies will further deplete the country’s available water. Regulations to mitigate the impact of mining on water are in place (the Water Law, the Environmental Impact Assessment Law (EIA), and the Water Pollution Fee Law), yet the coordination between the different regulatory bodies is sometimes missing, according to research by the German Development Institute, which noted, among others, insufficient quality control for EIAs, lack of transparency, rent-seeking behaviors hindering enforcement, and lack of financing constraining the effectiveness of inspections by lower-level public authorities.
Besides water, an equally pressing challenge is power. Positioned as the ‘climate bank for Asia’, the ADB has engaged in multiple projects to help Mongolia navigate the challenges emerging from climate change, but Faber thinks more is required on the government end to entice investment in the energy sector so that the country can meet its ambitions to reduce GHG emissions by 27.2% by 2030: “The government would like to see greater private participation in the energy sector, but to attract investors it would need to guarantee sufficient returns; that would entail that demand is high enough, which is challenging in a small market, but also require a stable regulatory environment and adequate tariffs. Right now, energy is subsidized so the sector would need to undergo some sort of reform and liberalization to draw in private investors. The ADB has financed a private solar project and there are many more opportunities for both solar and wind projects,” said Faber.
Image courtesy of Apire Mining
Indeed, much more can be done. Euro Khan invested in the largest wind farm in the country, the Sainshand Wind Park, with a capacity of 55 MW, yet it has not been paid US$170 million owed by the government for the past five years of supplying green energy to the grid, an off-putting record for other companies looking to invest in the energy scene. Oliver Schnorr, Euro Khan’s CEO, said the government did everything right from a legislative perspective, but it did not respect its contract. “The good news is that OT is taking a stronger stance on net zero and investigating the possibility of building a 250 – 300 MW combined wind and solar plant, and they are looking now for a JV partner. The fact that the elephant in the room is looking at this issue is a good sign already,” said Schnorr.
Unsurprisingly, the biggest expectations falls on OT, which seeks to set an example. OT has over 400 social investment projects, spanning from education, healthcare and infrastructure to various other initiatives. In Khanbogd, the soum (district) close to the mine, these are run through an MoU between Oyu Tolgoi, the Ministry of Construction and Urban Development as an NGO fund (the Oyu Tolgoi Catalyst Fund for Khanbogd Development). “We appreciate that our community members and civil society organizations keep us on our toes. As one of the biggest businesses in the country, we are working to bring the biggest positive impact. We will be neighbors with our host communities for the next 100 years, which means we need solid foundations,” said Deirdré Lingenfelder, the CEO of Oyu Tolgoi.
Throughout the years, OT has dealt with multiple community disputes. In 2013, a group of local herders filed a complaint concerning a river diversion that could impact their traditional livelihood, as well as the pasturelands and the water available. This resulted in a tripartite agreement between the government, the host community, and representatives from the company. “It takes time to build trust, yet it is very easy to lose it, so we make sure to proactively engage with the community on what is going well, and on what is not going well and needs improvement,” said Lingenfelder, explaining the role of the tripartite council, where representatives meet regularly to have conversations on topics that matter. “Sometimes these discussions are difficult, but we believe that open and transparent dialogue is key to reaching alignment,” she emphasized.
To mediate these difficult conversations, a neutral actor that sits in the middle of government, industry, and people, is required, according to Dagva Myagmarsuren, the CEO of QMC, a consultancy specialized in ESG matters and involved with 40% of the mining sector today. Most recently, QMC was part of the team that assessed the impact of the OT underground development on the local community. “Often, local people do not know whom to trust; they want to trust the miners, but conflicts of interest that have led them to lose that trust. They also want to trust politicians, but contradictions in the political messages leave them confused, leading to more mistrust. Needing to trust someone, they tend to trust QMC, which opens a door for dialogue between all stakeholders,” Myagmarsuren said.
Once the OT mine reaches peak production in the next five years, the country’s gross domestic product per capita will double to US$10,000, said Prime Minister Luvsannamsrain Oyun- Erdene, as reported by AFR. Because Mongolia is a small country, with only 3.3 million, developments like the OT have a widespread impact. With more developments of that scale, Mongolia could realize its early 2000s aspirations of turning into a Qatar-type of economy, with the risks that such trajectory entails. For that, it would need solid and inviting regulations, which we will discuss in the next article.
Article header image courtesy of Oyu Tolgoi