Mongolia's economic extremes stir anger

Sapaar is 23 and he's a "ninja" miner, hauling low-quality coal from a pit in the Mongolian steppes for 12 hours a day.

Sapaar's coal is not the steelmaking variety the bigger mines export to China, a trade that helped the economy expand a world-beating 17.3 per cent in 2011. The boom brought luxury retailers such as Louis Vuitton to Ulan Bator, Mongolia's capital, to sell $4,500 handbags. Sapaar doesn't shop there.

As companies such as Rio Tinto Group, Mongolia's biggest investor; Peabody Energy Corp.; and Mitsui & Co. plan to keep the momentum going by exporting more of the country's $1.3 trillion trove of resources, about a fifth of the population of three million are getting by on $1.25 a day.

The explosive growth of Mongolia in just 10 years makes for a sharp disconnect between French handbag boutiques and hand-digging coal out of frozen rock. That's raising warnings of public unrest and driving controversial renegotiation of mining deals by the government to keep a larger share of profit at home.

Rio Tinto's $6.2 billion investment in the first phase of the Oyu Tolgoi copper and gold mine in Mongolia is the biggest test case and tensions are rising.

Most of Mongolia's people are unhappy with the big mining projects, said Dale Choi, an Ulan Bator-based associate with Origo Partners MGL, a private equity investment firm.

"Locals don't benefit from them directly," Choi said. "The country as a whole benefits, the tax revenue benefits, but the people don't feel it" and are getting more irate, he said.

The gold, copper and coal rush earned the nickname "Minegolia," made the landlocked nation China's top supplier of coking coal, and spawned sushi bars, $3,500-a-night hotel suites and BMW dealerships.

Meantime, Mongolians have flocked to Ulan Bator in search of work. About half the residents in the capital, which is home to almost 50 per cent of the population, live in traditional huts known as gers without running water, and some without power. They burn coal in stoves for heat and cooking.

Mongolia's President Tsakhia Elbegdorj said his country should have more control of Rio's Oyu Tol-goi copper and gold mine in southern Mongolia, according to a statement on his website, referring to a discussion in parliament on Feb. 1.

"It's important that the government takes the Oyu Tolgoi matter into its own hands," Elbegdorj said.

Rio - which owns 66 per cent of Oyu Tolgoi, the world's biggest copper mine under construction, and Mongolia the rest - is considering a temporary halt to work on the mine to protest government demands, two people familiar with the plans said last week.

On at least two previous occasions in the last 18 months, the government has requested Rio renegotiate the terms of Oyu Tolgoi. The mining giant refused.

"We continue to work together with all stakeholders, including the government of Mongolia, to bring the benefits of Oyu Tolgoi to all parties," Rio Tinto said. "We are now focused on first commercial production. We are on schedule to deliver that in the first half of this year."

Although it's not an industrial hub, Ulan Bator "is among the cities with the worst air quality in the world," according to a 2011 report by the World Bank.

The circumstances have the elements for a public revolt along the lines of the Arab Spring in the Middle East, said Jack Weatherford, an author and anthropologist who has split his life between the U.S. and Mongolia for the last 17 years.

Mongolia's broader public isn't feeling the benefits of mining investment, said Weatherford, a professor at Macalester College, Minnesota, before he retired.

"People are not convinced it's going to help the country to develop," as concepts such as property ownership and land exploitation rights are literally foreign, said Weatherford.

"If they themselves have no tradition of owning the land, how do foreigners get to come in and own it?" Weatherford said. "Mongolians go so far and then they stand up and fight."

Mindful of growing public disquiet, the government has delayed a decision on which overseas companies will develop Mongolia's biggest coal field. It has also proposed mining laws to give the public a broader say.

A draft of the laws released in December would give even villagers power to block exploration by miners in their areas, according to Choi of Origo Partners. That will make it tough for all but the largest to operate in the country, he said.

Oyu Tolgoi, due to start up this year, will account for 30 per cent of the nation's gross domestic product once in full production. The deal took six years to complete with Mongolia's government.

Investment has been good for some Mongolians. Odjargal Jam-baljamts is chairman of Mongolian Mining Corp., and was the country's richest man with a net worth of $2.3 billion in 2011, according to rankings by local publication Hero magazine.

Former prime minister Batbold Sukhbaatar is fifth on Hero's list with $1 billion from stakes in Altai Holdings LLC, which runs hotels, supermarkets and cashmere outlets. Number eight is current Foreign Minister Bold Luvsanvan-dan with $800 million from Bodi Group, which spans banking, real estate, media and property development.

A Ministry of Foreign Affairs and Trade spokeswoman said she couldn't comment on the rich-list rankings. While Hero ranked politicians among the wealthiest, the fortunes of some have unravelled in the last year under the administration of Elbegdorj. Former president Nambaryn Enkhbayar was jailed for corruption along with D. Batkhuyag, the former chairman of Mongolia's mineral resources authority.

Back at Sapaar's pit, which is about 40-metres deep and has a one-metre-diameter entrance, his partner is at the bottom shovelling coal into 25-litre plastic containers. There's a tug on the rope and Sapaar winches in the haul.

The pit is one of dozens on the steppe outside of Nailakh, a town on the outskirts of Ulan Bator where coal mining started less than a century ago.

Sapaar and his partner pick a spot, mine it every day, not stopping for holidays or the minus -30 C winter freeze, and when it's exhausted, move on.

"Well, this is what we do," Sa-paar said. "At least in winter being down there is warm. I know it's dangerous. There are no other jobs."

Mongolia may have between 60,000 and 100,000 subsistence miners, according to Patience Singo, manager of the Swiss state-funded SAM project that aids the workers. The figures are from the World Bank and government surveys, he said.

In rural Mongolia, subsistence miners account for a fifth of the economy, earning an average of $176 a month, or 57 per cent more than the country's minimum wage, according to the UN.

Still, ninja mining is a one-way street that doesn't lead to better jobs with bigger companies that rely on machinery for mining, Sin-go, a mining engineer and a Zimbabwe native, said.

"Most of them don't have the necessary skills to switch over," he said.

"Mongolia's economy has grown a lot in the last few years, but it hasn't touched the roots of the lives of ordinary people," Ganbaa-tar said. "It benefits top business owners and politicians."

In 2011 the number of people living in poverty shrunk to 30 per cent from 40 per cent the prior year, but that was mainly due to state cash handouts, the IMF said.

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