The country was an impoverished satellite of the former Soviet Union during much of the past century. It still retains the Cyrillic alphabet, and many of Ulaanbaatar’s 1.3 million inhabitants live in crumbling concrete apartment buildings from the Soviet era. Others live just outside the city’s center in yurts — known locally as gers — without sewers, running water or, in most cases, electricity. Smoke from their coal fires has turned the capital into one of the world’s most polluted cities, according to a World Bank report.
With the Soviet empire crumbling in 1990, Mongolia emerged as a turbulent democracy with revolving-door governments. Because the country is a minerals exporter, its proximity to China has been a coveted asset. Oyu Tolgoi is 60 miles from the Chinese border. To best exploit that geographic advantage, though, Mongolia must upgrade its dirt roads, threadbare rail network and overloaded power grid.
Last year, it issued $1.5 billion of Chinggis bonds, named for the local spelling of Genghis, and the government plans to sell an additional $3.5 billion.
Rather than simply letting investors mine ore and ship it across the nearest border, the government plans facilities such as a copper smelter, a coal coking plant, an oil refinery and an iron pellet plant that will add value.
Mongolia is displaying newfound confidence internationally. In 2003, it sent 120 soldiers to support U.S. troops in Baghdad — a city the Mongol hordes sacked in 1258. It has small peacekeeping missions in Afghanistan and South Sudan. For now, though, Elbegdorj is consumed by domestic politics. A presidential election is due in June, and he’s betting that playing hardball with mining companies will be a vote winner.
He may be right. Out in the Gobi Desert, near where Rio Tinto’s miners are digging for copper in shafts 4,300 feet underground, Aimtan Ulam-Badrakh, 54, stands stoically beside his isolated yurt watching his 300 sheep and 10 camels graze on tufts of brown grass.
At first glance, it’s a way of life unchanged since the days of Genghis Khan. Step inside the yurt, however, and a different story unfolds. The stocky herdsman can afford a leather couch, a television and a computer. An iPhone 4 lies on a bed — one of three mobile devices his family shares. His wife works part time at the airport built for the miners. His daughter teaches English at a local school, having learned the language while on a scholarship in Malaysia sponsored by Rio Tinto’s local unit. Along with other desert dwellers, the family has been further enriched by as much as $11,000 in compensation paid by the mining company for the disruption its project has caused.
Ulam-Badrakh says that he is glad Oyu Tolgoi is being developed but that he also has reservations. “Foreigners cannot just dig up the land, take away our wealth and leave us with a big hole in the ground,” he says. “It has to be beneficial for foreigners and the Mongolian people.”
The full version of this Bloomberg Markets article appears in the magazine’s May issue.