Oyu Tolgoi mine

History

Canadian-based Ivanhoe Mines discovered the gold-copper ore deposit in 2001 in the Gobi Desert of Mongolia. It is in an area known as Oyu Tolgoi (Mongolian for Turquoise Hill), where in the time of Genghis Khan outcropping rocks were smelted for copper. The place was suspected to have mineralization by Mongolian geologists since 1950s. By 2003 there were 18 exploration drill rigs on the property employing approximately 200 people, and Oyu Tolgoi was the "biggest mining exploration project in the world." In January 2013 Oyu Tolgoi started producing concentrate from the mine.

Description

The Oyu Tolgoi mine is in the South Gobi Desert of Mongolia, 80 kilometres (50 mi) north of Mongolia's border with the People's Republic of China, where the mined copper is expected to be shipped. Oyu Tolgoi deposits contains an estimated 2,700,000 tonnes of copper and 1.7 million ounces (48,195,000 grams) of gold. It also contains 1.9 thousand tonnes of silver and 205 thousand tonnes of molybdenum. Production began in 2013 and is scheduled to reach full capacity in 2021. Over the anticipated lifespan of the mine (>50 years), Oyu Tolgoi is scheduled to produce 430,000 tonnes (470,000 short tons) of copper per year, an amount equal to 3% of global production. Oyu Tolgoi is also expected to produce 425,000 ounces of gold annually, with "by-product silver and molybdenum". Rio Tinto intends to employ 3,000-4,000 people from Mongolia.

Mining and milling

Oyu Tolgoi will use both underground and open pit mining techniques. Initially the mine will process 70,000 tonnes of rock per day, ramping up to 85,000 tonnes from both the open pit and the underground mine (underground mining is to be done by block caving). The yield from the first phase of mining will be ground through one semi-autogenous grinding mill (SAG mill). Expansion to new underground areas will result in an additional increase of up to 140,000 tonnes per day with a possible increase to 170,000 tonnes per day.

Financing

As of 2010, the estimated cost of bringing the Oyu Tolgoi mine into production was US$4.6 billion, making it (financially) the largest project in Mongolian history; however, by 2013 costs had ballooned to $10 billion, which caused some concern for the Government of Mongolia, which borrows its 34 percent share of investment from the foreign investors with interest. The mine is said to account for more than 30% of Mongolia's GDP upon completion. In early 2010 global mining company Rio Tinto owned 22.4% of Oyu Tolgoi owner Ivanhoe Mines (now Turquoise Hill Resources), and gave both technical assistance and financial support to the project. At the time Rio Tinto had the option of increasing their stake to 46.6%. On 31 March 2010 the Government of Mongolia approved an investment agreement where they would purchase 34% of the project. In October 2010, Ivanhoe announced a new US$1 billion share offering in order to raise funds to develop this mine. Rio Tinto increased its ownership of Ivanhoe in December 2010, also assuming direct management of the design and construction of the project, however without fulfilling another aim, to achieve direct ownership of the mine.

Disagreement between the Mongolian government and Rio Tinto came to a head in 2013, with the government urging Rio Tinto to settle the US$340 million tax issue and the cost overruns from the initially planned US$5.1 billion to US$7.1 billion during the initial stage of the project. In July 2013, the shares in Turquoise Hill Resources (Rio Tinto's unit that controls 66% of the mine) dropped 20% after a dispute between Tserenbat Sedvanchig, the executive director of Erdenes Oyu Tolgoi (the state-owned company that controls the other 34%), and Rio Tinto. Sedvanchig was fired in August and replaced by Davaadorj Ganbold, a former deputy minister and member of parliament. In the meantime, Rio Tinto cut 1700 Mongolian employees from the mining operation.

Environmental impact

Rio Tinto has a bad record of environmental management and a number of its mines, including Oyu Tolgoi, are routinely criticized by prominent international environmental groups.

Oyu Tolgoi mine is located in one of the driest areas in Mongolia. Rainfall in the desert area ranges between zero and 50mm per year. It is estimated that the water demand will triple in the coming two decades mainly due to mineral exploitation in the area. Herders worry that Oyu Tolgoi is draining the region’s water supply, since it uses more than a billion gallons of water a month. In addition, there is a substantial risk of acid rock drainage from the mine, from tailings storage facilities and from any overburden or waste rock stored on the surface and not deposited back into the mine.

South Gobi is also a critical habitat for at least six endangered and threatened species found nowhere else in the world. Two protected areas are located in close proximity to Oyu Tolgoi and are included in the mine’s area of impact. In order to compensate for the loss of habitat, a biodiversity offset strategy has been released, however the NGOs are not convinced. They are stressing that company did not consider avoiding, minimizing or mitigating the damage and went directly to offsetting. They urge the company to develop a strong, detailed, long-term species conservation and habitat protection plan, including a rigorous monitoring strategy. They are of the opinion that the current mitigation strategies described in the ESIA are too general and are not based on empirical data. Consequently, the offset strategy presented by the company can be called into question.

Social impact

Mongolia's Southern and Central Zones occupy terrain traditionally used by nomadic herdsmen. Diverting already scarce water resources to mining could jeopardize their livelihoods. In harsh conditions of Gobi desert herders have a very specific way of organizing summer pasture and its rotation, access to water, hay collection and hay storage. Any changes to these unique practises hamper the livelihoods of nomads. Steel fence that surrounds the gaping mine blocks traditional herding corridors and makes it difficult for the herd animals to find water. Roads constructed by the mine owners present additional barriers to animals.

Some Mongolian herders forced to resettle because of the Oyu Tolgoi expansion have experienced herd loss. They were forced to move to inferior locations without adequate time to select spots that would protect their animals from harsh winter storms. The minimal assistance provided at the time of resettlement was not sufficient. Furthermore, they were forced to accept inadequate compensation based on their location in proximity to the mine, rather than the size of pasture taken away from them.

Economic impact

Mining in Mongolia currently contributes about a third of GDP and accounts for 89.2 percent of the country’s total exports. The numbers are expected to rise since government issued about 3,000 new mining licences. Building an economy on minerals puts country at risk of Dutch disease which is a term used to describe the relationship between the increase in the economic development of natural resources and a decline in the manufacturing sector or agriculture. Cashmere industry and agricultural sector are already feeling the side effects. Although Mongolia’s economic growth has helped to reduce poverty by more than 11 % in recent years, there is also a rising inequality in terms of income distribution. Poverty is higher in the rural areas (35.5%) compared to the urban areas (23.2%), as herders in the countryside struggle to survive as their traditional livelihood dissolves.

Corruption related issues

Gantömöriin Uyanga, an MP has announced that former PM Sanjaagiin Bayar, who signed the OT Investment Agreement with 3 of its Cabinet Members, owns 7 properties abroad on the names of his daughters, ex-wife, and girlfriend worth of several billion dollars. However, S.Bayar has approached the Independent Agency Against Corruption with request to conduct investigation upon himself. His request reads: "Recently media coverage on possible money laundering through purchase of number of real estates abroad with the sources stating that I, Bayar Sanjaa, have abused my position as Prime Minister and lobbied the approval of the Oyutolgoi Agreement. In matter of these claims I hereby request the Agency to conduct investigations upon me in accordance with the Mongolian legislation". [1] Also Sangijav Bayartsogt, the former Deputy Speaker of Parliament and one of the 3 ministers who signed the OT agreement has had his secret offshore account revealed by "The Guardian", a British Newspaper. According to the report the Deputy Speaker of Parliament, Sangijav Bayartsogt, confirmed having a secret Swiss bank account containing more than one million US dollars, in the name of an offshore entity "Legend Plus Capital Limited". The Guardian reported Bayartsogt Sangajav saying, "I shouldn"t have opened that account. I should have included the company in my declarations," to the International Consortium of Investigative Journalists (ICIJ). "I don"t worry about my reputation. I worry about my family. I probably should consider resigning from my position."[2]