TAVAN TOLGOI, Mongolia — “All you need to mine here is a shovel,” said an awe-struck Indian investment manager as he stood behind a barrier, along with dozens of international mining industry executives and other eager investors, gazing at the immense coal pit gouged out of the rust-colored earth below.
Coal may have lured the foreigners to this stretch of the Gobi, but that is just part of the buried treasure to be found now that this nation of livestock herders has started digging in earnest. Mongolia has not only enough coal to fuel China’s huge demand for the next 50 years, but also vast troves of copper, gold, uranium and other minerals the world covets.
While Mongolia may be blessed by geology, it is cursed by geography. Landlocked between China and Russia, its three million people face a geopolitical quandary: Every path to prosperity leads through their mighty neighbors’ territory. And Moscow and Beijing intend to make Mongolia pay dearly for the privilege.
That reality is abundantly clear here at Tavan Tolgoi. Beneath the earth lies the world’s largest untapped coal deposit, only 140 miles from the Chinese border. By one measure, the most practical solution would be to work exclusively with the Chinese, since nearly all the coal will be hauled there anyway.
Mongolia, however, has other ideas. Fearing that China may gain undue political influence, the government has spent years in a diplomatic tap dance over who will get to develop an estimated 900-million-ton portion of the deposit, much of it prized coking coal essential to making steel. The two main bidders are Shenhua Energy, a Chinese state-owned enterprise, and Peabody Energy, a multinational mining giant from St. Louis. Filling out the mix are a Russian-Mongolian consortium and companies from Japan and South Korea.
Long a major donor and prime diplomatic ally, the United States is pushing hard on behalf of Peabody, and observers say the future of Mongolian-American relations hinges in large part on what happens in the final deal. China, eyeing the maneuvering by the Obama administration, is increasing the diplomatic pressure as well.
But even as the scramble for resources underscores the growing rivalry between Washington and Beijing for influence in Asia, infighting in Mongolia’s bare-knuckle democracy, expected to reach a boiling point in parliamentary elections on Thursday, has thrown into turmoil efforts to forge an international mining agreement over Tavan Tolgoi.
“We’re a small country sandwiched between two elephants,” said Puntsag Tsagaan, a presidential adviser on mining. “We can’t go to war and fight, so we have to secure our economic growth through diplomacy.”
That kind of approach, however, is a tough sell for Mongolia’s rowdy nationalists, who have grown increasingly powerful in the two decades since the country broke free from the Soviet orbit. And they have much to complain about. The taint of corruption clings to every government deal with a world power or multinational corporation. Horror stories about pastureland fouled by mining are staples of the Mongolian press, alongside tales of herders abandoning their flocks to work the mines. Most Mongolians have enjoyed little of the riches extracted from their land.
Which is why foreign ownership of their country’s mineral wealth most riles Mongolians. Many are still upset at a 2009 deal awarding Ivanhoe Mines of Canada a 66 percent share of Oyu Tolgoi, the world’s largest untapped deposit of copper and gold. Ivanhoe, whose majority owner is Rio Tinto of Australia, is hoping to open the mine next year after spending more than $4 billion on its development.
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