Australia lifts role in Mongolia

While Western financial blogs in 2012 decried the rise of Mongolian resource nationalism as well as continuing corruption in Mongolia’s mining sector, Australia, cautiously yet successfully, has maneuvered through the same environment to significantly increase its investment and political footprint.
Mongolia’s super-hot mining boom cooled down last year – 2011’s record 17.3% growth slowed to 12.3% in 2012 – because of decreasing exports to China and foreign investor concerns about restrictive tightening of its mining regulatory regime.
Nevertheless, the Economist Intelligence Unit in January predicted that the country’s economy would grow in 2013 an enviable 18.1%. In the next five years, foreign investment in Mongolia’s mineral sector is forecast to exceed US$10 billion for a country that had a GDP in 2011 of $13.4 billion.
Much of this growth is connected to Australia’s mineral investments and savvy diversification of its trade relationship with Mongolia despite facing serious hurdles in its relations with the landlocked Asian country during the past year.
In addition to fending off renewed political attacks over the terms of Australia’s largest mining investment at Oyu Tolgoi (OT), there was the very high profile detention of Australian lawyer Sarah Armstrong, counsel for Rio Tinto-controlled South Gobi Resources. Armstrong was held for several months for questioning about bribery and tax evasion. Her Christmas Day release ended a dispute that clouded the entire bilateral relationship.
Despite the establishment of diplomatic relations in 1972, both nations had only modest economic and political interest in the relationship, even though Australia has provided Mongolia with $81 million in development assistance since 1995.
Mongolia’s first president, Punsalmaagiin Ochirbat, visited Australia in 1997, yet Australia waited until 2007 to appoint an honorary consul for trade. Mongolia opened an embassy in Canberra in 2008, after Australia transferred the responsibility for Mongolia from its ambassador in Beijing to one residing in Seoul.
On March 30, 2012, an Australian Consulate-General, managed by the Australian Trade Commission, was opened in Ulaanbaatar. Bilateral trade between the countries only totaled $47.5 million in 2011-2012 (though still up from $32.9 million in 2010-2011). This is comprised mostly of Australian exports of engineering equipment, measuring instruments, oil additives, vehicle parts and other mining industry machinery.
Mongolia’s main exports to Australia are vegetables, telecommunications equipment and parts, as well as floor coverings.
The impetus for Australia’s new prominence inside Mongolia emanates from the Anglo-Australian giant Rio Tinto’s step-by-step takeover in the past three years of the OT deposit, one of the world’s largest copper and gold mines, from Canadian-owned Turquoise Hill (formerly Ivanhoe).
Commercial production and export of ore concentrate to China will begin in the second half of this year. OT’s underground copper mine is scheduled to be operational by 2016 and in full production in 2018, which then could supply about 3% of the world’s output – all destined for the Chinese market.
The significance of this one investment is seen in the fact that OT’s managing company already has paid $803 million (1 trillion Mongolian togrog) in taxes and fees to the government of Mongolia through August 2012, and OT at full production is predicted to increase Mongolia’s GDP by 30-35%.