Will Rio Tinto's gargantuan mine be a burden or a boon for Mongolia?

The global mining giant has finally reached agreement with the Mongolian government over expansion of the vast Oyu Tolgoi mining venture. 

David Stanway/Reuters/File
Mining trucks are seen at the Oyu Tolgoi mine in Mongolia's South Gobi region on June 23, 2012.

After years of wrangling, global mining behemoth Rio Tinto and the Mongolian government have reached agreement on a $5.3 billion expansion of what is set to become the world's third-largest copper mine.

Mongolia is the most sparsely populated country on the globe, with a population of roughly 3 million, and such a colossal venture as the Oyu Tolgoi mine (translated as "Turquoise Hill") could eventually account for a third of the nation's entire economy, Reuters reports. 

For a country whose economic growth has taken a nosedive in recent years, the appeal is clear, but some sound a note of caution.

"Given the current situation, any news regarding progress of Oyu Tolgoi, Mongolia's landmark project, is good news for the economy," Chuluun Mergen, executive director of the Business Council of Mongolia, told Reuters. "Mongolian businesses are starving for stability."

Prime Minister Chimediin Saikhanbileg echoed these sentiments, saying the agreement was "a clear demonstration" that the country was "back to business."

Given the scale of the project, however, it is hardly surprising that the main point of contention has been the division of wealth between the Mongolian state, which owns a 34 percent stake in the mine, and Rio-controlled Turquoise Hill, which owns the rest.

Yet analysts also express little shock that agreement on this project – described as a "godsend" for Mongolia – has come now, with the economy sputtering to a predicted 0.8 percent growth this year, after being the world's fastest-growing economy as recently as 2011, when it was steaming ahead at a dazzling pace of about 17 percent.

"The development of the underground [area of the mine] will create further jobs, support Mongolian suppliers and unlock substantial value for all stakeholders, delivering benefits for all Mongolians for generations to come," said Prime Minister Saikhanbileg, according to The Wall Street Journal.

Indeed, signs of the change are already apparent in the capital Ulan Bator, now home to about half the population, with skyscrapers and new office developments springing up across the city, a herald of the global mining industry's impending arrival.

It makes sense that Mongolia's politicians should feel relief at this scene, given the crushing impact when Rio Tinto previously suspended initial underground operations at Oyu Tolgoi amid its dispute with the government.

Yet the economy is still at a point of vulnerability, with direct foreign investment plunging by 85 percent between 2012-2015 and Moody's Investor Services awarding the country an "External Vulnerability Indicator" of 230 percent in 2015, where anything above 100 percent indicates fragility.

"Mr Saikhanbileg, who is known as a moderniser, wants to turn this around but faces opposition from parties who are concerned that Mongolia will lose its identity and ultimately become entirely dependent on the mining industry," wrote Andrew Critchlow, The Telegraph's commodities editor, in 2015.

In an effort to bolster his position with deeper legitimacy, Saikhanbileg went so far as to send a text message to every Mongolian who owns a mobile phone, asking whether their country should welcome mining investment. About 56 percent responded affirmatively, saying they valued the assistance in raising the country from poverty.

This effort alone will be insufficient to banish all concerns over the country’s potential domination by the mining industry, derided by others as nothing more than "resource nationalism."

The nation's voters will have another chance to pass judgement in June, when parliamentary elections will almost certainly stimulate widespread discussion of this issue, to be followed in 2017 by presidential elections.

The Mongolian People's Party, former communists, will likely appeal to a sense of nationalism, highlighting what they view as excessive control by Rio Tinto, unsustainable use of the scarce water supply surrounding Oyu Tolgoi, and inadequate taxes.

Moreover, they are apt to emphasize the yoke of debt that they foresee burdening the country, which will be, in the words of MP Sodbileg Otgonbileg, "as if we own a beautiful apartment but get treated like a squatter."

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