Mineral-Rich Mongolia Rapidly Becoming 'Mine-golia'

Hide caption The Central Asian nation of Mongolia is undergoing vast change, thanks to a booming mining industry. A guard in Ulan Bator, the capital, surveys central Sukhbaatar Square; behind him stands a giant statue of Genghis Khan, the country's founder. Previous Next John W. Poole/NPR

Hide caption The country's mineral riches — copper, gold and coal — are bringing new wealth to Mongolia. The illuminated storefront at the bottom left is a Louis Vuitton shop in downtown Ulan Bator. Previous Next John W. Poole/NPR

Hide caption Passengers wait for trains at Ulan Bator's central station. Mongolians are flocking to the mines in search of better-paying jobs. Previous Next John W. Poole/NPR

Hide caption The mining industry is also fueling new construction. Laborers work on a construction site on the outskirts of Ulan Bator. Previous Next John W. Poole/NPR

Hide caption Oyu Tolgoi, a massive mine in Mongolia's South Gobi province, begins producing copper ore in June, 2012. Within five years, it's expected to become the world's third largest copper mine. An employee at Oyu Tolgoi — which means "Turquoise Hill" — holds up a chunk of oxidized copper. Previous Next John W. Poole/NPR

Hide caption Even while it was under construction, Oyu Tolgoi accounted for about 30 percent of Mongolia's GDP, according to mine officials. But many Mongolians are wary of how the mining explosion has begun to affect their country, where two out of every five people are herdsmen. Previous Next John W. Poole/NPR

Hide caption In South Gobi province, a local politician (right) and a herder sit inside a traditional yurt, or ger , and discuss the lack of water in the area. Herdsmen worry that mines — which require massive amounts of water to process ore — will deplete already diminishing supplies. Previous Next John W. Poole/NPR

Hide caption Most Mongolians live in gers , traditional housing that can be taken down and reassembled in under an hour. Many have solar panels and satellite dishes. Previous Next John W. Poole/NPR

Hide caption The cowboys in Mongolia — where horses were first domesticated — are considered some of the best horsemen in the world. Mongolian horses are shorter and furrier than Western versions. It's another part of traditional Mongolian life that is fading away. Previous Next John W. Poole/NPR

Hide caption For centuries, Mongolians have relied on herding for their livelihood, depending on animals such as these cashmere goats and sheep for food, fuel and income. Previous Next John W. Poole/NPR

Hide caption Mutton is a staple of the Mongolian diet. A woman buys meat from a butcher in Ulan Bator's central market. Previous Next John W. Poole/NPR

Hide caption The herdsmen's livestock also supply Mongolia's cashmere manufacturers, traditionally one of the country's main industries. At the Gobi cashmere factory in Ulan Bator, workers sort through newly arrived piles of goat fur, sorting by color and texture. Previous Next John W. Poole/NPR

Hide caption A seamstress performs delicate work on a piece of cashmere cloth at the Gobi factory. The cashmere industry is also feeling the effects of mining — as inflation has driven up the cost of raw materials, and water shortages and shrinking pastureland threaten herds. Previous Next John W. Poole/NPR

Hide caption The circular machines on the factory floor are used to make ribbed cloth and sweaters. Previous Next John W. Poole/NPR

Hide caption So-called ger villages — actually a mix of yurts and more permanent shelters — spread out onto the hills surrounding Ulan Bator. Some plots are legally purchased; others are occupied by squatters. Most residents have left lives as herders to look for jobs in Mongolia's capital. One-third of Mongolia's population lives in Ulan Bator. Previous Next John W. Poole/NPR

Hide caption A ger district resident walks the dusty streets on the outskirts of Ulan Bator. As Mongolia's mining industry continues to grow, the future of the country's traditional ways is unclear. Previous Next John W. Poole/NPR 1 of 16 i View slideshow

Mongolia, the land of Genghis Khan and nomadic herders, is in the midst of a remarkable transition. Rich in coal, gold and copper, this country of fewer than 3 million people in Central Asia is riding a mineral boom that is expected to more than double its GDP within a decade. The rapid changes simultaneously excite and unnerve many Mongolians, who hope mining can help pull many out of poverty, but worry it will ravage the environment and further erode the nation's distinctive, nomadic identity.

First of four parts

What country had the world's fastest-growing economy last year?

If you guessed China or India, you'd be wrong.

In fact, it's Mongolia: Its economy grew at more than 17 percent in 2011, according to estimates. That's nearly twice as fast as China's.

The reason — in a word — is mining.

Mongolia is rich in copper, coal and gold, and it's in the midst of a mineral boom. This marks a profound change for a country where two out of every five people make their living herding livestock. Extractive industry has become so pervasive, some Mongolians now refer to their homeland as "Minegolia."

For the poor, landlocked nation of fewer than 3 million people, mining represents a remarkable opportunity, but one that's also loaded with risks.

Doubling GDP In A Decade

Much of the focus these days is on Oyu Tolgoi, a mega-mine in Mongolia's South Gobi province, about 50 miles north of the Chinese border.

The mine — owned by international mining giant Rio Tinto, Canada's Ivanhoe Mines and the Mongolian government — is scheduled to produce its first copper ore in June and grow dramatically over the next five years.

Cameron McCrae, Oyu Tolgoi's Australian chief executive, estimates that the mine will be the world's third-largest copper and gold mine.

The mine is playing a substantial economic role even before it's operational, McCrae notes.

"At the moment, during construction, we probably make up 30 percent of the GDP of the country," he says.

Tuvshintugs Batdelger, who runs an economic think tank at the National University of Mongolia, says mining is helping to drive the economy of this Central Asian nation at an incredible pace.

"In the coming 10 years, average GDP growth will be 12 percent," he says. Even when you factor in inflation, "GDP in real terms more than doubles in 10 years' time."

Opportunity In The Gobi

Mining's impacts are visible throughout much of Mongolia, which is wedged between China and Russia and is nearly the size of Alaska. Hummers roll past the Louis Vuitton store and columned Soviet facades in Ulan Bator, the capital. Thousands of young Mongolians have moved to the middle of the Gobi to work at Oyu Tolgoi, which means "Turquoise Hill" in Mongolian, a name that's derived from the color copper turns when exposed to oxygen.

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The mining camp, a mix of prefab housing and gers, or yurts, feels like a cross between a boomtown and a college fraternity.

The Mongolian workers are mostly in their 20s. At a recent birthday celebration, they sing Mongolian pop songs at the camp bar.

Solongo Namjil is a self-described country girl from the Mongolian steppe. The 22-year-old came to Oyu Tolgoi six months ago to work as a clerk and sees the mine as a crucial opportunity for her country.

"Every Mongolian here is doing their best for this project, which is enormous to Mongolia's future," she says between sips of beer. "We all understand the significance of the project. We do hope that every Mongolian can benefit."

But Solongo — Mongolians go by their first names — worries about mining's broader impact, particularly in South Gobi province, and on the thousands of herders who live there. Many are struggling with water-supply issues, and the mines need huge amounts to operate.

"I'm really concerned about that," she says, "that there won't be enough water for our children and children's children."

Avoiding 'Dutch Disease'

Building an economy on minerals presents other problems as well. For one thing, the economy becomes dependent on commodity prices that fluctuate. When the price of copper crashed in late 2008 during the global financial crisis, Mongolia's government had to call in the International Monetary Fund for help.

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When prices for natural resources are high, they can cause other problems and strangle important domestic industries. Heavy demand drives up the value of a country's currency, which makes its exports more expensive and harder to sell.

Rogier van den Brink of the World Bank says that's what happened after the Netherlands discovered huge natural gas reserves in late 1959. The syndrome became known as "Dutch Disease." Van den Brink, who is Dutch himself, remembers the damage.

"As a boy growing up in Holland, the impact of this was very stark to me," he says. "Sectors of the economy that we long had pride in, like the shipbuilding industry, we had to close them down."

Today, van den Brink is the World Bank's lead economist in the East Asia and Pacific region. He has worked closely with the Mongolian government to enact a law to enforce government savings and control spending and borrowing so it might avoid what happened in the Netherlands.

Threat To Traditional Industry

Landlocked Mongolia doesn't build ships, but it has other businesses that the mining boom could hurt. The Gobi cashmere company in Ulan Bator is already feeling the side effects. The firm turns raw cashmere from Mongolian goats into sweaters, jackets and shawls, and exports them to more than 40 countries.

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Mongolia's new mineral wealth drove inflation to more than 12 percent last year, forcing Gobi to raise workers' wages by one-third. Naranbaatar Davva, the company's 30-year-old chief operating officer, says raw material prices are up, too.

"Three years ago, we used to buy 3 kilograms of raw cashmere for $20," he says. "Today, this figure is $60."

Higher prices are good for Mongolian herders, but they cut into Gobi's profits. Naranbaatar says a special government policy is also undermining herders' incentive to work. This year — an election year — the government is giving citizens up to $770 each in one-time cash payments. It's essentially a mining dividend and, for many Mongolians, a lot of money.

"Livestock herding is almost a 16-hour-a-day job. It's a hard job, so you don't see many young herders anymore," he says. "Plus, the government gives out free cash."

Naranbaatar says mining brings many benefits to Mongolia. He just hopes people don't lose sight of an old, reliable industry like his.

"Mining resources are not renewable. Depending on the reserves, it may last 20, 50 or 100 years," he says. "If we use the right policies and preserve our nomadic herding traditions, many people will be employed in the Mongolian cashmere industry for hundreds and thousands of years."

Question Of Distributing The Wealth

Back at the bar at Oyu Tolgoi, it's closing time. Workers pour outside and continue to drink beneath street lights.

Many Mongolians worry that mineral companies and politicians will be the greatest beneficiaries of the mining boom. Solongo, the clerk, hopes some of her nation's new riches are used to improve the hard lives many Mongolians face.

"There is lots of poverty in Mongolia, almost 40 percent, which is unbelievable with this natural resource," she says. "We should find the right way to distribute the benefit of this resource to everyone. They deserve it."