What is the Oyu Tolgoi Copper/Silver/Gold Mine Project?

Located in the Omnogovi Aimag (province) in the Southern Gobi Desert region of Mongolia, the Oyu

Tolgoi copper/silver/gold mine is one of the largest undeveloped copper and gold deposits in the world. Estimates of the total copper and gold reserves of the mine have reached 37 million tons and 46 million ounces respectively. The Mongolian GDP is expected to increase by 30% once Oyu Tolgoi (OT) begins production, which is likely to start in the third quarter of 2012.

The mine is jointly owned by the Government of Mongolia (with 34% stake in the project) and the companies Turquoise Hill Resources (formerly Ivanhoe Mines) (Canada) and Rio Tinto (UK) (with 66% ownership). However, the International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD) have expressed interest in financing the project as a part of their strategic development plans for Mongolia, with the hopes of raising $4 billion with an assortment of other private investors.

Civil society groups, both in Mongolia and abroad, are concerned about the negative environmental and social impacts the mine will have. One NGO for example, Oyu Tolgoi Watch, was founded in March 2010 specifically to monitor compliance with international environmental and human rights standards at Oyu Tolgoi. Two fact-finding missions undertaken in 2011, one by a USAID field team and another by a coalition of CSOs (including BIC and OT Watch) found that the long-term interests of the mining companies and the traditional herders that live nearby are incompatible.

One of the most significant concerns regarding this project is water resource management. Oyu Tolgoi is located in the Gobi Desert, an arid ecosystem that is suffering the effects of increased desertification due to climate change. Mining is a notoriously water-intensive industry, and the large size of Oyu Tolgoi means that competition for water resources with the nearby nomadic herding community will be fierce. There are at least 8 other mines within a 500 km radius of Oyu Tolgoi, and all are facing water scarcity issues. The Government of Mongolia is proposing two river diversion projects to address these water limitations, but experts have claimed that these rivers may not survive the diversion.

It is unlikely that the Oyu Tolgoi project will be discontinued, as the government and private investors alike, including the World Bank Group, see mining as the future of the Mongolian economy. However, it is imperative that World Bank and Rio Tinto staff work to mitigate the number of concerns expressed by Mongolian civil society since the IFC is going to invest in this project.

Overview

Mongolia joined the World Bank and Asian Development Bank (ADB) in 1991 and the European Bank for Reconstruction and Development (EBRD) as a country of operation in 2006. The international financial institutions (IFIs) have already disbursed more than $1.2 billion combined to projects in Mongolia. As IFI interest in Mongolia’s mining sector grows, so do concerns about resulting negative social and environmental impacts.
There are more than 300 mining companies operating in Mongolia. Coal, gold, and copper account for a large percentage of their mining activities. In April 2007, Mongolia’s government signed a Memorandum of Understanding (MOU) with the World Bank, EBRD, and ADB on the development of the country’s mining sector. The MOU signals growing interest on the part of the IFIs in expanding activities in this sector. As a result, the extractive sector is a key issue to monitor.

Key Issues

The expansion of IFI financing of extractive industries in Mongolia raises several major concerns for civil society groups, including environmental risks and governance issues. BIC has urged the IFIs to adopt the best international social and environmental standards for all mining projects that they finance in Mongolia.

Extractive Industry Transparency Issues

One of BIC’s primary concerns is revenue and contract transparency. BIC and other civil society organizations have advocated that payments made by mining companies to the government be transparent and published. The Mongolian Government’s commitment to the Extractive Industries Transparency Initiative (EITI) in December 2005 is a step in the right direction, but the IFIs can do more to require that projects be transparent.
Mongolia is now an EITI candidate country, having completed its pre-validation process in 2007. The country’s first report, covering 2006, was published in January of 2008 and can be found on Mongolia’s EITI website. The report identified major inconsistencies in the types of data reported by companies and the government, as well as inaccurate information from the government’s side. However, Mongolia is one of only a few countries to publish data on a disaggregated – company by company – basis. A National Council and Multi-stakeholder Working Group, both established in 2006, monitor the EITI process, but civil society has complained of inadequate representation. The NGO Coalition for Transparency in the Extractive Industries was formed in 2006.
IFI involvement in revenue and contract transparency has come through support of EITI. In 2007, the World Bank awarded Mongolia a $304,394.00 grant for EITI assistance. In the same year, the European Bank for Reconstruction and Development (EBRD) disclosed a $45 million loan to Mongolyn Alt Corporation for expansion of its coal mining operations. This project marks the first requirement for a Mongolian mining company to comply with EITI. On June 26, the World Bank approved $9.3 million in aid to Mongolia for technical assistance in the mining sector. The project focuses on strengthening the government’s capacity to manage revenue, state equity, and the regulatory framework. Parallel funding is expected from the ADB ($1.5 million) and the EBRD ($2.3 million).

Extractive Industry Project Developments

IFI investment in Mongolia’s extractive sector has focused on large companies and immediate export, rather than developing the country’s capacity to process and add value to its resources. Illegal exports to China and South Korea also remain problematic. Recent exploration has made Mongolia’s mining sector even more important. The two largest sites, Oyu Tolgoi (copper and gold) and Tavan Tolgoi (coal), could bring in $5 billion in foreign investment, a figure double the country’s GDP. NGOs have raised concerns over the transparency and management of these deals. Mongolia is also seeking to develop its uranium mining capabilities with Russian assistance, but it is unlikely the IFIs would become involved with uranium projects.

Resources

Civil Society Analysis

A Golden Opportunity? – Unpacking the Relationship between Mongolia and the World Bank, June 2012 (BIC website, PDF)

Official Documents

Mongolia EITI Reconciliation Reports, Mongolia EITI Secretariat website
Terms of Reference of the Mongolia EITI Council, National Council, 2006 (WB website, pdf)
A Review of Environmental and Social Impacts in the Mining Sector, by World Bank, May 2006 (World Bank website, pdf)
Memorandum of Understanding between Mongolia and the World Bank Group, EBRD, and ADB, 30 Apr 2007 (pdf)

Useful Websites

Revenue Watch Institute, Mongolia country page
EITI, Mongolia country page
World Bank Group, Mongolia country page
Asian Development Bank, Mongolia country page
European Bank for Reconstruction and Development, Mongolia country page

CONCERNS

The Oyu Tolgoi project, as it is currently understood, poses serious social and environmental harms and has the potential to trigger all eight of the IFC’s Performance Standards. Transparency on the part of Oyu Tolgoi LLC and World Bank staff in Mongolia would have mitigated many of the concerns expressed below, but disclosure is an issue that has plagued this project from the start.

Long-term Development

There is the issue of Mongolian debt, which the World Bank and the IMF are supposed to monitor. The Government of Mongolia owns a 34% stake in Oyu Tolgoi (OT), which Rio Tinto estimates is a $13.2 billion investment. This has the potential to create more debt for the government than any net profit from the mine. The World Bank has also funded a variety of mining support projects through the Mining Infrastructure Investment Support Project (MINIS) and other projects, without clearly addressing sub-project coherence. We are concerned that the extensive credit the country is receiving for mining support projects is investor-interest driven and ultimately harmful to Mongolia’s development.

Lack of Transparency

IFC and Oyu Tolgoi management have been very guarded and not transparent about Oyu Tolgoi. Requests for information from OT Watch are often ignored, delayed, or answered only in part (see discussion of Undai River Diversion Project below). We had also been told since December 2011 that the Environmental and Social Impact Assessment (ESIA) would be published shortly, but the ESIA’s publication had been constantly delayed until it was finally published in August 2012. Moreover, the management plans included in the ESIA only cover the construction phase, which was over 94% completed at the time of disclosure, making the published ESIA both incomplete and retroactive.

Water Resource Management

Water Availability

Oyu Tolgoi is a huge mine with a project life of 30-60 years. Reports from Oyu Tolgoi LLC declare that there is enough water in the Gunii Hooloi aquifer to support the mine during this lifetime and that it will not affect the shallow aquifers used for community wells. The US Agency for International Development (USAID), however, found that although mining companies claim that the deep aquifers do not impact shallow wells, “if pressed, there is no proven evidence in the public domain to validate their claim.” At the 2010 Annual General Meeting, Rio Tinto CEO Tom Albanese confirmed that there is only enough water available for 5-10 year of production. A recent World Bank assessment found that “there is enough groundwater to sustain projected development in the Southern Gobi Region until 2020,” far short of the projected 60-year minimum lifespan of the mine.
Moreover, OT’s calculations regarding the sufficiency of water include only the water necessary for production and do not include water usage by the workforce, construction and other operational needs. For instance, Oyu Tolgoi is currently using bottled water for its 18,000 strong workforce, and there is documented evidence that they have begun pumping from community wells. While the IFC has indicated that OT itself is not sourcing water from Khanbogd, it does concede that some of OT’s contractors have been pumping from local wells. However, it has also stated that the ESIA will not include an analysis of the water from these sources. We are concerned that if the use of local wells by OT’s contractors is left out of the ESIA, there will be no way to quantify how much water they are using from these sources and how much water will remain to residents when the contractors are gone. Similarly, it will be impossible to guarantee that the amount of water being used “is low, temporary and will cease once construction is finished,” as argued by the IFC.
Finally, the community heavily protested the construction of the Gunii Hooloi pipeline, a 75km long pipeline built to bring water from the Gunii Hooloi deep aquifer to Oyu Tolgoi. The construction disturbed the pasture of many herding households. Moreover, the local community does not believe that the current rate of pumping (870 L/s) will not deplete this aquifer, though the company claims they will use only 20% of the water available here. The community is also afraid that OT will begin pumping water from the Galbyn Gobi aquifer, despite the company’s lack of necessary permits. The Galbyn Gobi aquifer is very close to the Gunii Hooloi aquifer and is considered crucial to the Gobi ecosystem. Major distrust regarding water scarcity exists between the company, the locals, and the Mongolian expert community.

Undai River Diversion Project

The Undai River, the sole source of surface water in the region, flows through OT property and will be diverted. However, as most of the river flow volume is subterranean, we are concerned about the chance that the river will not survive the diversion with enough water to feed springs and wells needed by the local population downstream.

Orkhon River and Kherlen River Diversion Projects

In order to provide additional water supplies to mines in the South Gobi, including Oyu Tolgoi, the Mongolian Government is working on the Orkhon-Gobi water diversion project. The World Bank is financing the $3.2 million feasibility study, even though experts have said that the Orkhon River would not survive the diversion. The World Bank is also financing a feasibility study on the Shuren Hydropower Station on the Selenge River.
These projects are likely to have severe transboundary impact issues as the Orkhon River is a key tributary to the Selenge River. The Selenge River, in turn, is the key tributary to Lake Baikal in Russia, which is protected under the UN Ramsar Convention. The government is planning a similar project with the Kherlen River, which is a key tributary to Lake Dalai in China, also a Ramsar-protected lake. The Kherlen River is also unlikely to survive the diversion.
Rio Tinto vehemently denies that it will use fresh water such as that being diverted from the Orkhon and Kherlen Rivers for production at Oyu Tolgoi. However, it is silent on the use of this water for its workforce and other operations. There is also no documentation of the availability of fresh water for the needs of the company’s operations in the South Gobi.

Biodiversity

There are several high-profile species in the South Gobi that will be impacted by the Oyu Tolgoi Project, as outlined in a 2011 USAID field mission report, including the endangered saker falcon, threatened Mongolian wild ass (khulan), near-threatened Mongolian gazelle, vulnerable goitered (black-tail) gazelle, and vulnerable houbara bustard. Linear infrastructure, such as roads and power lines, has been shown to disrupt the migratory patterns of the khulan. Fracturing of pasture from mines and roads has led to increased competition between the khulan and the herders for land and water resources, due to the insufficient size of the protected areas. The houbara bustard is also affected as it requires zero to minimal disturbance to successfully breed. The increased activities in the Gobi are easily scaring the birds off their nests, and deaths caused by collisions with power lines have been increasing.

Impacts on indigenous nomadic herders

The nomadic herders of the Gobi consider themselves to be Indigenous Peoples, as they are the carriers of ancient Mongolian nomadic traditions. The company does not recognize this, as stated in their letter to OT Watch, using as justification a statement produced by an ADB and Ministry of Transportation of Mongolia project. This statement is project specific, and, furthermore, these institutions are not authorized to make such a determination.

Loss of Livelihood and Involuntary Resettlement

The herders that CEE Bankwatch, urgewald, and Bank Information Center met during a fact-finding mission conducted last summer expressed dissatisfaction with the resettlement process, as confirmed by a USAID field report. Both missions found that 4-5 of the 11 families initially resettled have continued herding, but the rest had stopped altogether. The herders were moved to poor quality pastures and camps, and OT refused to fix the electric well pumps for two herder families that had broken within a couple of months. Under the IFC’s Performance Standard 5, displaced persons should be “offer[ed] . . . choices among feasible resettlement options”, yet one family was told they had to move from the land they’d lived on for generations regardless of whether they accepted the non-negotiable resettlement package. This package included a summer home, wooden animal shelter, costs of resettlement, a scholarship for one family member and a job with OT LLC for one family member.
The nomadic herder families are not being assessed as a livestock production unit in the relevant soum. As a business unit, the losses incurred by the herders as a result of mining activities include the loss of or reduction of infrastructure (pasture land, water wells, winter camp animal shelters and reserve pasture) and the resulting diminished quality of their agricultural products. This has led to the abandonment of the traditional culture as herding becomes more difficult and nomads lose their means of livelihood.
According to the IFC, OT has implemented many activities to assess social impacts and create a suitable compensation plan for resettled herders. Two participatory groups, namely the Compensation Working Group and the Pasture Users Group, are identified as being instrumental to the development of the Herders Livelihood Improvement Program. We have reason to believe that these consultations were generally insufficient, as most herders and other community members felt and continue to feel ill-informed about the company’s plans. In particular, community members were concerned with a potential conflict of interest with the Deputy Governor of Khanbogd serving as chair of the Compensation Working Group. The working group was also unable to exercise their right to hire outside legal and technical advisors, which would have been beneficial to the negotiation process, due to a lack of financial assistance.
OT Watch has made several requests for a draft copy of the proposed compensation package contract, as well as the methodology used in determining the amount of compensation, but the company has consistently refused. Oyu Tolgoi reports that 80 percent of the affected households have accepted and signed the contract, but reports from the field uncover that the company has used all means of persuasion. There are a dozen households who have refused to accept the terms of the compensation package and have stepped up their fight against the low compensation, as well as the issues of water and the reserve pasture at Khanbumbat.

Khanbumbat International Airport

The land taken away from the local community for the construction of this airport is the herding community’s “reserve pasture”, fertile land used by all the herders when bad weather (winter dzud or summer drought) strikes. The Undai River surfaces on this land, providing better quality vegetation and water resources. The loss of this land will affect the 300 herder households that depend on the availability of this reserve pasture, but Rio Tinto only recognizes 80 households as being directly affected. This number is based on the proximity of winter camps to the airport construction site, when it is the diminished pasture size that has immediate negative impacts on the size and quality of the families’ herds. Rio Tinto has also adopted a “compensation without relocation” strategy for those living near the airport, without a published assessment of what social and health impacts will arise from living in close proximity of the airport. According to IFC, Oyu Tolgoi is planning to conduct additional negotiations with the herders near Khanbumbat, but further information is still unavailable. Additionally, information on the ESIA for the Khanbumbat airport on the OT website is not clear. There is an ESIA for a permanent airport available in Mongolian and English, but it is for a domestic airport, not an international one.

Labor and Working Conditions

Alcohol Sales

Alcoholism is a growing problem in Mongolia, and a safety concern for workers in the extractive industries. We are concerned that the presence of a bar in the OT main camp exacerbates the abuse of alcohol among the workers. We are also concerned that the existence of the bar is a form of control on the part of Rio Tinto, as it is a way for the company to earn back wages from its workers as well as give them an excuse to fire employees at will. More importantly, the bar’s rules limiting alcohol purchases to two drinks can be easily circumvented, as patrons can leave and come back for more in the same night.
It should be noted that this bar is in violation of Mongolian law, as the Law on Combating Alcoholism prohibits the sale of alcohol at work sites and near dormitories. It is also disconcerting that the bar used to give out beer for free before obtaining its liquor license. This lax regulation of alcohol consumption puts these employees at risk of accidental injury or death on the job.

Fights and Harassment

The historical resentment between Mongolia and China has resulted in several fights between Mongolian and Chinese workers at Oyu Tolgoi. There have also been cases where female Mongolian workers at OT have been sexually harassed by Chinese workers. It would not be too much of a stretch to assume that alcohol would exacerbate these issues.

Local vs. Foreign Employees

Oyu Tolgoi Watch’s research has shown that in spite of the commitment on the part of Oyu Tolgoi LLC to hire locally, the majority of its employees have been brought in from China. Although OT’s agreement with the government obligates it to hire locally, the mine gets around this by hiring local workers and then firing them and replacing them with expats who will work for less, or by maintaining a “ghost workforce”. Oyu Tolgoi has contractual obligations regarding “local content” which applies to hires, contracting, and the purchase of goods, among other things; but there is a lack of information on whether Rio Tinto has met these obligations.

Community and worker health impacts

Due to climate change and desertification, Gobi dust storms have become a permanent fixture of the region’s weather forecasts and impact communities as far away as North America. Mining operations such as Oyu Tolgoi exacerbate the dust problem through periods of construction and the use of unpaved roads. Watering the roads to limit the dust means utilizing a large amount of the already scant resource, and the fix does not last long in the arid climate.
In Khanbogd, the closest town to the mine, there are an increasing number of cases of respiratory illnesses (such as bronchitis) brought on by the increased dust and population influx. Livestock that graze near the roads are also dying off, and according to the herders they are found with black internal organs as a result of the dust. However, the doctors in Khanbogd simply do not have the capacity to monitor or address these dust-related issues, nor are there any veterinary services to help treat ailing livestock.

Cumulative Impact and Cumulative Risk

Oyu Tolgoi is just one of many mining projects in a waterless ecosystem. The Tavan Tolgoi mine, claimed to be the world’s largest untapped coking coal deposit, is a mere 160km away from OT. Another mega-mine, the Tsagaan Suvraga copper mine, is 230km to the north. An additional five to six medium-sized mines are located within a 500km radius of Oyu Tolgoi, some of which are owned or operated by Ivanhoe subsidiaries. All of these mines will require a large amount of water for production and to support their workforces and all face water resource scarcity. Moreover, Oyu Tolgoi’s associated facilities, such as the planned coal power plant and Khanbumbat International Airport, and the population influx that will occur in the neighboring soums as a result of the mine will also impact scarce water resources. While a cumulative impact assessment was included in the published ESIA, no cumulative investment risk analysis was included.

Financing

The overall cost of the Oyu Tolgoi project is expected to be around $12 billion, and Rio Tinto has said that it needs $10 to $11 billion in financing.
The IFC and the EBRD are set to spearhead a fundraising effort with a consortium of other banks for approximately $4 billion. The co-financiers include Export Development Canada (EDC), Standard Chartered Bank, BNP Paribas, US Export Import Bank (US EXIM), and the Multilateral Investment Guarantee Agency (MIGA). The balance will come from sponsor equity, shareholder loans, and project-generated cash flows. The IFC has a target loan amount of $300 million from its own accounts, as well as a B loan program for a target amount of $600 million. The EBRD has a target loan amount of up to $400 million in Category A loans and up to $1 billion in Category B loans.
Because of the size of the project and the relative political instability in Mongolia, Oyu Tolgoi LLC is also in discussions with MIGA for a political risk guarantee. The proposed guarantee is for Standard Chartered Bank in the amount of $1 billion.

ACTIONS

On October 12, 2012, a group of Mongolian herder households filed a complaint demanding just compensation for the impacts of Rio Tinto’s Oyu Tolgoi copper and gold mine and its associated facilities. The herders’ representative Sukhgerel Dugersuren, Executive Director of the Mongolian organization OT Watch, personally delivered the herders’ complaint to Meg Taylor, the Vice President of the IFC and MIGA’s accountability mechanism, the Compliance Advisor/Ombudsman (CAO), at the World Bank’s Annual Meetings in Tokyo.
Mongolia’s nomadic herders, who have practiced their traditional lifestyle in the South Gobi desert for centuries, are finding their way of life threatened by the OT Project. Herders forced to resettle because of the Project have experienced devastating herd loss. They are also currently being coerced into accepting low levels of compensation based on their location in proximity to the OT Project, rather than the size of pasture taken away from them. According to Sukhgerel, “Rio Tinto is manipulating herders into signing biased and unfair compensation contracts, telling them that they are the only ones left yet to sign, that they will be left with nothing if they do not accept the terms as is, or even just pressuring them to sign without reading or understanding the contract.
The herders who filed the complaint are concerned that the compensation being offered does not take into account the fact that safe and undisturbed access to sufficient water and high quality pasture is essential to maintaining their herding businesses, as well as their traditional culture and way of life. The CAO determined that the complaint was eligible for assessment under the Ombudsman stage of review in early November and completed its assessment in early 2013. The company and the local herders are now beginning the process of negotiations.
The herders of Khanbogd filed a second complaint to the CAO in February 2013 regarding the diversion of the Undai River, which the herders contend will have a serious negative impacts on themselves and their livestock despite the reassurances from the company on the contrary. The Undai River is the sole source of water in the Khanbogd area, and the loss of water flow to downstream springs as a result of the diversion will pose a significant loss of ecological services to the residents and wildlife of the South Gobi. Those on the ground also say that the company does not have the proper permits to begin the diversion. The herders vehemently oppose the diversion project and are asking that the diversion be stopped permanently. The CAO found the complaint to be eligible for assessment in late February 2013.

Rio Tinto lays off 1,700 Oyu Tolgoi mine workers as dispute drags on

13/08/14 10:56 AM ET

As many as 1,700 workers at Rio Tinto Group’s US$6.6-billion Oyu Tolgoi copper and gold mine in Mongolia, where shipments began last month, have been laid off amid a financing dispute.
“This is a difficult time for everyone at Oyu Tolgoi but it is especially difficult for those who work on the underground mine,” Rio’s Oyu Tolgoi LLC said in an e-mailed statement. The layoffs are a mix of contractors and employees.
The layoffs at Oyu Tolgoi, owned by Rio and the Mongolian government, follow months of disagreement between the two sides over how to share revenue from the mine. The lack of a decision has already hurt the Mongolian economy, with foreign direct investment down 43% this year. A planned US$5.1-billion mine expansion has been delayed, Rio said in July.

“These layoffs bring a human element to it,” Dale Choi, the founder of Independent Mongolian Metals & Mining Research, said Wedensday. “These people are going to be unhappy. They might start talking about their plight to the government or the media. So it escalates the tensions.”
Rio, the world’s second-biggest mining company, controls Oyu Tolgoi through its Turquoise Hill Resources unit, which owns 66% of the mine. The government of Mongolia holds the rest. The operation employed about 13,500 people at the end of June, London-based Rio said Wednesday in an e-mailed statement.
On Aug. 12, Turquoise Hill said funding and development of the mine’s underground expansion would be delayed until “matters can be resolved with the Mongolian government and a new timetable has been agreed.”
The Oyu Tolgoi partners said Wednesday that “the shareholders are fully committed to resolving the issues so the underground development can resume.”

Rio Tinto puts Oyu Tolgoi expansion on hold as it awaits Mongolia financing

Rio Tinto has put on hold all work on an underground expansion of the Oyu Tolgoi copper mine in Mongolia after the government said parliament will need to approve financing for the project, which is expected to cost more than US$5-billion

The indefinite delay marks the latest bump in the road for the global miner at one of its biggest projects, which started exporting copper earlier in July following two last-minute hiccups in securing government approval.
“The Mongolian Parliament is currently in summer recess and the parliamentary approval process may take some time to work through,” Rio Tinto said in a statement.
The company said it remained committed to working with the government to secure the project financing.
“However, in view of the current uncertainty, including continued discussions with the government on a range of other issues, all funding and work on the underground development will be delayed until these matters are concluded and a new timetable has been agreed,” Rio Tinto said.

Oyu Tolgoi is 66% owned by Rio Tinto’s Turquoise Hill unit, and 34% owned by the Mongolian government. The government has raised concerns about the costs of the expansion project and the potential that rising costs will delay when it starts receiving its share of profit from the mine.
The expansion is designed to take production at the mine to 425,000 tonnes of copper and 460,000 ounces of gold a year.
Production at the open pit mine and export of copper concentrate is continuing

Rio Tinto’s Oyu Tolgoi mine held up by export income dispute

The Mongolian government and Rio Tinto have not yet reached an agreement on whether the miner can repatriate earnings from the $6.2 billion Oyu Tolgoi mine, the country’s mining minister said, delaying first copper shipments.
The dispute could heighten investor concerns about the risks of mining in Mongolia and threaten Rio Tinto’s plans to grow its copper portfolio to ease dependence on iron ore.
Metals traders have been closely watching whether Rio gets official approval to export concentrate from Oyu Tolgoi amid a shortfall in shipments from the Grasberg mine in Indonesia, run by Freeport McMoRan Copper & Gold.
The unlocking of ore shipments would increase supply in top copper consumer China and boost treatment and refining charges charged by smelters there.
Exports from the copper and gold mine were initially due to start on June 14, but were then postponed to June 21, before the Mongolian government told Rio to delay them again without setting a date. Uncertainty over the reasons for the delay has slashed the share price of other Mongolian miners.
Analysts had expected Rio to be able to start first shipments after elections which saw incumbent president, Tsakhia Elbegdorj, win a second term last week.
But Mongolia said it is still in talks with Rio to keep the money generated from Oyu Tolgoi in local banks and both parties also have disagreements over the disclosure of the mine’s $8 billion sales agreements.
“The delay caused is because the OT LLC (Oyu Tolgoi) didn’t seek approval from its Mongolian board on the sales agreements,” Mongolia’s Mining Minister Davaajav Gankhuyag said, according to a transcript of a June 28 press conference published on news portal business-mongolia.com.
“Secondly, OT LLC is putting the sales income into offshore accounts. We asked them if they are not going to show us the agreements, they must process its transactions through Mongolia-based banks,” the minister added.
It was not immediately clear how the two parties plan to sort out their differences.
Mongolian government officials could not be reached for comment. An Oyu Tolgoi spokesman in Mongolia and a Rio Tinto spokesman in Melbourne were not immediately available to comment.
Sources with knowledge of the matter say the 2009 investment agreement for Oyu Tolgoi allows Rio to choose where funds are kept.
Rio Tinto, operator of the mine, owns a 66 percent stake in the mine through its subsidiary Turquoise Hill Resources Ltd , while the Mongolian government owns the remainder.
Copper accounted for 13 percent of Rio’s revenues for the half-year ended December 2012, while iron ore made up 46 percent, according to Thomson Reuters data.
President Elbegdorj has said Mongolia should have greater control of Oyu Tolgoi, which will account for almost a third of the nation’s economy once in full production.
Mongolia’s battle with Rio to keep the Oyu Tolgoi mining revenues at home comes amid a rising deficit, a weakening currency, high inflation and a gloomier outlook for commodities demand. A weaker currency could hamper its ability to pay back the $1.5 billion worth of government bonds issued last November.
For Rio and other investors, however, volatility in the Mongolian tugrik pose a major currency risk, with few hedging options.
The tugrik fell 14 percent against the dollar in 2010, before swinging back up 12 percent the following year. It was flat in 2012 and has gained 4 percent so far this year.
Moves by the government to briefly freeze bank accounts of Rio and Canada’s SouthGobi Resources have also added to investors’ jitters, analysts said.
“The government’s request that Oyu Tolgoi revenue stay in the local banking system is a non-starter, given the system’s poor credit rating,” Nick Cousyn, Chief Operating officer at BDSec, an investment bank in Mongolia, said in a note to investors.
“Furthermore, it was only a few months back when the government froze OT’s bank accounts, over a tax dispute.”
Moody’s and Standard & Poor’s both downgraded their outlooks on Mongolia to negative in April. Moody’s said in its report that the country’s banking system has high loan concentrations, weak risk-monitoring systems and regulatory framework

Rio Tinto’s Oyu Tolgoi copper mine raises water worries in Mongolia’s Gobi desert

The lump of copper ore beneath the brown scrub and sand of Mongolia’s Gobi desert is about the size of Manhattan and contains enough of the metal to meet world demand for two years.

The pirate ninja gold miners who are going to war with the world’s mining giants at Oyu Tolgoi

Mongolia is arguably experiencing the biggest gold rush of the 21st century — yet large swaths of its population remain extremely poor.
Unemployed herdsmen are among those who have turned to gold mining in an effort to eke out a living. And soaring demand for gold from neighboring China has got many locals thinking they could make a fortune.
Continue reading.

Known as Oyu Tolgoi, or Turquoise Hill, the deposit is an estimated 70 million years old, which dates it to around when dinosaurs roamed the Gobi. Fossilized remains of Velociraptors were found in the area in the 1920s, the same beasts turned into the stuff of nightmares in the movie “Jurassic Park.”
Rio Tinto Group, the world’s second-biggest mining company, now rules that desert. It’s built an airfield and clusters of swimming-pool blue buildings above the Oyu Tolgoi find. Almost 8,000 people work and live in this remote gated community of dormitories, pizza parlour, canteens, hair salon, cinema, supermarket, bars and basketball courts. Personal trainers are available in the gym.
Rio Tinto Thursday postponed Friday’s scheduled first shipment from the US$6.6-billion mine, saying it will start as soon as the government indicates support. The project, which also contains rich deposits of gold, will bring jobs, along with expectations of improved health care and education to the nation’s 2.9 million people, who live in a country three times the size of France. It’s also raising concerns about water supply in Mongolia’s most arid region.
Cashmere Goats
Oyu Tolgoi, reachable by plane or gravel road 550 kilometres (342 miles) south of the capital Ulaanbaatar, will boost Mongolia’s economy by a third, according to Rio. Gross domestic product is now about US$10-billion. A third of the population make a living from herding sheep and raising cashmere goats. More than one in four live in poverty, according to the World Bank.

Retired police officer Luvsantseden Dashzeveg, 76, sells leather boots, carpets, riding whips and rope to herders from a store in a glass-fronted mall in the town of Dalanzadgad, about 210 kilometers west of the mine. It’s the capital of Omnogovi province, home to Oyu Tolgoi and its copper and gold reserves, the world’s fifth-largest.
The discovery has drastically changed the 82-year-old town, Dashzeveg said. The population was 20,375 in February, up 51% in less than three years. Before the mine, Dalanzadgad had one attraction: a jump-off point to the Flaming Cliffs where fossilized dinosaurs were discovered.
Ancient Lake
“Yes, it’s true that Oyu Tolgoi helps us,” Dashzeveg said. “They pay high salaries. Their money’s what built the new homes here.” Then the conversation turned to water supply for a mine in the middle of the desert.
Rio Tinto’s Oyu Tolgoi LLC unit will use 696 litres of water a second to process ore into copper concentrate for delivery by road to China — a truck every nine minutes, 24 hours a day.
Rio found water 40 kilometres from the mine site in what it called an “ancient” aquifer 400 meters below ground and measuring 45 kilometres by 15 kilometres, according to a company video. It holds 6.8 billion cubic meters of water and tapping it was given state approval in 2009, according to the company’s website.
The mine would consume 20% of the water in the Gunii Hooloi aquifer, which isn’t fit for human or animal consumption because of its excessive mineral and salt content, and 80% of the water used will be recycled, Oyu Tolgoi said.
“Of course, they say that everything will be fine with the water,” said Dashzeveg. “But they would say that, wouldn’t they?”

Bank Petition
The mine’s massive water needs and its overall impact on the environment has raised concerns, including at the U.S. Treasury Department, which makes recommendations to international lenders.
The Treasury said on Feb. 28 that it wants to be “recorded as abstaining on this project based on environmental policy concerns and legislative mandates.”
While the U.S. supports investment in Mongolia, the Oyu Tolgoi environmental and social impact assessment “has gaps in critically important information” related to operations and plans for mine closure, the Treasury said in a statement on its website.
In February, a group of 39 non-profit environmental groups petitioned the World Bank and the European Bank for Reconstruction and Development to withhold loans for the mine’s second stage on ecological grounds.
The Oyu Tolgoi project — 34% owned by Mongolia and the rest by Rio Tinto — is already tackling environmental extremes.
‘Complicated Deposit’
Three-hundred-ton Komatsu Ltd. trucks operate in temperatures as low as minus 40 degrees Fahrenheit (minus 40 Celsius) in winter and 120 degrees in summer, delivering thousands of tons of ore to a crusher 24 hours a day.
“The temperature can get pretty extreme here,” said Jacob Shafer, a press relations official at the site.
“We have an Astroturf football pitch, we have a lot of recreational facilities, so I think, yeah, there are plenty of options for relaxation. And this has all been set up in the middle of a desert, which I think is really impressive.”
At the mine site, geologist Rinchen Oyunchimeg is poring over the latest rock samples. Her job is to standardize ore output so that each truck load leaving the site contains a 24% to 30% copper ratio.

Tomohiro Ohsumi/BloombergA worker inspects a sample copper-gold ore rock using a loupe at the Oyu Tolgoi copper-gold mine.

After delivery to smelters in China — the border is 100 kilometres to the south — it’s refined into copper used in houses, cars, computers and mobile phones in the urbanization of the world’s most populous nation.
“It’s a very complicated deposit,” said Oyunchimeg. Oyu Tolgoi’s ore body lies deeper than most discoveries, and is 10 times the age of copper deposits in Chile, the top producer, the geologist said.
Copper for delivery in three months on the London Metal Exchange closed at US$6,960 a metric ton on June 19, down 30% from a high of US$9,885 on Feb. 28, 2011.

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Owner Disputes
How long the mine keeps running and its size depends on financing for the US$5.1-billion stage two of the mine and relations between the government and Rio Tinto. The two clashed this year over cost overruns for the mine’s first stage.
While the mine is just starting, part of the funding talks will be on how it will end in about 50 years.
Once a mine is exhausted, an operator is obliged to return earth and rocks removed from the site. Another form of waste is powdered rock known as tailings, which can contain chemicals and acids used to separate metals from ore.
Oyu Tolgoi plans to store its tailings from processing 110,000 tons of ore a day in a reservoir beyond the open pit mine. It will be clay-lined to prevent leakage of toxins that may contaminate water tables.
Tailing Dumps
Tailings sites have been known to fail. Freeport-McMoRan Copper & Gold Inc. agreed to pay US$6.8-million in 2012 to settle federal and state claims that hazardous substances escaped from tailings at its Morenci mine in Arizona.
State officials said wind and rain moved substances including sulfuric acid residue and metals from the mine. The agreement included no admission of liability by Freeport.
In Indonesia, Freeport has repeatedly sparred with the government over tailings disposal into a river near its Grasberg project, the world’s second-largest copper mine.
Back in Dalanzadgad, Dashzeveg the boot seller has a customer. He’s dressed in a brown deel, the traditional Mongolian robe, belted at the waist with a sash and worn mostly by herders or as ceremonial dress.
He ignores the colourful Mongolian boots with curved toes and picks up a plain, black knee-length leather boot, which is 70,000 tugrik (US$49) cheaper at 100,000 tugrik.
“Russian?” he asks. Dashzeveg nods.
Russia & China
Mongolia is one of the few places in the world where Made-in-Russia is still a desired brand, with trucks, juices and fish conserves among the goods imported from the northern neighbour. One reason for that is Russia is a counterbalance to the dominance of China, a former colonial ruler and now Mongolia’s biggest trading partner.

Mark Ralston/AFP/Getty Imagesew housing under construction is pictured behind traditional Mongolian tents called a "ger" or "yurt" outside Ulan Bator.

The unease between Mongolia and China is evident at the mining camp, where Chinese workers have separate living barracks, canteen, shops and entertainment. Chinese work crews mostly operate separately from Mongolians and private security guards help keep the peace.
Accommodation for other workers includes modernized versions of traditional huts used by nomads, known as gers. The VIP versions come with en-suite bathroom and flush toilets.
New Wells
Across the street from boot-seller Dashzeveg’s shop in Dalanzadgad, a two-story concrete building houses the Oyu Tolgoi Information Center.
“There is a lot of skewed views and misinformation about the project,” said Amarsaikhan Tseenzen, 57, a guide at the centre, who recalled protests in 2010 as locals and herders complained the mine was robbing resources. They worried water would be depleted and pasture land damaged.
That’s changing as the operator has reached out to local businesses and dug new wells, she said. The centre shows films about the mine and its use of water. Opinions change after visitors see the films, she said.

Tomohiro Ohsumi/BloombergA conveyer belt connecting the crusher and the concentrator stands at the Oyu Tolgoi copper-gold mine.

“People often say, ’We didn’t know this was such a big development for Mongolia. We only heard bad rumours,” she said.
Water issues are at the forefront of concerns for Sanjaasuren Oyun, Minister of Nature and Green Development. A geologist for Rio Tinto before entering politics in 1999, Oyun says her ministry will monitor wells around the mine.
“We are urging mining companies to recycle water for industrial use,” Cambridge-educated Oyun said in her office in Ulaanbaatar. “We are discussing an increase in water tariffs.” That’s to encourage more water recycling as then the companies will pay less, she said.
What may be the longer-term answer to mining in the middle of the Gobi desert is diverting water from Mongolia’s lakes and rivers in the north, she said.
‘Pretty Desperate’
The government and the World Bank are studying options to channel water from the Orkhon River to the Gobi via an aqueduct. An environmental impact study for the project will be ready by the end of 2014, Oyun said.
Climate change has hit Mongolia harder than most. While average global temperatures are up 0.7 degrees Celsius in the last 70 years, in Mongolia the increase is 2.1 degrees, Oyun said.
“Because we were pretty desperate to get the economy going, to get some income and jobs, and budget growth, we more or less overlooked environmental standards,” Oyun said of the 20-year period from 1990, when Mongolia broke away from the orbit of what was then the Soviet Union.
That’s changing, she said. “The current government has put the environment high on the agenda.”

Complaint filed to the EBRD on Oyu Tolgoi and Ukhaa Khudag mines in Mongolia

Ulaanbaatar, 04 July 2013
A group of Mongolian herders submitted today an official complaint to the Project Complaints Mechanism of the European Bank for Reconstruction and Development (EBRD), hoping to initiate a process of evaluation of the adverse impacts on their health and livelihoods of two mining projects financed by the international public lender.
The mining boom in Mongolia has raised high expectations for lifting the country’s population out of poverty, however, pastoralist communities that for generations raised their herds on top of the immense underground deposits now find their traditional lifestyle threatened with extinction.
The EBRD has approved investments for more than one billion USD in the Ukhaa Khudag coking coal mine [1], the Oyu Tolgoy copper and gold mine [2], as well as several more fuel and metal resources projects [3] in the South Gobi region that benefits from its closeness to China. Export of raw materials from these mines was meant to be done by rail, however, continuing delays with the rail project resulted in a several desert routes that fragment and spread dust over pastureland.
Therefore the PCM complaint seeks redress and compensation for the unmitigated negative impacts and damage caused by transportation of the commodities to the Chinese market. It should be mentioned that additional to export roads, a multitude of routes resulted from the construction of mine-supporting infrastructure, including water pipelines, river diversions, worker camps, airstrips, electricity transmission lines etc.
Ms Ts. Tsetsegmaa, Chair of Shuteen Gaviluut NGO, said on behalf of the group of complainants “Companies do not recognize the fact that reducing size, fracturing and contaminating pastures with dust and noise is having a negative impact on our livelihoods and health. Internal parts of animals we raise are no longer consumable due to which we lost a significant part of our traditional diet. Soon animals will completely lose their commercial value. Most herding families are forced to reduce the number of livestock bringing it down to less than the number needed for subsistence. We have nowhere to turn now.”
The grievances of the herders are a result of inadequate public consultations and impact assessments for the two projects: the Ukhaa Khudag Environmental and Social Impact Assessment (ESIA) focused on the advantages of the railroad over the road infrastructure, while the Oyu Tolgoi assessment is retroactive, lacking operational plans, and focusing on mine construction at the time when construction is almost completed and production is beginning.
Sukhgerel Dugersuren from OT Watch said “Mongolian nomads are land-based mobile people. Not recognizing their right to the pastures, which to date are regulated by customary tradition and not measuring impact on nomads’ livelihoods based on reduced, fractured, contaminated pastures by mine roads is just not acceptable, not compliant with the accepted international norms and standards set to protect land-based people. Energy Resource has a dirt-graded road, blacktop road and a planned railroad. Oyu Tolgoi has a dirt or graded and plans a blacktop and a railroad. The roads all go from north-to-south to China. All animal migratory and grazing routes go from east-to-west. Companies are not good at putting adequate passages in their roads blocking access to water and pastures for livestock and wildlife.
Richard Harkinson from London Mining Network said “The herders’ situation has been severely compromised by the lack of engagement by international public banks and mining companies with impacted and displaced communities. These mining projects will inevitably exacerbate competition for scarce water resources, massively increasing the vulnerability of already quite marginalised communities”.

RESOURCES

Updates and Press Releases

Oyu Tolgoi Project Update, September 2012
Press Release: World Bank and Others Poised to Invest in Rio Tinto’s Flawed Mongolian Mining Project, September 21, 2012
Press Release: Complaint Filed Against Destructive Oyu Tolgoi Mine Being Considered for World Bank Support, October 12, 2012
CSO letter to Dr. Kim on Oyu Tolgoi, February 11, 2013

ESIA Review and Supporting Documents

ESIA Review, December 2012
Annex 1: Review, by Robert Goodland, Independent Consultant
Annex 2: Review, by Mark Chernaik and Heidi Weiskel, ELAW
Annex 3: Review, by Jennifer Gleason, ELAW
Annex 4: Review, by Daniel Song, Biologist
Annex 5: Review of the Coal Power Plant, by Gordon Scott, Sierra Club
Oyu Tolgoi Complaint Case #1 Information, Compliance Advisor/Ombudsman
Oyu Tolgoi Complaint Case #2 Information, Compliance Advisor/Ombudsman

Pages

Thursday, August 15, 2013

What is the Oyu Tolgoi Copper/Silver/Gold Mine Project?