Sunday, September 1, 2013

Is Rio Tinto mocking Mongolia?

Rio Tinto Group is a British-Australian multinational  metals and mining corporation with headquarters in London, United Kingdom  and  a management office in Melbourne, Australia.  Founded in 1873.
As of August 30, 2013, the stock price $45.11 ( NYSE)
Rio Tinto's unit Turquoise Hill Resources LTD.  operates a copper-gold mine in Mongolia's Gobi region, a huge project with two stages. Oyutolgoi is the name of the mine (or the location), given by the locals due to its rich appearances of a mineral called "malachite. "Oyu" is the Mongolian word for  malachite, a stone (mineral) of green color, used  as both an ornamental stone and as a gemstone.  Malachite presence is typically associated with copper deposits, and so was this  mine discovered, not far from the border of Mongolia and China. "Tolgoi" is the Mongolian word for "hill". So the name "Oyutolgoi" would be translated as "Malachite Hill".

Mongolian style hat looks good on Robert Friedland
Discovered  by the well-known adventurer Robert Friedland , also famous as "Toxic Bob", back in 2001, Oyutolgoi is one of the top copper-gold  deposits in the world. Now with 66% owned by Turquoise Hill Resources (THR), the first phase of this mine was completed and  the export of copper and gold concentrate has started already.  The second stage is going to be carried out  underground where 80% of the treasure is waiting to be  extracted. Rio Tinto has frozen its underground expansion work, phase 2, and laid off 1700 Mongolian workers, an act many explain as a pressure by Rio Tinto to make the Mongolian Government accept  the terms related to the financing of the underground expansion of the mine.
According to one of the three Mongolian board  directors , Tsagaan Puntsag, who is planning to resign soon, the project financing conditions for the second stage of the mine must be  unacceptable for Mongolia.

There seem to be other issues both parties, Rio Tinto and Mongolia, could not be agreed on  yet, like royalty dispute, tax  and cost overruns. With that higher costs, Rio Tinto will exceed the amount of overall cost in the end, and that would be a violation of the agreement signed by both sides. It must be a reasonable explanation about  how and why the costs run so high but  Rio Tinto seems to be very reluctant to be cooperative or open to its partner. Mongolia, as 34% owner of the mine, has also a point of view  to be considered, and it is unacceptable if Rio Tinto wants to force an unacceptable condition to be accepted by the "host" country.

Tsagaan Puntsag
Rio Tinto may have had successful outcomes, using this kind of strategies in various  countries earlier with regards to  mining businesses, but we Mongols are a nation too proud to be depressed.  Disrespecting others causes people to disrespect you, right?  Let's see what Mr.Tsagaan said in his interview recently.
As mentioned above, he said that there are unacceptable conditions included in the options of financing for the second phase of mining. He also said  that Rio Tinto plays the role of double-faced partner. They (Rio Tinto) seem to pretend to be an honest and fair partner to Mongolia, saying they care about this joint business and being successful for both sides, but at the same time don't bother to send a wrong message out there saying that Mongolia is the "bad guy" with whom nobody should do business with. What the hell?!

That is Rio Tinto 's strategy:  to scare away any potential foreign investors and be the only guy Mongolia has to have a "sex" with, because Mongolia has no other choice! A mining of this kind of huge capacity and investment is crucial to Mongolia's economy ( it is a question of up and down) and that is why Mongolian government should be forced to accept any terms and conditions Rio is pushing. I don't think Mr.Tsagaan is lying, and  why should he?  He said that is why we should play the same game with Rio. That's right!
He even compared Rio with somebody  who went fishing with Mongolia on the same  boat and  while trying to gain a favorable situation like using a bigger fishnet or disturbing  his partner's  effort to catch a fish by slapping his hand, he manages  badmouthing  his partner (Mongolia)  to the other "fishermen" passing by in their boats. If the situation between Rio and Mongolia looks just like Mr.Tsagaan has described, then is there any good reason why we should do business further with this company?

Both parties should stick to the agreement they signed, and any changes must be  consensus based.   Now it seems like Rio wants to "rape" Mongolia against its will, and that is not fair. "Consensus sex"  is OK! Mocking Mongolia and treating it as if forcing a  child to do something, will lead to nothing but  turning the Mongolian people against itself and  hurting its reputation. We say yes  for going forward  with  this project as long as it is fair and profitable for both sides. But if Rio thinks that they  can use a  pressure by shutting down the project or laying off thousands of workers by suspending operations halfway, to force Mongolia to agree on that for Mongolia unfavorable situation, they are mistaken. Oyutolgoi is not our only life, you know what I am saying?  We have and will have many "Oyutolgois". We can go on with our lives  as if Oyutolgoi didn't exist. With or without it, we are going to be just fine.

Oyutolgoi mine (Gobi, Mongolia)
At the reporter's question what Rio is up to, Mr.Tsagaan answered that she should ask Rio about it. But he added that Rio wouldn't answer it anyway even if asked. He said, he wouldn't blame  Rio playing   chess on two tables at the same time in order to increase its share from the underground  part of the mine, but he is frustrated that Rio damages Mongolia's image and reputation by doing so. With its tactics, Rio Tinto is also contributing to the fact that  foreign investors are scared away. So, how fair is that? Is this the way to conduct business by this company, I would like to ask.
Everything has a limit. Even the  greed should have a limit. If Rio insists on waiting until the Mongolian government officials give up, they won't be able to open the underground part of Oyutolgoi mine, never, because we won't tolerate any condition which would be unacceptable for us. Fairness should be the rule of our game.

So, Rio has two choices: Either be  respectful and fair  and do the business acceptable by both sides, or give up everything and go home. They can sell their share to others, but again, whoever be the successor, our demand stays the same. It might look like that  today Mongolia suffers more from Rio's suspension of  the underground part of the project, but in the long run the Rio might be the one who hurts more, Mr.Tsagaan said.  And he was right when he says, "Let's go ahead and work on some other  bigger projects, pretending that Oyutolgoi's underground mining didn't exist". I couldn't agree more. Oyutolgoi is indeed not the only "cow" we have to milk.   Now everything  depends on whether Rio Tinto wants to change  its attitude, or continue being stubborn to  ruin the project. We don't have anything to lose if things go wrong and as Mr.Tsagaan says, Rio will lose if both sides go to court.  Now speak up, Rio!


  1. It's actually the other way around. Mongolia has two choices: one to end business with rio and suffer two keep doing business with rio. Mongolia is not like Japan or France - they can't even build power plants on their own skill but have to rely on foreign companies. Mongolia can't survive without China if they can't sell their coals because Mongolia is a landlocked country sandwiched between Russia and China who are superpowers. Every direction to Mongolia's prosperity is based on how Mongolia handle those two countries. TIme is different now Mongolians can't conquer the world with horses and ponies. Russia and China has one of the highest numbers of nuclear weapons. Mongolia, with only 3 million people bordering countries with 1.3 billion people and over 100 millioni people up north, don't have much choices.

    1. Well, don't get too heated..
      Mongolia and Mongolian people are hard working and good but the ONLY problem is Mongolian POLITICIANS WHO MAKES ALL THE DECISIONS. And all the decisions that make are for their own personal benefit. That's why Mongolian people are suffering.
      There are two kind of Mongolians - poor Mongolians who live in poor Ger districts and Super Rich who basically gets all the wealth.
      There are professionals and people who really want to work for the country however the politicians ruin everything at the end.
      It's like good and hardworking chefs prepare a very delicious meal but the owner of the restaurant all of the sudden tells them to throw them out - why? because they don't like it because it does not benefit their personal interests.
      For instance, S.Batbold, he's a billionaire - how? through massive corruption and filthy business practices. At once I went to an investment meeting in new york and he was like, 'in mongolia you can own 100% of any company and there are no laws restricting movement of funds'. Battushig Batbold, his son worked on Morgan Stanley when prime minister Batbold was dealing with mining issues. Of course Battushig did not get in there without his father aka Prime Minister Batbold's help. I do know Batbold's family a bit and their kids and his wife live a lavish life. Really lavish life. They have half a billion apartment in Chicago and an expensive houses on Knightsbridge, England. On the other hand, you see this 50 or 60% of Ulaanbaatar's population live in Ger districts and they are very poor. This is reality of Mongolia today. Another problem is that citizens mostly poorly educated on politics makes wrong decisions and they only care about 'government payouts' and 'protect mongolian land' without really knowing how economy works. The government and politicians use that and they don't want the majority of Mongolian people to know it and they want the majority of mongolian population to be 'stupid' so they get re-elected

  2. To continue from last comment so the main problem is MONGOLIAN POLITICIANS.
    I can't blame them enough. They say stuff like 'oh mongolia will not end up like Africa' but it will, eventually, if those corrupt politicians continue to rule the country and only making decisions that benefit their own self-interest.
    It is sad....because literally, every mongolian citizen can be a millionaire due to the amount of natural resources and low population but those dam politicians as well as corrupt businessmen (e.g. Batbold) the country's still poor.
    The bottom line - BUSINESSMEN cannot rule a country and business and politics should be two separate things should the country be prosperous.